Recently, a Shanghai court released a case where an employee was held liable by the company for economic losses caused by her misconduct. The compensation standards adopted by the court in this case are noteworthy for employers.
Overview
Wang, a cashier at a property management company, was responsible for managing the payroll. After Wang left the company it was discovered that, due to an operational error, she had paid twice the salaries to a dozen project staff members in the same month, resulting in an overpayment totalling more than RMB47,000 (USD6,500).
Furthermore, since these staff had already departed due to the project’s conclusion, the company was unable to contact them or recover the overpaid salaries.
The company argued that Wang’s error in payroll processing constituted gross negligence and filed a labour lawsuit, seeking compensation for the economic loss of more than RMB47,000.
The verdict
After one adjudication and two trials, the court ultimately ordered the employee to pay only RMB2,000 in compensation to the company. The judge’s rationale for this decision was:
- China’s Labour Law does not explicitly stipulate the compensation liability for employees who cause losses to their employer due to misconduct. However, in judicial practice, it is generally believed that losses incurred by the employer due to an employee’s general misconduct shall be part of the operating risks, for which the employee is not liable for compensation.
- On the other hand, to exempt employees from any and all liabilities for misconduct may encourage negligence or even intentional sabotage at work, which would be detrimental to the employers’ operation and the broader socio-economic development. Therefore, employees should be held liable for compensation due to intentional or gross negligence.
- In this case, Wang ‘s payment of the same salaries twice to the same group of staff on the same day was clearly unreasonable and demonstrates a failure to exercise the due diligence expected of a cashier, indicating misconduct. However, the company failed to notice the payment error for a long time and did not actively pursue legal means to recover the overpaid salaries from the relevant individuals. This contributed to the losses. Therefore, the court ordered Wang to pay the company RMB2,000 in compensation.
Takeaway
- In determining the compensation standard for losses caused by employee misconduct, the court not only considers the employer’s loss but also takes into account the employee’s salary, the degree of misconduct and whether the employer has contributed to the loss. These factors are weighed to decide the compensation amount.
- Employees generally are not held liable for losses caused to the employer due to general negligence. However, for losses resulting from gross negligence, the court will assess the specific circumstances and may order the employee to bear an appropriate amount of compensation, although the proportion of compensation is usually low.
- Where the employee intentionally causes losses to the employer, theoretically, the employer can seek full compensation. However, the court will look for any deficiencies in the employer’s regulations or management errors during the process, which might warrant a reduction in the employee’s compensation liability.
- Employers can improve employee behaviour expectations and strengthen management by clearly stipulating the compensation liability for gross negligence or intentional misconduct in their regulations. This approach can also help employers secure more favourable judgments in the event of a loss.
- Employers can stipulate in the labour contract or regulations that, where a current employee causes losses due to misconduct, it may deduct a portion of the employee’s salary to cover the compensation liability. However, the monthly deduction should not exceed 20% of the employee’s monthly wage and the remaining part must not be lower than the local minimum monthly wage standard.
Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice.
You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at howard.wu@bakermckenzie.com
