Our client, a former professor at an esteemed American university, was offered a lucrative executive position by a prominent Chinese power and energy company. After relocating to China, two years into his tenure, he received the unsettling news that his department within the company was dissolved, resulting in his dismissal as confirmed by an official termination letter.

Turning to us for help, our client sought assistance in pursuing rightful compensation for his abrupt termination.

As we engaged with the company, their stance rested on the assertion that the departmental downsizing fell under the category of a change in circumstances as defined by labor laws.

Under Article 40 of the Labor Contract Law of China:

• Article 40 – Non-Fault Termination

Should any of the following circumstances occur, the employing unit may terminate the labor contract in advance by giving the laborer a written notice 30 days in advance or by paying the laborer an additional one-month wage:

1. The laborer falls ill or becomes non-capable of resuming the original work after the expiration of the prescribed medical treatment period and cannot engage in other work arranged by the employing unit.
2. The laborer is incompetent for his job and remains so after training or job adjustment.
3. The objective circumstances relied upon when the labor contract is entered into have materially changed, making it impossible to perform the labor contract, and after consultation between the employing unit and the laborer, no agreement is reached on modifying the contract.

According to Chinese labor law, compensation is not required in cases of a change in circumstances.

However, in line with explanations provided by the Chinese Ministry of Human Resources and Social Security and precedent cases, the doctrine of change in circumstances refers to events occurring after the establishment of a contract but prior to its fulfillment, which are beyond the control of both parties, unforeseeable, insurmountable, and unavoidably changing, rendering the contract’s performance difficult or unnecessary. If maintaining the contract’s original validity would fundamentally disrupt the balance of interests, this legal principle allows the parties to seek court or arbitration intervention for contract modification or termination, relieving them of the obligation to fulfill the contract.

In the context of this case, the company’s decision to dissolve our client’s research and development department was attributed to internal adjustments within the organization. The company did not face financial difficulties or other related hardships. Given these circumstances, the company should have, within the framework of the law, negotiated a change in job position with our client while maintaining his salary and benefits.

If the company directly terminated our client’s contract, compensation would be necessary.

Navigating Complex Legal Terrain: Seeking Compensation Beyond Labor Laws

When both parties don’t fall under the purview of a traditional employer-employee relationship and labor laws are inapplicable, recourse lies within contract law. Through exhaustive case analysis, we discovered a strategic option – choosing a different legal framework that aligns with our goals. By leveraging provisions within contract law, we embarked on a journey to secure rightful compensation for our client’s losses. In this pursuit, we redefined the context of our case, invoking contract law principles to advocate for our client’s rights.
The determination of these losses rested on the foundation of what our client could have rightfully claimed under labor law provisions. By referencing established labor law scenarios, we laid the groundwork for assessing the damages our client deserved.
Upon initiating civil litigation against the opposing party, their response bore witness to the mounting pressure of the legal proceedings. In a proactive attempt to find resolution, they initiated negotiations, a testament to the efficacy of our strategy. Through proactive dialogue, both parties engaged in constructive discussions, culminating in a favorable outcome – our client securing a substantial severance compensation of 600,000 RMB.

This case underlines the importance of strategic thinking and the capacity to adapt to intricate legal dynamics. In situations where traditional legal channels might seem limited, creative application of relevant laws can yield positive outcomes. Our client’s successful pursuit of compensation signifies not only a legal victory but also a testament to our commitment to fighting for justice in complex legal scenarios.