If a dismissal is determined to be illegal, how can the employer avoid reinstating the employment contract?

In American TV dramas, a typical scene is that a protagonist carried a cardboard box and walked out of office after being fired. In China, however, this protagonist may carry the box and walk back to the office. According to Article 48 of the Labor Contract Law, if an employer unlawfully rescinds or terminates an employment contract, the employee has the right to request reinstating the contract. The employer may only settle the matter by paying compensation equivalent to twice the statutory severance pay (2N) if the contract is no longer capable of being performed. But no employer would be willing to welcome such employee back to work. Therefore, to prove that the contract cannot be further performed becomes the only choice for the employer.

In judicial practice, there are four major categories of circumstances widely recognized as grounds for determining that the contract cannot be further performed:

  • Disqualification of the parties, such as, the employer goes bankrupt, the employee reaches the statutory retirement age, or the contract expires with no legal obligation for renewal.
  • The employee has a new job, which indicates the employee has no actual intention to continue performing the contract. This ground is subject to certain disputes in practice, yet the mainstream judicial stance confirms that the contract cannot be further performed.
  • The position has been abolished or replaced. This is a highly contentious ground, as courts hold varying views on whether the employer’s abolition or replacement of the position is reasonable. Additionally, if the employer offers a new position under such circumstance and the employee refuses, most courts will rule that the contract cannot be further performed.
  • Complete breakdown of mutual trust between the parties. This is the most controversial ground in judicial practice. Even in Beijing, where courts tend to uphold requests for reinstatement of the contract, judicial opinions and considerations vary from case to case. For example, in case No. (2023) Jing 01 Min Zhong No. 11628, the court held that both parties are entitled to pursue remedies via arbitration or litigation in accordance with the law, and such proceedings do not objectively render the contract unenforceable. By contrast, in case No. (2025) Jing 03 Min Zhong No. 16197, the court held that prolonged litigation and confrontation between the parties had destroyed mutual trust, so there was no foundation for continued performance of the contract.

Article 76 of the Answers to Issues Concerning the Trial of Labor Dispute Cases (I) issued by the Higher People’s Court of Beijing and the Beijing Labor and Personnel Dispute Arbitration Commission, summarizes six specific circumstances, alongside the general rule that “the parties have lost the foundation of mutual trust”. These six circumstances cover the four categories mentioned above.

Article 16 of the Judicial Interpretation (II) of the Supreme People’s Court on the Application of Law in the Trial of Labor Dispute Cases, which took effect on September 1, 2025, prescribes six circumstances under which an employment contract cannot be further performed.

No. Circumstance Analysis
1 The contract expires during arbitration or litigation, and there exists no statutory ground for renewal or extension of the contract. This is governed by Paragraph 1 of Article 44, Article 42 and Article 45 of the Labor Contract Law. It mainly applies where a labor dispute arises during the term of the initial employment contract, the contract expires amid arbitration or litigation, and none of the four circumstances requiring contract extension apply: female employees during pregnancy, maternity and lactation periods, employees under medical treatment, employees suffering from occupational diseases, or employees with work-related injuries. The essence of this provision is to respect the employer’s statutory right to decide whether to renew the contract.
2 The employee begins to receive basic pension insurance benefits in accordance with the law. This is a statutory ground for termination of employment contracts as stipulated in Paragraph 2 of Article 44 of the Labor Contract Law. It shall be noted that this rule does not apply where an employee reaches the statutory retirement age but is not yet eligible to receive pension insurance benefits.
3 The employer is declared bankrupt. This is a statutory ground for termination of employment contracts specified in Paragraph 4 of Article 44 of the Labor Contract Law. Since the employer ceases operation, there is no objective basis for maintaining the employment relationship.
4 The employer is dissolved, excluding dissolution arising from merger or division. This is a statutory ground for termination of employment contracts specified in Paragraph 5 of Article 44 of the Labor Contract Law. Notably, this circumstance adds an exception to the aforesaid provision, that is, it only applies where the employer is completely dissolved with no legal successor.
5 The employee has established an employment relationship with another employer, which seriously affects the performance of work duties for the original employer; or the employee refuses to terminate the employment relationship with the new employer after being requested by the original employer to do so. The legal basis is Paragraph 4 of Article 39 of the Labor Contract Law. This clause is highly controversial. Previously, if an employee had taken up a new job, courts would generally presume the employee had no intention to perform the original contract and rule the contract unenforceable. This new provision shifts the risks arising from the employment gap to the original employer. If the employee obtains new employment and the court orders continued performance of the original contract, the employee may choose either position. Where the employee elects to resume work for the original employer, the employer shall also make up for the employee’s wages during the employment gap.
6 Other circumstances that render the employment contract objectively unenforceable. Even if a breakdown of mutual trust between the parties may be categorized here, the assessment involves subjective discretion, leading to significant uncertainty in individual cases.

From the employer’s perspective, unilateral dismissal carries the risk of being deemed an illegal termination, which may even lead to an order to reinstate the employment relationship. Hence, employers must exercise caution throughout the entire process.

First, employers could take the following measures to minimize the risk of a ruling of unlawful termination: (1) Ensure the company’s rules and regulations have undergone due democratic procedures and that their provisions are reasonable. (2) Enforce the rules and regulations strictly on a daily basis. Many employers lose litigation cases because they adopt a lax management style in daily operations but impose harsh penalties when dismissing employees. (3) Follow all due procedural requirements for dismissal.

Second, if an employer planned to fire an employee, it shall identify and organize valid grounds and supporting evidence proving the employment contract cannot be performed in advance.