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Companies may occasionally find employees involved in a criminal case. But careful consideration is required to determine circumstances in which the labour contract can be terminated, the right timing for such termination, and alternative measures when contract termination is not justified. This article provides a reference based on the legal provisions and regional case studies.

The definitions

Article 25(4) of the Labour Law and article 39(6) of the Labour Contract Law clearly state that employers may terminate the labour contract of an employee held criminally liable. What does ¡°being held criminally liable¡± mean?

Article 29 of the Opinions on Several Issues Concerning the Implementation of the Labour Law originally defined this as being exempted from prosecution by the procuratorate, sentenced by the court, or exempted from criminal punishment under article 32 of the Criminal Law. An employer could terminate the labour contract of an employee sentenced by the court to detention or a suspended sentence of up to three years.

However, the Criminal Procedure Law later changed the prosecution exemption system to a non-prosecution system.

In accordance with the Reply from the General Office of the Ministry of Labour and Social Security on Whether Employers Can Terminate Labour Contracts Based on Non-Prosecution Decisions by the Procuratorate, effective since 2003, receiving a non-prosecution decision by the procuratorate under article 142(2) of the Criminal Procedure Law of 1996 does not fall into the category of ¡°being held criminally liable¡± as defined in article 25(4) of the Labour Law.

Therefore, when the procuratorate decides not to prosecute a suspect pursuant to article 142(2) of the Criminal Procedure Law, the suspect¡¯s employer shall not terminate the labour contract based on article 25(4) of the Labour Law.

However, if the employee is found to have committed other misconduct as specified in article 25 of the Labour Law, the employer may terminate the labour contract.

Thus, the above-mentioned reply confirms not deeming the procuratorate¡¯s discretionary non-prosecution as ¡°holding the suspect criminally liable¡±.

In other words, an employee receiving a non-prosecution decision from the procuratorate in cases of committing minor crimes shall not have their labour contract terminated on the grounds of being held criminally liable. It is therefore evident that an employer cannot immediately terminate a labour contract solely because an employee is subject to criminal investigation, or measures such as detention, arrest, bail or residential surveillance.

Termination is permissible only when a legally effective document confirms that the employee has been sentenced by a court, or found guilty but exempted from criminal punishment.

In practice, an employee¡¯s illegal or criminal offences may not warrant criminal prosecution, in which case the employer cannot terminate the labour contract on the grounds of the employee being held criminally liable. However, the employer may terminate the contract pursuant to article 39 of the Labour Contract Law citing stipulations on the employee¡¯s ¡°serious violation of company rules¡± and ¡°gross negligence and malpractice causing significant harm to the company¡¯s interests¡±.

Handling labour relations

Any criminal case, from filing for investigation to the final second-instance judgment, tends to take an exceedingly long time. During this period, handling the labour relations requires tailored measures based on the specific circumstances and stages of the case.

Article 28 of the above-mentioned opinions states: ¡°If an employee is suspected of illegal or criminal activity and is detained, held for investigation or arrested by relevant authorities, the employer may temporarily suspend the labour contract during the period in which the employee¡¯s personal freedom is restricted. ¡°In the course of contract suspension, the employer is not obligated to fulfil the terms of the labour contract. If it is later proven that the employee has been wrongfully detained, the employee may seek compensation for losses incurred during the suspension period under the State Compensation Law.¡±

In such cases, the employer has the right to suspend the labour contract pending a final court judgment. During the suspension, the employer may withhold wages and stop social insurance contributions, and the supension period will not count towards the employee¡¯s tenure with the company.

If the employee is wrongfully detained with losses incurred, they may seek compensation from relevant authorities in compliance with the State Compensation Law.

While the employee may retain some personal freedom when on bail or under residential surveillance, the employer needs to assess how to handle the labour relations and wage payment based on whether the employee is performing work. Practices also vary by region, as indicated by this summary based on existing local regulations and case studies.

• Beijing: For employees who continue to work, their remuneration is determined by the employer based on specific circumstances. For those not working but still under contract, the employer should provide a subsistence allowance.
• Chongqing: Employees who continue working on bail in the original post are eligible for regular wages. For those not working but still under contract, the employer should provide a subsistence allowance consistent with practices in Beijing.
• Jiangsu: If the labour contract remains in effect during an employee¡¯s bail period, the employer shall pay the regular salary to those who continue to work, or provide a subsistence allowance to those available to work but with tasks assigned.
• Zhejiang: If an employee on bail leaves their post without the employer¡¯s approval, the employer may suspend wage payments. However, if the employee continues to work, the employer must pay their wages as stipulated.

Therefore, during an employee¡¯s bail or residential surveillance period, the employer should not unilaterally stop wage payments. Instead, they must assess whether the environment significantly impacts the performance of work, and whether the employee is able to work during this period. If the employee fails to work, the employer should consult local regulations for requirements on provision of the subsistence allowance.

Takeaways

Being involved in a criminal case does not equal a conviction or criminal penalty. Contract termination and wage payments must be carefully and lawfully handled. Employers should ensure that their decisions are well-founded and legally compliant.

Yue Ronghua is an associate at Zhilin Law Firm.