According to Article 38, Paragraph 1, Item 2 of the Labor Contract Law, if the employing unit “fails to pay labor remuneration in full and on time,” the worker may terminate the labor contract.

However, the law does not explicitly define the determination of “failure to pay on time” and “failure to pay in full,” leading to disputes in judicial practice. This article focuses on the following disputed issue: when determining “failure to pay on time” and “failure to pay in full,” should only the objective external manifestation be considered, or should factors such as the employer’s reasons for non-payment and subjective fault also be comprehensively taken into account?

I. Trial Principles in Some Provinces and Cities

(A) Shanghai and Guangdong

”Opinions of the Shanghai Higher People’s Court on Several Issues Concerning the Application of the Labor Contract Law”

Effective Date: March 3, 2009

IX. On the understanding of situations where a worker terminates the contract on the grounds that the employer has not paid remuneration “on time and in full” or has “not paid” social insurance premiums.

The employer’s statutory obligation to pay labor remuneration and social insurance premiums to workers in accordance with the law is a fundamental duty. However, the calculation standards for labor remuneration and social insurance premiums are often complex in practice. The purpose of the law is to encourage both parties to a labor contract to perform their obligations in good faith. Whether it is the employer or the worker, the exercise of rights and the performance of obligations must not violate the principle of good faith. Only where the employer acts in bad faith, thereby delaying or refusing payment, does the conduct fall within the scope targeted by the legislation. Therefore, if the employer subjectively and maliciously fails to pay labor remuneration “on time and in full” or fails to pay social insurance premiums, this may serve as grounds for the worker to terminate the contract. However, if the failure to pay “on time and in full” or to pay social insurance premiums is genuinely due to objective reasons such as unclear calculation standards or disputes, this cannot serve as grounds for the worker to terminate the contract.

Furthermore, based on the author’s检索, although Guangdong currently does not have明确的 guiding opinions, the Guangdong Provincial Higher People’s Court in Case (2019) Yue Min Shen No. 10758 also made a clear determination consistent with the aforementioned Shanghai Higher People’s Court.

(B) Chongqing

”Summary of the Symposium on Issues Concerning the Application of Law in Labor Dispute Cases (I)” of the Civil Division I of the Chongqing Higher People’s Court

Effective Date: June 28, 2017

I. On the understanding of the employer’s “failure to pay labor remuneration in full and on time” under Article 38 of the Labor Contract Law

Labor remuneration paid on a periodic basis should be paid upon the expiration of each payment周期. If the employer is unable to pay within that payment cycle due to objective reasons, it may pay within a reasonable time after the expiration of that cycle, but no later than the next payment cycle.

The determination of whether the employer has paid remuneration “in full” should follow the principle of good faith. If the worker expressed no objection when receiving wages but later proves through evidence that the employer did not pay in full and consequently requests termination of the labor contract and payment of economic compensation based on this, the people’s court will not support such claim.

(C) Yunnan

”Summary of the Symposium on Several Issues Concerning the Trial of Labor and Personnel Dispute Cases” of the Yunnan Provincial Higher People’s Court and the Yunnan Provincial Department of Human Resources and Social Security

Effective Date: February 4, 2015

(4) The employer’s failure to pay labor remuneration in full and on time or failure to pay social insurance premiums for the worker in accordance with the law may serve as grounds for the worker to terminate the labor contract under Article 38 of the Labor Contract Law. However, if the employer has evidence proving that the failure was genuinely due to objective reasons leading to unclear calculation standards or that the deferral of social insurance premium payment was approved by the collection authority, and the worker terminates the labor contract and claims economic compensation on these grounds, such claim shall not be supported.

(D) Zhejiang

”Notice of the Civil Adjudication Division I of the Zhejiang Provincial Higher People’s Court and the Zhejiang Provincial Labor and Personnel Dispute Arbitration Commission on Issuing the ‘Answers to Several Issues Concerning the Trial of Labor Dispute Cases (III)’”

Effective Date: September 29, 2015

VI. If the employer fails to pay labor remuneration in full and on time or fails to pay social insurance premiums for the worker in accordance with the law, but has corrected the situation before the worker terminates the labor contract on the aforementioned grounds, should the worker’s claim for economic compensation for termination of the labor contract be supported?

Answer: If the employer has corrected the situation of failing to pay labor remuneration in full and on time or failing to pay social insurance premiums for the worker in accordance with the law before the worker terminates the labor contract, and the worker claims economic compensation for termination of the labor contract, such claim shall not be supported.

(E) Shandong

”Summary of the Meeting of the Shandong Provincial Higher People’s Court and the Shandong Provincial Department of Human Resources and Social Security on Several Issues Concerning the Trial of Labor and Personnel Dispute Cases”

Effective Date: April 26, 2019

XV. On the issue of dispute handling where the employer supplements labor remuneration or pays social insurance premiums before the worker terminates the labor contract

If the employer fails to pay labor remuneration in full and on time or fails to pay social insurance premiums for the worker in accordance with the law, but has corrected the situation before the worker terminates the labor contract on the aforementioned grounds, the worker’s claim for economic compensation for termination of the labor contract shall not be supported.

In summary (Note: The aforementioned trial guidance opinions of some provinces and cities may be adjusted by subsequent meeting summaries or judicial documents, but this does not affect the analysis in this article), it is not difficult to see that when applying the provision of “failure to pay labor remuneration in full and on time” under Article 38 of the Labor Contract Law, the following two major principles should be emphasized:

(A) Principle of Good Faith

Both the employer and the worker should adhere to the principle of good faith when exercising rights and performing obligations. If the employer’s failure to pay wages in accordance with the agreement is contrary to good faith, it falls within the scope targeted by the legislation. If the worker confirmed and did not object to the wage amount when receiving wages, but later proves through evidence that the employer did not pay in full and consequently requests termination of the labor contract and payment of economic compensation based on this, such claim may also not be supported by the court.

(B) Principle of Permitting Correction

Even if the employer has failed to pay labor remuneration in full and on time or has failed to pay social insurance premiums for the worker in accordance with the law, if the employer has corrected the situation before the worker terminates the labor contract on the aforementioned grounds, the worker’s claim for economic compensation for termination of the labor contract is generally not supported.

II. Attorney’s Opinion

The author agrees with the aforementioned two trial principles.

According to Article 46 of the Labor Contract Law, if a worker terminates the labor contract on the grounds that the employer “fails to pay labor remuneration in full and on time,” the employer shall pay economic compensation to the worker. However, if the statutory provisions are mechanically applied, looking only at the external appearance of “failure to pay in full and on time” to impose economic compensation without examining the reasons, fault, and other factors, it is easy to deviate from the应有的 value orientation of the Labor Contract Law, which is clearly inappropriate.

Article 1 of the Labor Contract Law provides: “This Law is enacted to improve the labor contract system, clarify the rights and obligations of the parties to a labor contract, protect the legitimate rights and interests of workers, and build and develop harmonious and stable labor relations.” This article clearly states the legislative purpose of the Labor Contract Law. Previously, during the public solicitation of comments and deliberation of the Labor Contract Law, there was a debate on whether the legislative purpose should be to protect the legitimate rights and interests of workers (single protection) or to protect the legitimate rights and interests of both workers and employing units (dual protection). Considering that at the time of legislation, labor was relatively过剩, capital was in a strong position, and labor was in a weak position, the balance of power between workers and employing units was severely imbalanced. The legislative value of the Labor Contract Law lies in pursuing a balance between the interests of labor and management. Therefore, if equal protection were given to both employing units and workers, it could easily lead to imbalance in the labor-management relationship. Hence, the legislation tilted towards workers.

However, it is important to distinguish that “tilting towards workers” is a legislative means, not a legislative end. The legislative purpose of the Labor Contract Law is to “build and develop harmonious and stable labor relations.” If the balance of power between labor and management changes, it cannot be ruled out that future legislation may adjust its wording to “protect the legitimate rights and interests of employing units and workers” or even “protect the legitimate rights and interests of employing units.”

In today’s increasingly developed socialist market economy in China, competition among enterprises is fierce, compounded by the impact of the internet economy on the real economy. Especially after the pandemic, many enterprises face significant survival pressure. To address this, in 2020, the central government explicitly stated that stabilizing enterprises is the prerequisite for stabilizing employment and the economy. To ensure employment and people’s livelihoods, we must stabilize the tens of millions of market entities and do our utmost to help enterprises overcome difficulties. Nowadays, situations where enterprises (especially small, medium, and micro enterprises) delay paying wages for a few days due to cash flow difficulties but without malicious intent, delays due to disputes between employers and workers over objective calculation standards for performance bonuses, allowances, etc., and occasional small errors in actual wages paid due to miscalculations are all relatively common. If statutory provisions are mechanically applied in such cases, determining that the employer must pay economic compensation would not only be unduly harsh on the employer, increasing labor costs, but would also make the labor-management relationship more tense and prone to conflict, detrimental to the harmony of labor relations. Sacrificing the long-term harmony and stability of overall social labor relations for the sake of formal justice in individual cases is undoubtedly a foolish act of putting the cart before the horse.

Two thousand years ago, the Roman jurist Celsus said:

“Knowing the law does not mean focusing on the letter of the law, but grasping its meaning and effect.” For a long time, our country has consistently adhered to the principle that the trial work of the people’s courts should pursue the unity of legal and social effects. Rigid and mechanical application of the law, disregarding changes in socio-economic conditions, easily leads to dogmatism, runs counter to the value orientation of the Labor Contract Law, and does not actually meet the requirements of the rule of law.