Because labor remuneration is an often-litigated issue in China, employers should be careful when reducing employee salaries and they should take that action only when prepared to defend it before an arbitrator or a judge. As with China-based employee terminations, the best way to proceed and avoid employment disputes will usually via a mutual agreement (in Chinese) structured as an amendment to the existing employment contract. If you as the employer can get your employee to agree in writing to a salary reduction, that will both minimize your risk of later being sued for reducing your employee’s pay and increase your chances of prevailing should such a lawsuit occur anyway.
The tricky question is whether a China employer can reduce an employee’s salary without that employee‘s prior written consent. It is possible, but how you can do it will depend on the local employment laws and to a certain extent on the local employment bureau. But even if allowed, you must do a number of things (and document them) to make this work.
China’s Labor Contract Law does not explicitly give an employer the right to unilaterally reduce an employee’s wages because the employee is not competent at his or her job. The Labor Contract Law instead speaks to employer’s being allowed to unilaterally adjust an incompetent employee’s position, provided the employer meets all local requirements in making such an adjustment. The Labor Contract Law also calls for the employer to provide 30 days written notice or an additional month’s salary in lieu of notice, if the employer can prove the employee is incompetent and remains so after training or assignment to another position. The employer may also reduce an employee’s salary in response to an employee’s breach of the employer’s rules and regulations.
The below are a few of the things employers typically (I say “typically” because they can vary depending on locale) must do for its unilateral salary decision to work.
First, the employer should make sure its employment contract gives it the right to adjust an employee’s position and remuneration. It should also make sure the employment contract has been fully executed by both parties. Our China employment lawyers recently completed a ton of employer audits and we are stunned by how many employment contracts we saw that were signed only by the employee, only by the employer, or never signed by either party. Get your employment contracts signed by both parties and retain copies of those signed employment contracts in a safe and accessible place.
The employer then needs to ensure that its Rules and Regulations set forth its salary reduction policies. Forget about unilaterally reducing one of your employee’s salaries if you do not have a China-centric set of employer rules and regulations. And just as our employer audits revealed that far too many foreign companies do not have their employment contracts in good order, they also revealed that far too many do not have their Rules and Regulations in good order either.
If you do have a proper set of Rules and Regulations that gives you the right to reduce an employee’s pay for violations of the Rules and Regulations and you can prove the employee violated your Rules and Regulations, you may be able to reduce the employee’s pay on that basis. For this to work (and even then only in some locales), your Rules and Regulations must clearly specify the Rules and Regulations breach that will lead to a salary reduction and such provisions in your Rules and Regulations must be reasonable and not violate any Chinese laws.
If you can get past all of the above hurdles, you next need records proving why the employee deserves a salary reduction. Something like written performance evaluations are usually best, and if signed as received by your employee, all the better. Make sure though your performance evaluations are in Chinese or have been translated into Chinese; do not wait until your employee brings a legal action against you before you put this into Chinese as that will not be viewed as a contemporaneous document and likely either rejected by the court or viewed as not being very credible.
Even if you satisfy all of the above requirements you still have another one: reasonableness. Was the adjustment you made for this particular employee reasonable. For example, is the new position suitable for the employee? Is the reduced pay appropriate for the adjusted position? Does it meet local minimum wage standards? Keep in mind the local differences: e.g., what is considered reasonable in Dalian may not be deemed reasonable in Beijing.
Finally, when you notify your employee of your salary reduction decision, you typically will need to provide them with an explanation that allows the employee to understand what led to your adjustment decision. You should do this in writing, in Chinese, and get that writing signed by your employee.
Reducing a China employee’s salary is like pretty much everything else employment law related in China: it’s local and not so simple, but done right, it’s possible.
