Supplementary Pension Insurance

A considerable amount of supplementary pension insurance was verbally stipulated between Mr. Zhao and his employer, an equipment company. Nevertheless, the company later claimed that his supplementary pension insurance had already been suspended when his labor contract was terminated. Then, could Mr. Zhao successfully get his insurance payment? The lawyer in support of Mr. Zhao stated that the oral contract was legally valid in China, while the opposing lawyer in support of the company considered that such a stipulation about the pension insurance between the parties could not be included as part of a contract.

I. Case Playback

A staff member from a recruitment company informed Mr. Zhao that an equipment corporation was urgently seeking an administrative supervisor with a monthly salary of RMB 10,000 or more. In addition, Mr. Zhao was told that a supplementary pension insurance fund had been set up in this company and a supplementary pension insurance premium of about RMB 6,000 per month would be paid on his behalf. Faced with such favorable conditions, Mr. Zhao summarily submitted his resignation letter to his original company and took the job with this equipment company. Due to his strong work ethic, Mr. Zhao was quickly promoted to the position of Deputy General Manager with an increase in his monthly salary to RMB 20,000 or more. During his service in this company, the company continued signing and renewing labor contacts with Mr. Zhao, but none of the contracts ever mentioned the supplementary pension insurance.
After several renewals, the equipment company finally decided not to renew a labor contract with him. Hence, a labor relationship between Mr. Zhao and the company was naturally terminated. Mr. Zhao went to the company to carry out his unemployment formalities and settle his outstanding wages. Whereas the previously-guaranteed supplementary pension insurance was not found when his salary was settled, Mr. Zhao instituted an arbitration action against the company with the Labor Arbitration Committee after the company made it clear to him that he did not qualify for the supplementary pension insurance.
Mr. Zhao believed that the company guaranteed a monthly payment of RMB 6,000 towards his supplementary pension insurance in his labor contract and an item within his salary receipt called “non-salary benefits” listed the supplementary pension insurance of RMB 6,000.
This evidence verified that his supplementary pension insurance had been paid by the company and this insurance contribution should be paid to him in full. Meanwhile, Mr. Zhao learned that a supplementary pension insurance plan had been submitted to the Social Insurance Fund Administration Center by the company in that January, and the plan would be implemented on June 1 of that year. Hence, he thought that the equipment company should return him a total amount of RMB 500,000 of his supplementary pension insurance premium accumulated since 1996.
Representatives of this company held the point of view that the main source of the company’s supplementary pension insurance fund came from 200% of the fund payment from its former Chinese-foreign　joint　venture　and　cooperative　enterprise as a kind of welfare for the employees.
The company paid the benefit premium for employees for only one year before they stopped paying this insurance premium for various reasons. During this period, the company made a new distribution plan for the supplementary pension insurance. The payment of the supplementary pension insurance premium was entirely voluntary, and the distribution plan for this supplementary pension insurance was entirely within the self-management authority of the enterprise.
Although the new implementation methods of the company’s supplementary pension insurance were submitted to the Social Security Affairs Administration Center in January, the system had not yet been implemented at the time when Mr. Zhao left the company. According to the new supplementary pension insurance regulations, this insurance could apply only to employees who have a working relationship with the company and are currently on the corporate staff. Therefore, those employees who have already left the company naturally do not have a right to these benefits. Because the supplementary pension insurance funds of this company had not yet been distributed when Mr. Zhao left his company, he had no right to claim an allotment of this insurance.

II. Legal Background
Section 1
A labor contract is the agreement reached between a laborer and a unit about the establishment of the labor relationship and the confirmation of the rights, interests and obligations of each party. Signing a written labor contract has been determined as a prerequisite of the establishment of a labor relationship both in the Labor Law and the Labor Contract Law. The clauses of a labor contract can be divided into three sections namely: required clauses, optional clauses and clauses stipulated at will by the parties.
Required clauses are those that must be included in the labor contract. Seven kinds of required clauses are regulated in Article 19 of the Labor Law. They are clauses including the term of a labor contract, the contents of working tasks, labor protections and working conditions, pay, working discipline and rules, conditions for the termination of a labor contract, and responsibility for the violation of a labor contract.  Article 17 of the Labor Contract Law increases the number of required clauses to nine: (1) the name, residence and legal representative or senior leadership in charge of the Unit; (2) the name, residence and resident identification card number or other valid identification documents of the laborer; (3) the term of the labor contract; (4) the job description and the work site; (5) working hours, rest and vacation; (6) labor remuneration; (7) social insurance; (8) labor protection, working conditions and occupational hazard prevention; and (9) other matters which laws and regulations require to be included in labor contracts. Apart from that, it is further stated in Article 18 of the Labor Contract Law: “If a dispute arises due to the fact that the rate or standards for labor remuneration or working conditions, etc. are not explicitly specified in the labor contract, the Unit and the laborer may renegotiate. If the negotiations are unsuccessful, the provisions of the collective contract shall be applied. If there is no collective contract or the collective contract is silent on the labor remuneration rate, the Unit should offer the laborer equal pay for equal work; if there is no collective contract or the collective contract is silent on the working condition standards, the relevant regulations of the state shall be applied.” If the unit fails to include the required clauses in the labor contract, a legal consequence is regulated in Article 81 of the Labor Contract Law, “the labor administration department shall order rectification; if the laborer suffered harm as a result thereof, the Unit will be liable for damages.”
Optional clauses are those articles that the parties may determine whether to stipulate in a labor contract. However, once the parties agree on stipulating optional clauses, they shall be established according to the laws and regulations of the state and comply with mandatory standards. The Labor Law lists optional clauses such as probation period, terms of service, terms of confidentiality, social insurance, etc. The Labor Contract Law summarizes all the optional clauses in Article 17, Sub-Article 2 which regulates that, in addition to the required clauses mentioned above, a unit and a laborer may agree to stipulate other matters in the labor contract, such as probation period, training, confidentiality agreements related to trade secrets, supplementary insurance and benefits, etc.
Clauses stipulated at will by the parties, in addition to the required clauses and the optional clauses, include any clauses that are legally permitted to be agreed upon between the laborer and the unit.

Section 2
The enterprise’s supplementary pension insurance in this case was a kind of benefits system established to promote the welfare of the laborers. After the unit fulfills the obligation of paying the required social insurance premium for the laborers, it may legally pay additional insurance premiums for the laborers to promote the laborers’ welfare after retirement.
The clause on supplementary pension insurance is regarded as an optional clause both in the Labor Law and the Labor Contract Law. In other words, these articles about supplementary insurance can be stipulated conditionally based on a consensus reached between the parties in a labor contract or other relevant contract.
The employer pays a certain amount of the insurance premium into the individual account of the laborer. And the Social Security Department is in charge of the management and oversight of the supplementary pension insurance. After retirement, the employees are able to enjoy this supplementary pension insurance agreed to in the labor contract and distributed by the Ministry of Social Security. But an annuity system operated by private professional institutions is gradually taking the place of this kind of supplementary pension insurance.

III. Lawyers Debate

A verbal contract should also be performed.
Lawyer Zhang Zhi Hong from Shanghai Zhen Dan Law Firm in support of Mr. Zhao

Mr. Zhao had the right to receive this supplementary pension insurance. It has been clearly regulated in Article 75 of the Labor Law that the state shall encourage the employer to set up supplementary insurance for laborers as practicable. The Notification on the Establishment of the Supplementary Pension Insurance System by the Enterprises (#464) issued by the Ministry of Labor in 1995 further details the implementation of such supplementary pension insurance systems. Article 9 of the Notification states that an employer can establish individual supplementary pension insurance accounts. Hence, it can be legally determined that Mr. Zhao has a legitimate right to this supplementary pension insurance premium.
Besides, the company had promised to pay the supplementary pension insurance premium for him when Mr. Zhao was working in this company. Although no specific form or amount of the supplementary pension insurance was recorded in his labor contract, the payment of the insurance premium was documented in his salary receipt. The effectiveness of the verbal contract is verified according to the relevant regulations in Contract Law. It is groundless to deny the obligation to fulfill a contract even if a provision is not included in the written contract. More importantly, the supplementary pension insurance premium was actually paid by the company as was already indicated in his salary receipt. This illustrates that the employer has performed the act of payment in fact, and the oral contract ought to be considered effective.
Second, the point of view raised by the company, namely that the implementation methods were not yet approved by the Administrative Department and therefore the supplementary pension insurance should not be paid to the employee when he left the company, is quite groundless. According to the current regulations of supplementary pension insurance in China, the enterprise is only required to submit records of this system to the related institution after its establishment and, even then, there is no compulsory prescription about an administrative approval requirement.

Salary receipts cannot be part of a labor contract.
Lawyer Zhang Hai from Shanghai Zhong Yuan Lan Tian Law Firm in support of the unit

Neither the form of payment nor the amount of the supplementary pension insurance was stipulated in the labor contract signed between Mr. Zhao and the equipment company. The “non-salary benefits” listed in his salary receipt were disbursed as a unilateral act of the company and should not be thought of as a contractually binding declaration of will. According to the Decision on the System Innovation of the Supplementary Pension Insurance for the Employees in the Enterprise (#33) issued by the State Council in 1993, a supplementary pension insurance system may be established for employees based on the economic capability of the enterprise itself. It indicates that the establishment of the Supplementary Pension Insurance Fund is simply a voluntary act of the enterprise. The premium of the supplementary pension insurance should be deposited to the employee’s individual account. Nevertheless, these funds cannot be transferred to an employee’s individual account until the enterprise gains the right of distribution. Of course, this money is not yet the employee’s personal property. The transference of the property has not yet occurred and consequently the transference of ownership has not yet occurred. It can be concluded from this case that Mr. Zhao could not receive compensation from the supplementary pension insurance fund because the distribution plan had not yet been approved and put on record when he left the company.

IV. Final Judgment

The Arbitration Committee ruled that the evidence provided by Mr. Zhao, his salary receipt which showed that an amount of the supplementary pension insurance premium was paid by the company, only illustrates that the company was liable to pay a pension insurance premium and did not prove that the company had an obligation to pay Mr. Zhao the listed sum of money. As a result, Mr. Zhao’s request for payment of the supplementary pension insurance premium by the company was denied by the Arbitration Committee due to insufficient evidence.

V.  Editor Evaluation

This case focused upon the legal force of the supplementary pension insurance agreement. The provision of supplementary pension insurance is regarded as an optional clause in both the Labor Law and the Labor Contract Law. It comes into effect only if stipulated in the labor contract. It is regulated that only a written labor contact can be evidence of the agreement between two parties; because Mr. Zhao only entered into an oral agreement with the company regarding the supplementary insurance, such an agreement cannot be supported by law. Since it was not agreed by both parties in the written contract, the payment of supplementary pension insurance for Mr. Zhao is regarded only as the company’s voluntary decision.
As for the supplementary pension insurance expense listed in Mr. Zhao’s salary receipt, I consider it a valid declaration of the company’s will to have paid the listed premium to Mr. Zhao. After his retirement, Mr. Zhao is able to receive the pension provided by the Social Security Department according to the relevant regulations of the company during the time period when it paid the premiums for Mr. Zhao. As for the new annuity plan of the company, as the plan had not come into effect by the time his contract came due and he was not continuing his contract with the company, Mr. Zhao did not have the right to the annuity distribution. Hence, the arbitration judgment in this case was correct.
Furthermore, it should be specified here that supplementary pension insurance does not equal social insurance. Supplementary insurance is characterized by an idea that the rich can and should help the poor, which is often displayed in the unequal premium contributions and, in the distribution process, unequal pension payments. It is legally allowed that a part of the supplementary pension insurance premium that originally belongs to “the rich” like Mr. Zhao as a senior white collar can be reallocated to other poorer company personnel. The specific allocation method is dependent upon the plan made by the company or an agreement reached between the employee and the company. In this case, the view held by Mr. Zhao that the monthly insurance premium collected on his behalf by the company was the amount that should distributed to him was not accurate.

VI. Editor’s Final Comments

In the previous case, we talked about the significance of signing a written labor contract in general. This case informs us from detail perspective that, for a laborer, any agreement made with the employing unit should be recorded in the form of a written document.
 Although the legislation of the labor law system leans to the laborers’ favor, the legislation secures only the basic rights of the laborer to survive and work such as the rights to a minimum wage, maximum working hours, etc. Even if the laborer does not stipulate these items with the unit in written form, the unit is still liable to guarantee those basic rights of laborers.
However, for treatment above these minimum standards, the laborer has the burden of proof to show the agreement between himself and the unit about such benefits if they are not recorded in the written contract. Such evidence is extremely difficult for laborers to produce, as they are always in the weaker position within the labor relationship. In this case, it is just because of a lack of evidence that Mr. Zhao eventually lost the lawsuit.
I don’t recommend that laborers establish verbal agreements with their employing unit, especially when there is no witness. In particular, in terms of those benefits that cannot be offered all at once like insurance premiums and on-going professional training, laborers are better off safeguarding their vested interests by signing a written agreement with the employing unit.