Answer: Whether your employee can renege on the compensation agreement depends on how the agreement is reached, whether the agreement is manifestly unfair, and whether the claim exceeds the limitation of arbitration.

The way the compensation agreement between the two parties is reached is very important. If the agreement is reached under the auspices of a court, a labor arbitration commission, or a state organ, the compensation agreement is legally binding or quasi-binding, and the employee may not go back on it. For example, in the case of Guangzhou Qiangye Company before Guangdong Provincial High Court in 2014, the court held that the mediation agreement reached by the two parties through the Labor Arbitration Commission could not be repented.¹Guangdong Provincial People’s High Court, (2014) Yue Gao Fa Li Min Ti Zi No.6, Retrial of work injury insurance treatment dispute between Peng and Guangzhou Qiangye Company. Article 42 of the Law of the People’s Republic of China on Mediation and Arbitration of Labor Disputes stipulates: Before making an award, the arbitration tribunal shall first mediate. If an agreement is reached through conciliation, the arbitration tribunal shall prepare a conciliation statement. The conciliation statement shall set forth the arbitration claims and the results of the agreement between the parties. The conciliation statement shall be signed by the arbitrators, sealed by the labor dispute arbitration commission, and served on both parties. The conciliation statement shall become legally effective after it is signed and accepted by both parties.

If the two parties reach an agreement through negotiation, it is still necessary to examine whether the negotiation procedure and content of the agreement are fair and reasonable. The judicial interpretation of the Supreme Court stipulates that agreement reached between employer and employee on the payment of wages or economic compensation shall be recognized as valid if it does not violate mandatory provisions of law and there is no fraud, coercion, or vulnerability-advantage-taking.²Article 35 of the Interpretation of the Supreme People’s Court on the Application of Law in the Trial of Labor Dispute Cases (I) (Fashi (2020) No.26). “Where the agreement reached between a worker and an employer on the termination or dissolution of an employment contract, the payment of wages, overtime pay, economic compensation or punitive damages, etc., does not violate the law and if there is no fraud, coercion, or vulnerability-advantage-taking, it shall be recognized as valid. If there is a major misunderstanding or obvious unfairness in the agreement mentioned in the preceding paragraph, and the parties request cancellation, the people’s court shall support it.”At present, the judicial decisions of courts all over the country also show that as long as the compensation agreement between the two parties is not significantly lower than the statutory standard, and there is no fraud when signing the agreement, the court generally recognizes the validity of the agreement.³Shaanxi Zhuoyue Construction Labor Co., Ltd. v. Du Jinsong Labor Dispute Civil Ruling of Shaanxi Provincial People’s High Court (2015) S.M.S.S.Z. No.00251. The court held that work-related injury compensation must be in accordance with statutory standards. Guangzhou Yingshang Garments Co., Ltd., Peng Wentao Labor Dispute Civil Application for Retrial Review Civil Ruling Guangdong Provincial People’s High Court Civil Ruling (2021) Yue Min Shen No.8626. Zhengzhou Coal Group (Ruzhou) Fusheng Mining Co., Ltd. and Jiao Maoli’s Application for Labor Dispute Civil Ruling of Henan Provincial People’s High Court (2014) Yu Fa Li Er Min Shen Zi No.00215. Henan Hengda Mechanical and Electrical Equipment Co., Ltd., Meng Qingkun Labor Dispute Retrial Civil Judgment Henan High Court Civil Judgment (2018) Yu Min Zai No.1555.

An employee intending to void a settlement agreement that they signed and that conflicts with employment law must file a claim with the labor arbitration committee or the court to cancel or alter the agreement within the statutory time limitation¡ªwithin one year of the agreement’s signature.

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Mr. Wangdong

Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.

Email: wangdong@royalaw.com

• 1
  Guangdong Provincial People’s High Court, (2014) Yue Gao Fa Li Min Ti Zi No.6, Retrial of work injury insurance treatment dispute between Peng and Guangzhou Qiangye Company. Article 42 of the Law of the People’s Republic of China on Mediation and Arbitration of Labor Disputes stipulates: Before making an award, the arbitration tribunal shall first mediate. If an agreement is reached through conciliation, the arbitration tribunal shall prepare a conciliation statement. The conciliation statement shall set forth the arbitration claims and the results of the agreement between the parties. The conciliation statement shall be signed by the arbitrators, sealed by the labor dispute arbitration commission, and served on both parties. The conciliation statement shall become legally effective after it is signed and accepted by both parties.
• 2
  Article 35 of the Interpretation of the Supreme People’s Court on the Application of Law in the Trial of Labor Dispute Cases (I) (Fashi (2020) No.26). “Where the agreement reached between a worker and an employer on the termination or dissolution of an employment contract, the payment of wages, overtime pay, economic compensation or punitive damages, etc., does not violate the law and if there is no fraud, coercion, or vulnerability-advantage-taking, it shall be recognized as valid. If there is a major misunderstanding or obvious unfairness in the agreement mentioned in the preceding paragraph, and the parties request cancellation, the people’s court shall support it.”
• 3
  Shaanxi Zhuoyue Construction Labor Co., Ltd. v. Du Jinsong Labor Dispute Civil Ruling of Shaanxi Provincial People’s High Court (2015) S.M.S.S.Z. No.00251. The court held that work-related injury compensation must be in accordance with statutory standards. Guangzhou Yingshang Garments Co., Ltd., Peng Wentao Labor Dispute Civil Application for Retrial Review Civil Ruling Guangdong Provincial People’s High Court Civil Ruling (2021) Yue Min Shen No.8626. Zhengzhou Coal Group (Ruzhou) Fusheng Mining Co., Ltd. and Jiao Maoli’s Application for Labor Dispute Civil Ruling of Henan Provincial People’s High Court (2014) Yu Fa Li Er Min Shen Zi No.00215. Henan Hengda Mechanical and Electrical Equipment Co., Ltd., Meng Qingkun Labor Dispute Retrial Civil Judgment Henan High Court Civil Judgment (2018) Yu Min Zai No.1555.