I. Case Playback

Miss Yang was employed by a company right after graduation in 2003 and signed a non-fixed term labor contract. As stipulated in the contract, the monthly salary would be paid at the end of each month, and the “13th Month Pay” equal to the pre-tax monthly salary would be provided at the end of each year. Several months after signing the contract, the company modified part of the contract and emailed it to Miss Yang stating that “the annual pre-tax salary next year includes the “13th Month Bonus”, but the payment is now during the Spring Festival  next year rather than the end of the year; it is emphasized that the new salary payment method replaces the corresponding clause in the existing contract". After receiving the email, Miss Yang didn't oppose it. Her “13th Month Bonus” was paid in the Spring Festival in 2004.
After New Year's Day in 2005, Miss Yang submitted a formal resignation to the company due to personal reasons. Before her departure, she asked the company to pay her the “13th Month Salary” for 2004, which totaled RMB 20,000, but the company refused to do so due to the fact that the contract had been modified. Miss Yang filed a lawsuit after her application to the local labor arbitration was rejected.
Miss Yang believed that according to Article 23 of the Shanghai Labor Contract Regulation, any modification to the contract required the agreement of both parties. The company conveyed the modification to her unilaterally without negotiation, let alone a mutual agreement; therefore it was an invalid action. The extra bonus, which was an incentive for the work of the employees, should be considered an additional reward for the year of good work. She had worked continuously up until January 2005; therefore she had the right to claim the annual bonus from 2004. She demanded the company to pay her the “13th Month Pay” totaled RMB 20,000.
On the contrary, the company insisted that the so-called "“13th Month Pay”" was in fact a title from the original labor contract, and it was in essence a financial bonus which could be unilaterally decided by the company. The company had modified the relevant rules and provided notice to all the employees. To clarify this point and the terms of payment, the company provided notice in writing by e-mail and stated that the modification would substitute for the original clause. After receiving the e-mail, she had no objections, which can be deemed as a tacit approval of the company’s actions. When the bonuses were distributed during the Spring Festival of 2005, Miss Yang’s labor contract had already been dissolved. Miss Yang then had no legitimate claim to the bonus. Consequently, the company requested the Court to reject her claim.
As an employee who had resigned, did she have the right to claim the previous year’s pay? Was factual performance in effect after the company modified the contract unilaterally through e-mail?

II. Legal Background

 China's current bonus system dates back to 1978 when the State Council promulgated the Notification for Implementing Incentives and Piece-rate Wages which called for carrying out the planned and conditional incentive salary system on the basis of research, investigation and experience. During the planned economy, employee’s salaries were fixed. To reinforce administrative autonomy, the enterprises set up a bonus system as a supplement to the basic salary. They decided the amount of the bonus according to enterprise operating conditions and the performance of the employees. At that time, the bonus was a payment for extra work and an incentive for increasing revenue as well as reducing expenditures.
  After entering the market economy, diverse understandings of the bonus system appeared. Many enterprises regarded it a part of the basic salary paid to the employees. Others preferred to re-adopt the definition and the nature of the bonus from the planned economy, considering it as a supplement to the basic salary.
  The latest regulation of the bonus was the Regulation of the Components of Total Wages from the State Statistical Bureau in 1990. In this regulation, the bonus was divided into five types: production awards, conservation awards, competition awards, incentive salary within state agencies and public institutions, and other bonuses. As the legislation was issued decades ago, it illustrates the conception of the bonus during the planned economy age when the bonus was a supplement to the basic salary. The lagging legislation has led to a shortage of regulations which adjust the bonus and salary systems of many enterprises.

III. Lawyer Debate

The contract cannot be modified unless both parties agree on it after negotiation. Lawyer HaiWei Cao Shanghai Qinghuazhengxin Law Firm in support of the laborer
 
We insist that Miss Yang had the right to claim the “13th Month Pay” due this year.
First, I am convinced that the year-end bonus is a component of the wage plus bonus general concept.
In accordance with our usual mode of operation, a year-end bonus can be allocated in several ways. One way is the double salary at the end of year, a stable fixed-amount bonus; the other way is to pay the bonus according to the performance of the employment unit. I believe the double salary is a valid method of paying the year-end bonus, and it is consistent with the basic nature of the year-end bonus.
 Second, the labor contract is an agreement standardizing the relationship between the laborer and employment unit. The contract also specifies the rights and obligations of the two parties. When Miss Yang signed the contract with the company, the payment of the “13th Month Pay” was specified, so it had a binding force between the two parties. Consequently, the company is responsible for its obligation to pay.
Third, we are convinced that it is invalid to send modification notice to Miss Yang by e-mail. We knew that the conclusion, fulfillment and the modification of the contract should conform to the principles of equality, non-coercion and mutual consultation. Neither of the two parties is entitled to modify the main clauses of the contract unilaterally, meaning without the consent of the other party. It is, therefore, illegal for the company to unilaterally modify the contract. On these grounds, if Miss Yang left the company after the bonus payment date specified in her contract and the company failed to make the payment due to its reasons, then it is unreasonable for the company to deny payment.

Double salary is a portion of the regular salary paid at the end of a year, so the company actions were justified.
Lawyer Lu Yin from Shanghai Huiye Law Firm in support of the employing unit

First, it is crucial to determine whether the “13th Month Pay” is a year-end bonus or part of a double salary. Although they both are part of laborer payment, there are still distinct differences between them, most typically the method of distribution.

Double salary at the end of the year is a kind of fixed salary. It is definitely a part of the salary; the amount of the bonus is fixed, and so is the method of distribution.
In this case, as agreed in the contract, the “13th Month Pay” equal to the amount of the pre-tax salary of the previous month would be provided at the end of each year. Deduced from this, we can see the time of the distribution is definite (the end of the year) and the amount of the salary is also certain (equal to the pre-tax salary of the previous month). There are no additional assessments required. Consequently, the wage payment for one year should be a salary of 13 months including the 12 months' regular salary and the 13th monthly salary; they are only different in the timing of each payment. It is fundamentally different from the bonus which is a merit-based reward.
What is uncommon is that the company sent the notification stating that it unilaterally changed the time of payment to the Spring Festival. Miss Yang obviously received this e-mail. The modification of the contract had become a fact. The key point is whether or not both sides agreed on this modification.
We assume the consultation does not necessarily require the two parties to negotiate, talk, and sign at the negotiating table. Actually, it is not always practical for people to sit and talk about everything.. In the case, Miss Yang left the company two years after the modification e-mail was sent. During the intervening period, she expressed no opposition and her actions showed that she had accepted the contract modifications of the company. Miss Yang accepted the bonus payment method in 2003, so it was confirmed in practice by both sides. Consequently, when Miss Yang left the post in 2005, the conditions needed to pay the double salary were not in effect. So, her claims cannot be supported.

IV. Final Judgment

The Court ruled that the modifications to the core content of the contract were major changes which required the consent of Miss Yang. In accordance with the facts of the case, and because the relationship between the employment unit and the laborer is different from the common relationship between two parties of the contract, the Court supported the plaintiff's claim from the view that the legal rights and interests of the laborer must be fully and realistically protected.

V. Expert Evaluation

The factual performance should be emphasized in modification of the salary.
Professor Dong Baohua from East China University of Political Science and Law

The year-end bonus is a traditional concept in China, while the double salary concept came into being in recent years with the emergence of foreign enterprises. Some companies even pay the 14th or 15th month salary. Then what is the nature of the bonus as distinctly different from the basic 12 month wage? There is no specific definition in relevant labor laws in China. Personally speaking, so-called 13th month salary has a different nature from the year-end bonus. It is wrong for the company to regard the 13th month salary as the same as a year-end bonus.
A bonus is a payment for extra work, and the year–end bonus is the payment for one year's extra work. It is distributed on the basis of an assessment of the employees' annual performance. In this sense, when employees have worked for several months, then the company should pay the year-end bonus proportionally according to the number of months they worked. The “13th Month Salary” is not used to assess annual performance; it simply changes the last month's salary into a double salary. So the functions are different.
Generally speaking, double salaries at the end of the year aim to keep the labor relationship steady and extended to the end of the year. As it was introduced from foreign countries, the double salary is linked with the western Christmas holiday. As a result, it is at the end of the year. The year-end bonus belongs to Chinese tradition with the purpose of assessing the annual performance of the employees. Suppose an employee leaves the company after working 10 months; he has no right to claim the double salary at the end of the year, but he does deserve 5/6 of the year-end bonus that is proportional to the number of months worked.
The other focus of the case is that when the company unilaterally modified the contract without the objection from the employee and the contract was fulfilled once after the change, can the company’s action still be deemed a modification of the original contract? The issue is complicated and it is controversial in academic fields. Generally speaking, there are two schools of thought.
One adopts a laborer-centric view to see which result is most beneficial to the laborers when making an agreement or actual performance of the contract and then adopt that favorable result. This is regarded as a slanted policy in labor law enforcement. I am not in favor of this view. Labor law should have legislation leaning toward protection of laborer’s rights, but this should not include slanted law enforcement. When the law is issued, it is correct to lean toward the rights of laborers and adjust the distribution of rights and obligations because of the fact that “the employers are powerful while the labors are less advantaged.” After that, enforcement should be in line with the principle that everyone is equal in the eyes of the law. This is a constitutional principle. If we have slanted law enforcement after issuing slanted legislation, this is “double adjustment,” and I don't think it is appropriate.
The other view is to adopt the principle of actual performance. Comparatively speaking, I prefer this view if it represents the declaration of one's true will. In practice, the principle of actual performance is actually a larger-scale treatment of remuneration. Generally, salary adjustments are usually made upwards, but the enterprise cannot guarantee that each upward step will be written into the labor contract. So, there is often better legal protection when the laborers justify the modification of the contract according to the principle of actual performance.
As a result, as far as this case is concerned, if the two parties changed the payment date of the double salary through actual performance, then I prefer that the new date be regarded as double salary payment date. In this single case, though it is not in favor of the laborer, it is beneficial to laborers in general. But the Labor Contract Law fails to take a step forward on the issue of actual performance. So, there still exists a hidden danger that the rights and interests of laborers will be imperiled by the unit.

From LexisNexis