Answer: It is illegal for the employer to do so. Article 9 of the Employment Contract Law stipulates that employers shall not collect deposits or retain employees’ certificates (including professional qualification certificates). Article 84 stipulates that if the employer violates the provisions, it must return the deposit and certificate to the worker. The labor administrative department may impose an administrative fine of not less than RMB 500 but not more than RMB 2,000 per person.
For example, in the case of Zhang Jiadong before Jiangsu Provincial High Court in 2019, the court ordered the employer to return the employee deposit of RMB 10,000 together with interest to the employee.1Xuzhou Public Transport Group Co., Ltd. and Zhang Jiadong, Xuzhou New Bus Co., Ltd. Labor Dispute Appeal, Application for Civil Ruling Jiangsu Provincial People¡¯s High Court Civil Ruling (2019) Sumin Shen 8121.In the case of Yang Songlin before Fujian Provincial High Court in 2020, the court ordered the employer to return the registered constructor certificate of the employee detained by the employer.2Civil Ruling on Labor Dispute Retrial Review and Trial Supervision of Yang Songlin and Fujian Lvrong Construction Engineering Co., Ltd. Civil Ruling of Fujian High Court (2020) Min Min Shen No.1858.
A special case is whether employees’ investment in shares constitutes a deposit. Generally speaking, as long as the two parties have a clear agreement on share and dividends, the investment does not constitute a deposit.3Mudanjiang Dongan District Meijia Photography Shop and Yang Xingang Labor Dispute Civil Judgment Mudanjiang Intermediate People’s Court Civil Judgment (2019) Hei 10 Min Zhong No.1147.However, if the payment is imposed by the employer or the purpose of the deposit is covered up in the form of shares, the payment may be recognized as a deposit. 4Gansu Pathfinder International Travel Service Co., Ltd. and Yang Mou Labor Dispute Appeal Civil Judgment of Lanzhou Intermediate People’s Court of Gansu Province (2017) Gan 01 Min Zhong No.1925. ¡°The contract did not stipulate, but the employer required employees to pay RMB 50,000 to buy shares or dismiss, thus violating the rules of deposit.¡± In judicial decisions, the boundary between deposit and investment in shares appears to be blurred. The courts generally consider the name of the payment (deposit or investment in shares) and the closeness between the payment and bonus that bear characteristics of wage (the more directly linked to the bonus, the more likely it is to identify the deposit; and the more likely it is an equity dividend different from bonus, the more likely it is considered equity investment.)5Civil Judgment of Second Instance of Labor Dispute between Pan-China Innovation (Beijing) Monitoring Instrument Co., Ltd. and Sun Wence Civil Judgment of Beijing First Intermediate People’s Court (2022) Jing 01 Min Zhong No.10829. The court held that although the risk deposit of 160,000 agreed by both parties was related to profit distribution, it was still an illegal deposit. Beijing Luoman Xianghe Trading Co., Ltd. and Wang Hongyi Labor Dispute Second Instance Civil Judgment Beijing Third Intermediate People’s Court Civil Judgment (2022) Beijing 03 Minzhong No 11433. ¡°In this case, both parties are engaged in virtual equity incentives, and Sanhe Company collects RMB 150,000 of Wang Hongyi’s “capital stock”. The essence is to collect RMB 150,000 as a prerequisite for paying the reward to Wang Hongyi, which does not conform to the aforementioned provisions, so the principal of RMB 150,000 paid by Wang Hongyi should be refunded.¡± Civil Ruling of the High Court of Guangxi Zhuang Autonomous Region (2019) Gui Min Shen No.5083. ¡°The Employee Investment/Shareholding Agreement is obviously different from the General Investment Share Agreement, and the precondition for Meng Feifei to participate in the above income dividend is to become the employees of the store. Once the employment relationship is dissolved or terminated, the right to profit or equity enjoyed by the partner or shareholder will be withdrawn, and the partner or shareholder must not make any claim for liquidation and compensation after employment termination, which excludes the main rights of partners or shareholders. Therefore, the amount of RMB 30,000 that is called investment in shares actually has the nature of guarantee for the existence of employment relationships.¡±
Another special case is the deposit of vehicles in the taxi industry. Taxi drivers and taxi companies generally constitute employment relationships. But as to whether a large amount of deposit paid by the driver according to industry practice (usually over a hundred of thousands or even higher) constitutes a deposit stipulated under employment law, the prevailing opinion of courts around the country is that there is a contractor relationship between taxi drivers and employers in addition to the employment relationship. The deposit is a matter under the contractor relationship, so it does not relate to the employment dispute. 6Pu Xiaobo, Sichuan Guangyun Group Cangxi Co., Ltd. Labor Dispute Retrial Review and Trial Supervision Civil Ruling Sichuan High Court Civil Ruling (2018) Chuan Min Shen No.4481. Civil Ruling on Labor Dispute Retrial Review and Trial Supervision of Jia Shenghu and Qingdao Haibo Passenger Taxi Co., Ltd. Civil Ruling of Shandong High Court (2018) Lu Minshen No.4838. Labor Dispute Appeal between Luo Guozhu and Guangzhou Guangjun Tourist Automobile Enterprise Group Co., Ltd. Civil Judgment of Guangzhou Intermediate People’s Court of Guangdong Province (2017) Yue 01 Min Zhong No.1954 3.However, the Intermediate People’s Court of Shaoguan City, Guangdong Province, decided a case in which it held that the deposit was under employment relationship, and the taxi company should return the deposit.7Shaoguan Longzhiquan Taxi Co., Ltd. v. Yin Chenghui et al. Labor Dispute Retrial Case Guangdong Shaoguan Intermediate People’s Court Civil Judgment (2017) Yue 02 Min Zai No.32.
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- 1Xuzhou Public Transport Group Co., Ltd. and Zhang Jiadong, Xuzhou New Bus Co., Ltd. Labor Dispute Appeal, Application for Civil Ruling Jiangsu Provincial People¡¯s High Court Civil Ruling (2019) Sumin Shen 8121.
- 2Civil Ruling on Labor Dispute Retrial Review and Trial Supervision of Yang Songlin and Fujian Lvrong Construction Engineering Co., Ltd. Civil Ruling of Fujian High Court (2020) Min Min Shen No.1858.
- 3Mudanjiang Dongan District Meijia Photography Shop and Yang Xingang Labor Dispute Civil Judgment Mudanjiang Intermediate People’s Court Civil Judgment (2019) Hei 10 Min Zhong No.1147.
- 4Gansu Pathfinder International Travel Service Co., Ltd. and Yang Mou Labor Dispute Appeal Civil Judgment of Lanzhou Intermediate People’s Court of Gansu Province (2017) Gan 01 Min Zhong No.1925. ¡°The contract did not stipulate, but the employer required employees to pay RMB 50,000 to buy shares or dismiss, thus violating the rules of deposit.¡±
- 5Civil Judgment of Second Instance of Labor Dispute between Pan-China Innovation (Beijing) Monitoring Instrument Co., Ltd. and Sun Wence Civil Judgment of Beijing First Intermediate People’s Court (2022) Jing 01 Min Zhong No.10829. The court held that although the risk deposit of 160,000 agreed by both parties was related to profit distribution, it was still an illegal deposit. Beijing Luoman Xianghe Trading Co., Ltd. and Wang Hongyi Labor Dispute Second Instance Civil Judgment Beijing Third Intermediate People’s Court Civil Judgment (2022) Beijing 03 Minzhong No 11433. ¡°In this case, both parties are engaged in virtual equity incentives, and Sanhe Company collects RMB 150,000 of Wang Hongyi’s “capital stock”. The essence is to collect RMB 150,000 as a prerequisite for paying the reward to Wang Hongyi, which does not conform to the aforementioned provisions, so the principal of RMB 150,000 paid by Wang Hongyi should be refunded.¡± Civil Ruling of the High Court of Guangxi Zhuang Autonomous Region (2019) Gui Min Shen No.5083. ¡°The Employee Investment/Shareholding Agreement is obviously different from the General Investment Share Agreement, and the precondition for Meng Feifei to participate in the above income dividend is to become the employees of the store. Once the employment relationship is dissolved or terminated, the right to profit or equity enjoyed by the partner or shareholder will be withdrawn, and the partner or shareholder must not make any claim for liquidation and compensation after employment termination, which excludes the main rights of partners or shareholders. Therefore, the amount of RMB 30,000 that is called investment in shares actually has the nature of guarantee for the existence of employment relationships.¡±
- 6Pu Xiaobo, Sichuan Guangyun Group Cangxi Co., Ltd. Labor Dispute Retrial Review and Trial Supervision Civil Ruling Sichuan High Court Civil Ruling (2018) Chuan Min Shen No.4481. Civil Ruling on Labor Dispute Retrial Review and Trial Supervision of Jia Shenghu and Qingdao Haibo Passenger Taxi Co., Ltd. Civil Ruling of Shandong High Court (2018) Lu Minshen No.4838. Labor Dispute Appeal between Luo Guozhu and Guangzhou Guangjun Tourist Automobile Enterprise Group Co., Ltd. Civil Judgment of Guangzhou Intermediate People’s Court of Guangdong Province (2017) Yue 01 Min Zhong No.1954 3.
- 7Shaoguan Longzhiquan Taxi Co., Ltd. v. Yin Chenghui et al. Labor Dispute Retrial Case Guangdong Shaoguan Intermediate People’s Court Civil Judgment (2017) Yue 02 Min Zai No.32.