Full Text of the Guiding Case
Main Points of the Adjudication
A worker’s being ranked at the bottom in an employer’s grade assessment does not equate to [his ] being “incompetent for the job” and does not meet the statutory requirements for unilateral termination of a labor contract. An employer cannot rely on this ground to unilaterally terminate a labor contract.
Related Legal Rule(s)
Articles 39 and 40 of the Labor Contract Law of the People’s Republic of China
Basic Facts of the Case
In July 2005, defendant WANG Peng (王鹏) began working for plaintiff ZTE (Hangzhou) Company Limited (中兴通讯（杭州）有限责任公司) (hereinafter referred to as “ZTE”). It was agreed upon in the labor contract that WANG Peng would engage in sales [and receive] a monthly base salary of RMB 3,840. The Management Measures on Employee Performance of the company provided: employees [were (to be) given] semiannual and annual performance assessments with four grades, S, A, C1, and C2, which represented, respectively, Excellent, Good, [With] Incompatible Personal Values, and Performance Needs to be Improved. The proportions of [employees with] grades S, A, and C (C1, C2) were to be 20%, 70% and 10%, respectively. In principle, [employees who were] “incompetent for the job” would receive a grade of C2. WANG Peng originally worked in the distribution division of the company, engaged in sales. After January 2009, due to the disbandment of the distribution division and other reasons, [he] was reassigned to the East China region to engage in sales. In the second half of 2008, the first half of 2009, and the second half of 2010, the results of WANG Peng’s assessments were all C2. ZTE believed that WANG Peng was incompetent for the job and remained incompetent for the job after the reassignment, and therefore terminated the labor contract after making partial payment of economic compensation.
On July 27, 2011, WANG Peng initiated labor arbitration. On October 8 of the same year, an arbitration commission rendered an award: ZTE [should] pay WANG Peng the remaining balance of damages,  equal to RMB 36,596.28, for unlawful termination of the labor contract. ZTE believed that its acts did not constitute an unlawful termination of the labor contract, and thus brought suit in court on November 1 of the same year, requesting an order against payment of the remaining balance of damages for the termination of the labor contract.
Results of the Adjudication
On December 6, 2011, the Binjiang District People’s Court of Hangzhou Municipality, Zhejiang Province, rendered the (2011) Hang Bin Min Chu Zi No. 885 Civil Judgment: [the court orders] plaintiff ZTE (Hangzhou) Company Limited to, within fifteen days after the judgment comes into effect, make a lump-sum payment to defendant WANG Peng in the amount of RMB 36,596.28, which is the remaining balance of damages for the unlawful termination of the labor contract. After the judgment was pronounced, neither party appealed. The judgment has already come into legal effect.
Reasons for the Adjudication
In the effective judgment, the court opined: in order to protect the legal interests of workers and to establish and develop harmonious and stable labor relations, the Labor Law of the People’s Republic of China and the Labor Contract Law of the People’s Republic of China defined clearly the conditions for employers’ unilateral termination of labor contracts. Plaintiff ZTE terminated the labor contract on the grounds that defendant WANG Peng was incompetent for the job and that [he] remained incompetent for the job after [his] reassignment. [ZTE] should bear the burden of proof on these grounds. According to the provisions of the Management Measures on Employee Performance, “the proportion of [employees with] grade C (C1, C2) is to be 10%”. Although WANG Peng had been assessed to have a grade of C2, grade C2 did not completely equate to [his being] “incompetent for the job”. Relying solely on the results of the assessment with the designated grade-assessment proportions, ZTE could not prove that a worker was incompetent for the job, and, accordingly, did not meet the statutory requirements for unilateral termination of labor contracts. Although WANG Peng was reassigned from the distribution division in January 2009, [he] engaged in sales both before and after the reassignment. [In light of this, and considering that] the fundamental reason for WANG Peng’s reassignment was the disbandment of the distribution division, ZTE could not prove that WANG Peng had been reassigned because of his incompetence for the job. Hence, ZTE’s basis for claiming that WANG Peng was incompetent for the job and that [he] remained incompetent for the job after the reassignment was inadequate. The situation constituted an unlawful termination of the labor contract. ZTE should, in accordance with law, pay WANG Peng damages at twice the rate of the economic compensation standards [stated in the law].
* The citation of this translation of the Guiding Case is: 《中兴通讯（杭州）有限责任公司诉王鹏劳动合同纠纷案》(ZTE (Hangzhou) Company Limited v. WANG Peng, A Labor Contract Dispute), China Guiding Cases Project, English Guiding Case (EGC18), Feb. 4, 2014 Edition, available at https://cgc.law.stanford.edu/guiding-cases/guiding-case-18.
This document was primarily prepared by Jeffrey Chivers, LUO Min, Matthew Waters, and ZHANG Xinyu, and was reviewed by LU Jiahui. The document was finalized by Jessica Montgomery, Dimitri Phillips, and Dr. Mei Gechlik. Minor editing, such as splitting long paragraphs, adding a few words included in square brackets, and boldfacing the headings to correspond with those boldfaced in the original Chinese version, was done to make the piece more comprehensible to readers. The following text, otherwise, is a direct translation of the original text and reflects formatting of the Chinese document released by the Supreme People’s Court.
The following Guiding Case was discussed and passed by the Adjudication Committee of the Supreme People’s Court of the People’s Republic of China and was released on November 8, 2013, available at http://www.chinacourt.org/article/detail/2013/11/id/1150422.shtml. See also最高人民法院关于发布第五批指导性案例的通知 (The Supreme People’s Court’s Notice Concerning the Release of the Fifth Batch of Guiding Cases), Nov. 8, 2013, available at http://www.chinacourt.org/law/detail/2013/11/id/147238.shtml.
 Translators’ note: “he” and “his” as used herein are, unless the context indicates otherwise, gender-neutral terms that also refer to “she” and “her”.
 Translators’ note: under the Labor Contract Law of the People’s Republic of China, “赔偿金” (“damages”) and “经济补偿金” (“economic compensation”) are different types of remedies. Damages are designed to penalize employers for violating the law. Article 87 of the law requires any employer who terminates a labor contract in violation of the law to pay an employee “damages at twice the rate of the economic compensation provided for in Article 47 hereof.” See 《中华人民共和国劳动合同法》(Labor Contract Law of the People’s Republic of China), adopted on June 29, 2007 and effective as of Jan. 1, 2008, art. 87.