Can you set a promotion review period?

After an employee is promoted to a new position, he/she may adapt quickly, or underperform due to capability, mindset or other issues. Therefore, some companies set a promotion review period. If an employee fails to meet the employer’s expectations during the review period, they will be typically reverted to their original position and original compensation. Some employers may ultimately terminate the employment contract pursuant to the provisions on incompetence under the Labor Contract Law. Whether such practices are legal or illegal?

Let us analyze this layer by layer.

There are no statutory provisions governing such “review period”. Therefore, an employer may formulate internal rules or enter into agreements with employees regarding such period, in order to minimize operational disputes and litigation risks, the rules of such period must be clearly defined and reasonable.

The rules shall be clearly defined, which mainly means that the length of the period, remuneration during the period, evaluation criteria, and consequences upon failure upon the expiration of the period shall be clear and definite. The rules shall be reasonable, which mainly refers to the reasonableness of provisions when embodied in internal rules. If the rules are not reasonable, which may be deemed as invalid, in addition, such unreasonable rules may dampen employee motivation and initiative.

First, regarding the length of the period, since there are no statutory requirements, both parties may agree freely. An excessively long period will undermine employee motivation and mental stability, especially where salary increases are suspended or discounted during such period. Article 43 of the Regulations on the Selection and Appointment of Leading Party and Government Cadres sets a one-year probation period for non-elected personnel holding certain leading positions. Hence, by reference to this provision, the review period established by companies should preferably not exceed one year. Considering that promoted employees usually have several years of working experience, drawing on the provisions for employment probation, a period of 3 to 6 months is more reasonable.

Second, regarding remuneration during the review period, there are several available structures: (1) Remuneration in accordance with the salary standard for the promoted position; (2) Remuneration remains unchanged and is paid under the original position’s standard; or (3) Remuneration is paid at a discount against the promoted position’s salary scale. Each structure has its pros and cons. Scenario (1) maximizes employee motivation. However, if the employee fails the review period and reverts to the original position and salary, it often leads to a large psychological gap. In scenario (2), employees may feel aggrieved, assuming greater responsibilities without a corresponding pay rise. Scenario (3) strikes a balance between both sides, but the discount rate must be carefully considered. In addition, scenarios (2) and (3) carry the risk that employees may later claim underpayment and demand salary back pay. Nevertheless, where internal rules are valid or the agreement is clear, courts will not uphold employees’ claims. For example, in cases (2025) Yue 0113 Min Chu No. 2381 and No. 13394, the company’s employee handbook provided for a trial period upon promotion with salary adjustment effective the month after successful completion of the review period. The employee subsequently claimed back pay, which was rejected by the court.

Third, evaluation criteria during the review period should be as objective and quantifiable as possible to avoid disputes over the fairness, reasonableness and validity of evaluation results.

Fourth, rules governing outcomes upon expiry of the review period are also important. It is common to stipulate that employees who fail the review period shall return to their original positions and original remuneration. Adjusting the position and/or remuneration to a level lower than the original position carries risks of being deemed unreasonable. For instance, in case (2025) Yue 0112 Min Chu No. 15585, the company stipulated a review period after promotion, and stated that if an employee was found unsuitable or incompetent for the promoted role during the review period, the company could transfer the employee back to the original position or an equivalent role. Upon expiry of the review period, the company demoted the employee by two levels on the grounds of failing performance assessment in the following month. The salary after demotion was nearly 40% lower than pre-promotion salary, and the court ruled the demotion unlawful. As for employers seeking to terminate employment contracts during the review period based on incompetence in accordance with the relevant provisions of the Labor Contract Law, this approach generally carries high risks and is not recommended. On the one hand, the employer must prove incompetence; on the other hand, procedural prerequisites such as job transfer or training must be satisfied.

Lastly, in actual implementation, attention must be paid to procedural compliance and prudence to avoid adverse consequences arising from procedural errors. For example, in case (2026) Yue 0197 Min Chu No. 8104, the employee’s promotion had gone through the company’s complete approval process. The company later revoked the promotion on the ground of errors made when reviewing the employee’s qualifications during the approval process, and the court did not support the company’s position.