Court issues new guiding opinion on employment-related disputes

In January 2013, the Supreme People’s Court issued a long awaited Interpretation on Various Issues Concerning Application of Law in the Trial of Employment Disputes (SPC IV), which provides a certain amount of clarity on some hot-button issues, and is effective from 1 February 2013.

For example, the SPC IV provides that if an employee continues to work in the same workplace and job position, even though his or her employer has changed, the new employer shall recognise the employee’s prior years of service to the original employer when calculating the employee’s severance, unless the original employer has paid severance to the employee. Other examples for when a new employer must recognise prior years of service are also specified.

The implementation regulations of the PRC Employment Contract Law have a similar provision on this issue, but fail to provide any specific examples for when a new employer must recognise the years of service to a prior employer. Furthermore, while the implementation regulations do not limit “the recognition of the employee’s prior years of service” to severance calculation purposes only, the SPC IV in contrast only appears to focus on severance. Years of service may also be relevant for determining when an employee becomes entitled to an open-term contract. This provision may become important for intra-group employee transfers and potentially also in asset transfer deals as well, though it remains to be seen how local courts interpret the provision.