Zhiheng Interpretation | Jurisprudence Reconstruction and Practice Guide for the Restoration of Labor Relations after the Unlawful Dissolution of Employers
Author | Attorney Liu Mocheng
Article 48 of the Labor Contract Law explicitly stipulates that if an employer unlawfully terminates or ends a labor contract, and the employee requests continued performance of the contract, the employer shall continue to perform the contract. This provision establishes the principle of “priority for continued performance,” with the aim of fundamentally rectifying unlawful conduct, safeguarding workers’ right to employment, and restoring lawful labor relations.
However, this idealized legal principle faces numerous practical challenges in complex judicial practice. Labor relations are characterized by a high degree of personal dependency, and their maintenance relies on mutual trust and cooperation between the parties. The employer’s unlawful termination of the employment relationship itself often inflicts irreparable damage to this foundation of trust.
In this context, forcibly reinstating the employment relationship may exacerbate tensions between the parties, give rise to new managerial conflicts, and render the compelled continuation of the relationship merely nominal. Meanwhile, in judicial practice, the criteria for determining the exception that “the labor contract can no longer be performed” have long remained vague and unclear, resulting in inconsistent standards of adjudication and giving rise to numerous disputes.
In response to the aforementioned difficulties, Article 16 of the Supreme People’s Court’s recently issued “Interpretation (II) on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases” (hereinafter referred to as “Interpretation (II)”) fundamentally restructures the criteria for determining that a “labor contract can no longer be performed” by adopting a closed-list enumeration combined with strict limitations on the catch-all provision, thereby strictly confining the determination of “impossibility of performance” to objective facts at the legal and physical levels.
This article focuses on an in-depth analysis of the legal and practical implications arising from the new regulations, and on this basis provides parties with clear, pragmatic legal guidance and risk-assessment strategies.
One
A Review of Past Judicial Rules
A systematic analysis of recent final judicial documents involving claims for the restoration of labor relations—particularly several cases from the Guangdong Provincial Higher People’s Court—reveals that courts do not mechanically apply the principle of “continued performance as a priority” established in Article 48 of the Labor Contract Law. Instead, they generally take into account the trust-based foundation of the labor relationship, the practical feasibility of its objective performance, and the legislative goal of fostering and developing harmonious and stable labor relations, as emphasized in Article 1 of the Labor Contract Law, thereby demonstrating a marked tendency toward prudence and pragmatism.
The courts’ adjudicative tendencies exhibit the following key patterns:
1. Give priority to protecting vulnerable groups, especially female employees in the “three periods.”
In cases involving female employees during the “three periods” (pregnancy, childbirth, and breastfeeding), courts demonstrably tend to favor the protection of workers’ rights. In such cases—such as the labor dispute between Zhou and a trading company in Guangzhou, as heard by the Guangzhou Intermediate People’s Court, and Case No. (2020) Sichuan 01 Min Zhong 12562—even if certain objective obstacles exist, courts tend to favor enforcing continued performance of the contract, so as to safeguard these employees’ employment stability and sources of income during this special period.
2. Taking “objective impossibility” as the core element for rejecting the request.
In the majority of cases in which workers’ applications for retrial are dismissed, the courts’ primary rationale is that the contract is “objectively impossible to continue performing.” Here, “objective impossibility” refers to facts that are physically or legally irreversible. For example, in cases (2021) Yue Min Shen No. 2304 and (2020) Yue Min Shen No. 4255, the original position was abolished, and the courts tended to hold that the contract no longer had a practical basis for performance.
Other similar “objective impossibility” scenarios include: the employer entity ceases to exist—e.g., in cases (2020) Yue Min Shen Nos. 4720 and 4721, the employer’s branch had been deregistered, rendering the original employment contract incapable of further performance; or the employee has taken up alternative employment, and the new position directly conflicts with the original one—e.g., in case (2020) Yue Min Shen No. 12579, the court held that, because Xie had assumed the roles of legal representative and senior executive at a new company, the contract lacked the necessary conditions for continued performance.
3. The breakdown of “personal association” has become an important supplementary factor in cases that do not fall under the “three-period” category.
In previous judicial practice, particularly in cases involving managerial or senior-level positions, courts have regarded “a breakdown of trust” as either a supplementary or decisive factor in determining whether performance has become objectively impossible. For example, in cases (2020) Yue Min Shen No. 4034 and (2019) Yue Min Shen No. 13941, the courts held that employees serving as senior management personnel of a company are subject to a higher standard of fiduciary duty.
Given that the parties have already become embroiled in litigation and lack the requisite foundation of trust, the court has determined that the contract cannot, in objective terms, be further performed. However, in the absence of explicit statutory provisions, courts regard the “personal nature” of the employment relationship as a core factor and, in conjunction with the concept of “objective impossibility,” use it to determine whether an employment relationship exists.
This essentially allows employers to invoke the subjective defense of “breach of trust,” thereby undermining the principle that “continued performance takes precedence.”
4. The employer’s “subjective unwillingness” is not equivalent to “objective inability.”
Of course, judicial practice is not entirely biased in favor of employers. In a small number of cases, the courts have adopted a more stringent standard of review in evaluating the employer’s defenses. For example, in case No. (2021) Yue Min Re 53, the court explicitly held that although the employer did not consent to the continued performance of the labor contract, it failed to submit evidence demonstrating that there were objective circumstances rendering the labor contract with Chen unenforceable in practice.
The court holds that it is not tenable to conclude that the contract lacks the objective conditions for performance solely on the ground that the employer is subjectively unwilling to continue performing it.
List of retrieved and analyzed cases:
1. (2020) Su 0412 Min Chu 6374 No., Wujin District People’s Court of Changzhou City
2. (2022) Guangdong Min Shen No. 144, No. 145, Guangdong Provincial Higher People’s Court
3. (2019) Guangdong Min Shen No. 11229, Guangdong Provincial Higher People’s Court
4. (2020) Guangdong Min Shen No. 4851, Guangdong Provincial Higher People’s Court
5. (2020) Guangdong Min Shen No. 4034, Guangdong Provincial Higher People’s Court
6. (2021) Guangdong Min Shen No. 2304, Guangdong Provincial Higher People’s Court
7. (2020) Guangdong Min Shen No. 4720, No. 4721, Guangdong Provincial Higher People’s Court
8. (2021) Guangdong Min Re No. 53, Guangdong Provincial Higher People’s Court
9. (2019) Guangdong Min Shen No. 12020, Guangdong Provincial Higher People’s Court
10. (2020) Sichuan 01 Civil Final Judgment No. 12562, Intermediate People’s Court of Chengdu City, Sichuan Province
11. (2020) Yue Min Shen No. 4255, Guangdong Provincial Higher People’s Court
12. (2020) Guangdong Min Shen No. 12579, Guangdong Provincial Higher People’s Court
13. (2019) Guangdong Min Shen No. 13941, Guangdong Provincial Higher People’s Court
14. The Guangzhou Intermediate People’s Court of Guangdong Province has released Case No. 3 among its typical cases on the protection of female employees’ rights and interests: the labor dispute between Ms. Zhou and Guangzhou Trading Co., Ltd., Guangzhou Intermediate People’s Court, Guangdong Province.
Two
Normative Reconstruction of Article 16 of the "Interpretation (II)"
Article 16 of the "Interpretation (II)" fundamentally reshapes the application logic of Article 48 of the "Labor Contract Law" by employing a closed-list enumeration combined with strict limitations on the catch-all provision. This measure puts an end to the era in which employers excessively relied on vague and subjective defenses such as the “breach of the foundation of trust” or the “loss of personal cohesion,” and strictly confines the criteria for determining “impossibility of performance” to objective facts under law and in a physical sense.
This means that, after the "Interpretation (II)" takes effect, if an employer claims impossibility of performance solely on subjective and emotional grounds such as "management conflicts," "deterioration of relations," or "lack of trust," the people's court will not uphold such claims. Subjective factors no longer constitute an independent ground for exemption from liability; they may only serve as one of the auxiliary reference factors in assessing whether “other objective impossibilities” exist, and must be evaluated in conjunction with specific factual evidence, rather than being based solely on emotional antagonism.
The following is a detailed analysis of each of the six statutory circumstances:
1. The labor contract expires during the course of arbitration or litigation, and there are no circumstances under which it should be renewed or extended in accordance with the law.
The key requirement in this scenario is that the expiration of the contract term must occur during the pendency of labor dispute arbitration or litigation proceedings, and there must be no grounds under Article 14 of the Labor Contract Law (requiring the conclusion of an open-ended contract), Article 42 (applicable to, for example, female employees in the “three-period” protection period or employees undergoing medical treatment), or Article 45 (statutory extension of the contract term) that would necessitate renewal or automatic extension.
2. When a worker begins to receive basic old-age insurance benefits in accordance with the law.
The expressly stated ground for termination under this provision is not “reaching the statutory retirement age,” but rather “commencing to receive basic old-age insurance benefits in accordance with the law.” This means that, during its review, the court must focus on verifying the authenticity and timing of when the employee began receiving a pension, rather than merely considering whether the employee has reached retirement age.
3. Where the employer is declared bankrupt;
This provision strictly limits the statutory time for the impossibility of performance to the date on which the court’s formal bankruptcy declaration becomes effective. The initiation (acceptance) of bankruptcy proceedings does not yet constitute absolute impossibility of performance, as at this stage the enterprise still has the possibility of reorganization, compromise, or liquidation, and its legal person status has not been completely extinguished. This provision precludes employers from invoking the defense of impossibility of performance on the ground that they have entered bankruptcy proceedings.
4. The employer is dissolved (except where dissolution is required due to merger or division);
This provision strictly limits the scope of “dissolution” to only those types that result in the complete termination of the employing unit’s legal person status, such as dissolution by a resolution of the shareholders’ (general) meeting, revocation of the business license by an administrative authority, or an order to cease operations. It explicitly excludes the dissolution of an enterprise resulting from a merger or division, as the rights and obligations are typically assumed by the successor entity following such a merger or division.
5. Where a worker has already established a labor relationship with another employer, and such relationship seriously impairs the performance of the original employer’s work tasks, or where, upon the original employer’s request, the worker refuses to terminate the labor contract with the other employer;This regulation employs a dual-tiered standard of determination:
(1) On the objective impact level: the new employment relationship established by the employee has substantially hindered the employee’s performance of their work duties under the original employment contract (e.g., due to competitive conflicts or overlapping work hours that prevent the provision of labor); (2) On the subjective intent level: after a clear written request from the original employer, the employee refuses to terminate the employment relationship with the new employer.
6. Catch-all provision: Other circumstances where performance is objectively impossible.
ThisBottom-line guarantee clause also represents a strict narrowing of previously vague criteria for determination, and its application is limited to situations in which the purpose of the labor contract can no longer be achieved, either physically or legally. For example, the original position may be permanently eliminated due to the employer’s organizational restructuring or the discontinuation of an entire business line, and the employer is unable to offer a reasonable alternative position with comparable pay and job level.
This provision is intended to exclude subjective disputes (such as marital discord or management difficulties) and to focus instead on irreversible objective obstacles.
Three
The demand to restore the employment relationship
Practical Operations and Risk Assessment
The promulgation of "Interpretation (II)" undoubtedly provides stronger legal protection for workers seeking to restore their employment relationship. However, a legal victory does not necessarily equate to practical success. Although the new regulations address the legal determination of “impossibility of performance,” they fail to resolve the inherent issue of “personnel integration” in labor relations and cannot guarantee the protection of workers’ rights following mandatory resumption of work.
Therefore, both employees and employers must carefully weigh legal rights against practical advantages and disadvantages.
1. From Legal Recognition to Real-World Dilemmas
An arbitration award or court judgment restoring the employment relationship legally rectifies the employer’s unlawful conduct, yet its implementation poses unique challenges. Labor relations differ from ordinary creditor-debtor relationships; their maintenance depends on the mutual trust and cooperation between the parties. The court may order reinstatement, but it cannot forcibly repair a trust relationship that has already been damaged, nor can it compel the employer to provide meaningful work and a positive work environment.
Therefore, even if a worker obtains a favorable judgment, they may still face “secondary risks.” After the mandatory resumption of work, employers may resort to covert retaliation or marginalization by means such as reassignment, reduction of job duties, or failure to provide necessary tools or information, thereby placing employees in the awkward situation of “winning the lawsuit but having no position” or being placed on standby and left idle.
Furthermore, employers may seek new “legal” grounds—for example, claiming that the employee is “unable to perform the job” or has “seriously violated company rules and regulations”—to terminate the employment contract once again. This series of risks may trap workers in a new cycle of litigation, ultimately leaving them without any meaningful redress.
2. Strategic Recommendations for Workers
(1) Before asserting a claim for reinstatement of the employment relationship, the employee must conduct a comprehensive risk assessment. Unless the employee is a female worker in her “three-period” status or belongs to another special group within the statutory medical period—both of which face significantly greater difficulties in re-employment—restoring the employment relationship holds irreplaceable practical value and should therefore be given priority when considering such a request.
Otherwise, for ordinary workers, after weighing litigation costs, emotional stress, difficulties in enforcement, and secondary risks, pragmatically prioritizing the pursuit of financial compensation is often a more efficient and realistic choice.
(2) If you choose to seek reinstatement, you should diligently gather evidence to demonstrate that the employer’s original position or a reasonable alternative position objectively exists, and indicate to the court your willingness to cooperate with any reassignment. At the same time, when the employer raises the defense of “dual employment relationships,” you should promptly declare your intention to terminate the new employment relationship, thereby avoiding falling into the employer’s trap of “impossibility of performance.”
3. Response Strategies for Employers
(1) Before terminating a labor contract, the employer shall strictly adhere to legal procedures and exhaust all available measures, including negotiation, advance notice, and the provision of a reasonable job reassignment plan. With respect to female employees in the “three periods,” employers must strictly comply with legal provisions and may not terminate their employment contracts on the grounds set forth in Articles 40 and 41 of the Labor Contract Law.
(2) When faced with a request for reconciliation, one may no longer deflect with subjective excuses such as “trust has been broken.” Article 16 of the "Interpretation (II)" should be cited precisely, and hard, objective evidence should be provided, such as internal documents regarding the abolition of the position, business outsourcing contracts with third-party companies, or industrial and commercial registration information showing that the employee serves as a senior executive in a new entity, etc.
(3) If the court orders reinstatement, the employer should refrain from engaging in covert retaliatory actions, as such conduct may not only give rise to new legal disputes but also damage the company’s reputation. It may be advisable to renegotiate with the employee and offer compensation exceeding the statutory minimum in exchange for a settlement, thereby fully resolving the dispute.
Conclusion
The promulgation of "Interpretation (II)" has provided strong normative support for standardizing judicial standards and correcting the tendency to over-rely on subjective factors in adjudication by establishing a closed, objective list of statutory circumstances of impossibility of performance. It shifts employers’ defenses from vague subjective speculation back onto the track of objective facts, fundamentally strengthening the effectiveness of Article 48 of the Labor Contract Law and safeguarding the legitimate rights and interests of workers.
However, it must be emphasized that, for both employees and employers, the ultimate path to realizing the legislative intent of labor laws is not merely the resolution of disputes, but rather the establishment and development of harmonious and stable labor relations. Employers should strictly comply with labor laws and regulations in their employment management practices and take proactive measures to prevent unlawful terminations at the source, thereby effectively reducing such disputes and fostering a positive interaction between legal rights protection and real-world employment relationships.
Author
Introduction
Liu Mocheng
Zhiheng (Qianhai) Law Firm
Member of the Zhiheng Center for Family Law and Wealth Succession Legal Affairs
Deputy Director, Corporate Compliance Department, Legal Affairs Center, Zhiheng Company
Professional field:
Corporate legal counsel, compliance, family and marriage law, intellectual property
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Zhiheng · Introduction