Seeking recourse against an employee for economic loss

With the increasing compliance awareness of employers, there has been a progressive increase in cases where an employer demands compensation from a worker for property loss incurred as a result of a breach by the worker of its compliance management rules and regulations. Due to the imperfections and ambiguities in Chinese laws, there is a debate in judicial practice as to how an employer can seek recourse against a worker who has caused it to incur an economic loss.

Relevant legal provisions

One of the earliest pieces of legislation to address this issue is the Interim Provisions for the Payment of Wages, formulated by the former Ministry of Labour in 1994. Article 16 specifies that “if, due to a reason attributable to a worker himself or herself, his or her employer incurs an economic loss, the employer may, pursuant to [the worker’s] employment contract, demand that he or she compensate for the economic losses”. This provision deems the worker’s liability for damages a contractual liability, with the specific liability to be borne determined by relevant provisions specified in the employment contract between the parties.

Some regions, such as Shanghai, have issued different regulations. Article 22 of the Measures of Shanghai Municipality for the Payment of Wages by Enterprises, formulated in 2003, specifies that “where an employer, in accordance with the law, demands that a worker compensate it for an economic loss incurred by it due to a reason attributable to the worker himself or herself, and wishes to deduct such compensation from his or her wages, the portion deducted may not exceed 20% of the worker’s wage for the month in question and the wage remaining after the deduction may not be less than the minimum wage rate specified by Shanghai”. The measures substitute compensation “in accordance with the contract” to compensation “in accordance with the law”.

Dong Chundao is a partner at Allbright Law Offices in Shanghai