Answer: The wage standards agreed upon in the employment contract or being implemented by both parties are protected by employment law, and wage reduction may impose significant impact on employees¡¯ financial stability. In principle, employers may not reduce the agreed-upon wage standards specified in the labor contract or decrease wages after an actual wage increase(s) without the employees’ consent. However, in practice, aside from instances where employees explicitly agree to a wage reduction, there are three potential legally permissible exceptions to wage reductions.
The first scenario involves the employee accepting the effectiveness of a wage reduction during the performance of the employment contract. If, after an employee¡¯s wages was unilaterally reduced for a certain period, the employee does not raise objections, this may be deemed as the employee consenting to the wage reduction. According to the 2020 judicial interpretation of employment dispute cases by the Supreme People’s Court, if a change to a labor contract has been practically implemented for more than one month, the courts shall not uphold either party¡¯s assertion that the change is invalid due to not being in written form. 1Article 43 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) stipulates that ¡°if the employer and the worker have changed the employment contract by mutual agreement, although not in written form, but have actually fulfilled the orally changed employment contract for more than one month, and the content of the changed employment contract does not violate laws and regulations, the people¡¯s court shall not support either party¡¯s claim that the alteration of the employment contract is invalid on the grounds that it is not in written form.¡± This provision is widely applied in various court cases concerning employee wage reductions. Courts generally consider that if an employee, after experiencing a wage reduction, continues to perform their duties for more than one month (presumably after receiving more than one month of wages), and does not raise objections, it is deemed that both parties have effectively modified the wage standards through practical implementation. 2Wang Junbiao and Shenzhen Jinyang Electronics Co., Ltd. Labor Dispute Second Instance Civil Judgment (2016) Yue 03 Minzhong No.13128. ¡°Jinyang Company changed Wang Junbiao’s monthly wage from RMB 36,000 to RMB 26,000 since February 2015, which constitutes a change of employment contract, and both sides have actually fulfilled it for eight months. Wang Junbiao had no evidence to prove that he had raised objections during this period, which is regarded as approval.¡± Civil Judgment of Second Instance on Labor Dispute between Shen Qi and Evergrande Real Estate Group Pearl River Delta Real Estate Development Co., Ltd. (2018) Yue 01 Min Zhong No.12856. ¡°Although the above change is not in writing, it has been actually performed for more than one month, and Shen Qinan knows the above change and does not raise any objection¡¡it is considered as both parties… reached mutual agreement.¡±
The second situation is that the employment contract between the two parties has agreed on a higher wage standard, but from the beginning of the implementation of the employment contract, the employee’s wage is paid at a lower standard, and the employee has not raised any objection for more than one month. In this case, the courts usually apply the 2020 judicial interpretation of the supreme court and rule that both parties have changed the contract agreement by actual implementation, and that this change is valid and binding.3Zeng Jian and Beijing Boshida Refrigeration and Air Conditioning Technology Co., Ltd. and other civil judgments of the second instance of labor disputes (2016) Jing 01 Min Zhong No.5953. The contract agreed that the wage standard was the monthly wage standard of employees of Beijing Refrigeration Society, but it was actually paid according to the minimum wage from 2005 to 2014. The court found it valid. Civil Judgment of the First Instance of the Employment contract Dispute between Worewen Construction and Installation Materials (Shanghai) Co., Ltd. and Yan Xinbin (2017) Hu 0112 Min Chu 164 No.43, “Since the plaintiff has never paid the above quarterly award to the defendant since the defendant took office, it can be concluded that the above agreement has been changed in the way of actual performance.¡± We put this as the second situation because it stands out in practice, although it may be put under the first situation.
The third scenario is when the employer transfer the position of an employee, leading to a reasonable reduction of the employee’s wages. If the employer’s position transfer for the employee is lawful, the adjustment of the employee’s wages, either decreasing or increasing, may be deemed lawful. Courts typically assess the legitimacy of such position transfer and wage reductions by considering the business needs of the employer and the impact on the employee. It is crucial to note that, under this comprehensive evaluation of multiple factors, excessively reducing an employee’s wage may adversely affect the legality of the position transfer itself. For further details, please refer to How can we legally transfer the position of an employee?
The lawfulness of wage reduction has a significant impact on both parties in the employment relationship. If an employer unlawfully reduces an employee’s wage, they should fulfill the obligation to retroactively pay the withheld wages due to the unjustified wage deduction. In some cases, it may even lead to employees¡¯ forced resignation, resulting in the liability for the employer to pay economic compensation. Please refer to My company received a resignation letter claiming forced resignation. Are we liable for economic compensation?
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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.
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- 1Article 43 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) stipulates that ¡°if the employer and the worker have changed the employment contract by mutual agreement, although not in written form, but have actually fulfilled the orally changed employment contract for more than one month, and the content of the changed employment contract does not violate laws and regulations, the people¡¯s court shall not support either party¡¯s claim that the alteration of the employment contract is invalid on the grounds that it is not in written form.¡±
- 2Wang Junbiao and Shenzhen Jinyang Electronics Co., Ltd. Labor Dispute Second Instance Civil Judgment (2016) Yue 03 Minzhong No.13128. ¡°Jinyang Company changed Wang Junbiao’s monthly wage from RMB 36,000 to RMB 26,000 since February 2015, which constitutes a change of employment contract, and both sides have actually fulfilled it for eight months. Wang Junbiao had no evidence to prove that he had raised objections during this period, which is regarded as approval.¡± Civil Judgment of Second Instance on Labor Dispute between Shen Qi and Evergrande Real Estate Group Pearl River Delta Real Estate Development Co., Ltd. (2018) Yue 01 Min Zhong No.12856. ¡°Although the above change is not in writing, it has been actually performed for more than one month, and Shen Qinan knows the above change and does not raise any objection¡¡it is considered as both parties… reached mutual agreement.¡±
- 3Zeng Jian and Beijing Boshida Refrigeration and Air Conditioning Technology Co., Ltd. and other civil judgments of the second instance of labor disputes (2016) Jing 01 Min Zhong No.5953. The contract agreed that the wage standard was the monthly wage standard of employees of Beijing Refrigeration Society, but it was actually paid according to the minimum wage from 2005 to 2014. The court found it valid. Civil Judgment of the First Instance of the Employment contract Dispute between Worewen Construction and Installation Materials (Shanghai) Co., Ltd. and Yan Xinbin (2017) Hu 0112 Min Chu 164 No.43, “Since the plaintiff has never paid the above quarterly award to the defendant since the defendant took office, it can be concluded that the above agreement has been changed in the way of actual performance.¡±