Will You Bring a Labor Arbitration Against the Company’s Punishment?

During the annual performance review, Company A found Chen had brought a huge loss to the company due to his serious fault. The company warned Chen in written and penalized two months’ salaries to compensate the company’s loss, in accordance with the “Employee Handbook”. Chen brought a labor arbitration, and claimed that the punishment was improper and the company shall return the two months’ salaries.
In practice, many employers have stipulated a cumulative punishment system. For example, a total of 3 written warnings could be deemed as a serious violation of rules and regulations, and the company has the right to terminate the labor contract unilaterally. This is the reason that employees might be very sensitive to each single punishment, and even bring a labor arbitration against such punishment.
However, the five types of labor disputes set out in Article 2 of the “Labor Dispute Mediation and Arbitration Law” do not explicitly include the dispute against punishment. Then, in practice, whether the arbitration committee or court would accept such cases?
Employers have the right to manage employees at their own discretion, and one method to manage is to punish employees who have violated disciplines. Regard of this, whether the judicial authorities could interfere employers’ daily management? There is a good reference, which is the “Answers to Several Issues in the Trial of Labor Dispute Cases by Civil No.1 Court of Shanghai High People’s Court”. This document states, “where a dispute related to the punishment between the employer and employee, it shall be decided case by case. If the punishment involves economic penalties and etc., which are specific and periodic, and would not terminate or dissolve the labor contract, then it is the employer’s right to manage employees, and such cases should not be accepted as a labor dispute case. If the punishment would terminate or dissolve the labor contract, or the economic penalties might affect the basic living conditions of the employees, then such cases could be accepted as a labor dispute case.”
In view of this, we can analyze whether a dispute related to punishments would be accepted from the following 2 aspects.
Firstly, to check whether the punishment would change the status of a labor contract, such as, to amend or dissolve a labor contract and so on. If it would not bring any changes to the status of a labor contract, then normally such case would not be accepted. Although some employees might argue that each minor punishment would accumulate and finally change the status of a labor contract, from the perspective of the judicial authorities, while such accumulation might cause the dissolution or termination of a labor contract, then at that time, all the individual punishment should be reviewed on its basis and rationality. It is not necessary to interfere with each punishment, which is not only a waste of judicial resources, but also an excessive intervention in the employers’ daily management.
Secondly, to check whether the punishment might affect the basic living conditions of employees. According to the “Labor Law” and other relevant laws, regulations, judicial interpretations, where an employee has brought losses to an employer, the employee should bear the liability for compensation. While deducting the compensation from the employee’s income, the employer could deduct employee’s salary monthly, and the amount shall not affect the basic living conditions. There are 2 factors could be taken into consideration: (a) the monthly deduction should not exceed 20% of the employee’s monthly salary; (b) after deduction, the monthly rest salary shall not lower than the local minimum wage. In addition, if the economic punishment is penalties instead of compensation, then normally, such case would not be accepted by the arbitration committee.
It is worthy to be noted that employers should be very careful on every individual punishment in written, because in the case related to the dissolution or termination of a labor contract due to the accumulation of punishments, arbitration committees and courts would review each punishment. If any punishment has been found lacking of legal basis or irrationality, then labor arbitration committees or courts might decide the employer has violated the laws to dissolve and terminate the labor contract.