Answer: Article 39 of the Employment Contract Law stipulates that “if an employee establishes an employment relationship(s) with aother employer(s) simultaneously, having a serious impact on the completion of their work tasks for the current employer, or refuses to make corrections after being put forward by the current employer”, the employer may terminate the employment relationship with the employee without paying economic compensation.

In the judicial practice, the most common application of this clause is that employees start or participate in establishment of companies competing with their current employers during their tenure. The courts usually no longer entangle whether they meet the legal requirements of “having a serious impact on the completion of their work tasks”, but find that this is a serious violation of employees’ professional ethics or obligations of non-competition or confidentiality agreed upon, and rule that therefore such terminations comply with the aforementioned statutory provision.¹Civil Judgment of First Instance of labor dispute between Jiang Momo and Fujian Jiedian Information Technology Co.,Ltd, the People’s Court of Cangshan District, Fuzhou City, Fujian Province (2016) Min0104MinChuNo. 3110. “According to the principle of “revealing the heavy by the light”, since an employer is entitled to terminate an employer who establishes employment relationships with other employers at the same time, which has a serious impact on the completion of the current work tasks, an employer should be more justifiable to terminate an employer who has set up a new company, which is even more serious act. The labor dispute appeal case of Xia Zhihui and Huashu Exploration Business Consulting (Hangzhou) Co., Ltd., the Civil Judgment of the Intermediate People’s Court of Hangzhou City, Zhejiang Province (2017) Zhe 01 Min Zhong No.667. In the case, the employee invested in the establishment of a competitive company with others during their tenure in the employer, and did not correct if after the employer raised the issue. The court held that this violated the principle of good faith and the duty of loyalty, as well as the provisions of the law on dual employment relationships, and that the termination was legal.

It should be noted that this legal provision only applies to full-time employees. If an employee of your company is a casual employee, according to the provisions of the Employment Contract Law, a casual employee can establish casual employment relationships with more than one employer, and the employee does not violate the law. Of course, according to Article 71 of the Employment Contract Law, your company can also notify casual employees of termination at any time without paying economic compensation.

Employees on long-term unpaid leave waiting for their work, employees on irregular or general work hours during rotational furlough, or even full-time employees during their spare time, establishing employment relationships with other employers, in principle, as long as it does not affect their current employer’s work tasks, comply with legal provisions. The Supreme Court’s judicial interpretation in 2020 evidently adopts this stance. ² Article 32 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): “Employees who are on long-term unpaid leave, internal retirees who have not reached the statutory retirement age, stood-down and waiting-to-be-employed individuals, as well as employees of enterprises on temporary leave due to operational suspension, who file lawsuits due to employment disputes with a new employer, shall be handled by the People’s Court in accordance with labor relations.”

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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
  Civil Judgment of First Instance of labor dispute between Jiang Momo and Fujian Jiedian Information Technology Co.,Ltd, the People’s Court of Cangshan District, Fuzhou City, Fujian Province (2016) Min0104MinChuNo. 3110. “According to the principle of “revealing the heavy by the light”, since an employer is entitled to terminate an employer who establishes employment relationships with other employers at the same time, which has a serious impact on the completion of the current work tasks, an employer should be more justifiable to terminate an employer who has set up a new company, which is even more serious act. The labor dispute appeal case of Xia Zhihui and Huashu Exploration Business Consulting (Hangzhou) Co., Ltd., the Civil Judgment of the Intermediate People’s Court of Hangzhou City, Zhejiang Province (2017) Zhe 01 Min Zhong No.667. In the case, the employee invested in the establishment of a competitive company with others during their tenure in the employer, and did not correct if after the employer raised the issue. The court held that this violated the principle of good faith and the duty of loyalty, as well as the provisions of the law on dual employment relationships, and that the termination was legal.
• 2
  Article 32 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): “Employees who are on long-term unpaid leave, internal retirees who have not reached the statutory retirement age, stood-down and waiting-to-be-employed individuals, as well as employees of enterprises on temporary leave due to operational suspension, who file lawsuits due to employment disputes with a new employer, shall be handled by the People’s Court in accordance with labor relations.”