Recently, attorneys Ye Jing and Cai Kangmiao of King&Capital Law Firm were retained to represent a senior executive on an annual salary system in a labor dispute case involving the denial of performance-based bonuses following the executive’s resignation. The case spanned nearly two years, proceeding through labor arbitration, first-instance trial, and second-instance appeal. Ultimately, at the second-instance stage, the firm achieved a complete victory, securing “full payment of performance bonuses” and “the company’s liability for preservation costs,” demonstrating the attorneys’ exceptional professional competence in handling complex labor cases.
I. Case Background
The client in this case previously served as General Manager at a state-owned enterprise. He had signed an open-ended employment contract with the company and was compensated under an annual salary system. The annual salary consisted of a base salary and a performance-based bonus. The base salary was paid monthly, while the performance-based bonus was paid in a lump sum during the second half of the following year. In June 2022, the client resigned for personal reasons. After the resignation, the company refused to pay the performance-based bonus for the period from January to June 2022, citing the policy that “voluntary resignation disqualifies the employee from receiving the performance-based bonus for that year.”
Upon accepting the case, attorneys Cai Kangmiao and Ye Jing immediately reviewed the facts and formulated a clear strategy for protecting the client’s rights. On October 10, 2023, the client filed an arbitration application with the Labor and Personnel Dispute Arbitration Commission, demanding that the company pay the performance-based salary for the period from January 1 to June 30, 2022. The Arbitration Commission held that the annual salary system is fundamentally different from a one-time year-end bonus, and that the distribution of year-end bonuses falls within the company’s discretion. However, since the client was employed under an annual salary system, they were entitled to receive the annual salary upon providing labor. Although the client resigned for personal reasons, this did not affect their entitlement to the performance-based annual salary. The company’s failure to pay the performance-based annual salary for the period from January to June 2022 was clearly improper. The arbitration commission ultimately ruled that the company must pay the client the full amount of the performance-based annual salary for January to June 2022 as requested.
After the arbitration award was issued, the company, dissatisfied with the decision, filed a lawsuit in court, requesting a reversal of the award and a ruling that it was not required to pay the performance-based annual salary. Upon receiving the court summons, the client applied for a property preservation order, which resulted in the freezing of the company’s bank accounts.
II. Key Issues in Dispute
Once the litigation proceedings began, the parties contested the following key issues:
1. Does Voluntary Resignation Affect Eligibility for Performance-Based Salary?
The company presented the “Management Measures for Mid-Level Managers” issued by its superior unit, along with screenshots of emails, arguing that “employees who resign for personal reasons shall not be paid the current period’s or remaining annual performance-based income.” The client’s attorney countered by challenging the admissibility of the evidence: First, the company failed to provide evidence demonstrating that the policy document was formulated through democratic procedures and had been publicly served to the client; Second, the email recipient’s address was the company email account used by the client during employment; since that account was deactivated after the client’s resignation, the client could not verify the email’s authenticity; finally, the email content did not display the full text of the policy, and a single policy ledger alone cannot prove that the client received and was aware of the specific provisions. Ultimately, the court of first instance accepted our counsel’s arguments.
2. Whether Performance-Based Wages Should Be Multiplied by an Evaluation Coefficient
The company also submitted a notice issued by its superior authority regarding the standards for performance-based compensation, arguing that the company’s overall evaluation coefficient for the 2022 fiscal year was 0.95, and that as the company’s general manager, the client’s performance-based wages should be calculated using this coefficient. Our attorney pointed out, however, that this document was issued after the client’s resignation and therefore should not apply to him. Pursuant to Article 4 of the Labor Contract Law, the aforementioned document constitutes a modification by the employer of rules and regulations concerning labor remuneration—a matter directly affecting the employee’s vital interests. The company failed to provide evidence demonstrating that the document was formulated through lawful procedures, decided upon via democratic processes (such as discussion by the staff congress or the trade union), publicly announced, and communicated to the client. Consequently, this notice has no legal effect on the client. Furthermore, the Employment Contract signed between the company and the client in this case does not explicitly stipulate that performance-based wages require an evaluation to determine the final amount to be paid. Each internal document issued by the appellant’s superior unit clearly states that the total of the appellant’s base salary and performance-based wages constitutes the standard annual salary—i.e., an “annual salary system”—which should be paid on a fixed schedule. If the company asserts that performance-based wages should be calculated based on an evaluation coefficient, the company bears the burden of proof to demonstrate that it has consistently distributed employees’ performance-based wages according to a specific coefficient each year. This includes, for example, documents showing that the distribution of employees’ performance-based wages according to a specific coefficient has undergone democratic procedures, as well as records of the appellant’s performance-based wage payments from previous years based on a specific coefficient.
III. Judgment
The court of first instance ruled that the client’s voluntary resignation did not affect the payment of his performance-based annual salary, but accepted the 0.95 performance coefficient submitted by the company. Although our claims were partially upheld, the awarded amount was approximately 35,000 yuan less than the labor arbitration award. Both parties appealed the first-instance judgment. The company maintained that it should not pay the client’s performance-based salary, while the client argued that the salary should not be calculated using a 0.95 performance coefficient and should be paid in full.
Just as the two sides were locked in a stalemate, during the second-instance proceedings, our client was notified that the company had agreed to mediation. The company agreed to make a one-time payment of the full annual performance-based salary requested by our client, with all preservation fees to be borne by the company. After the civil mediation agreement took effect, the company fulfilled its obligation by making the full payment on schedule.
IV. Case Handling Insights
When the first-instance judgment awarded an amount 35,000 yuan less than the labor arbitration award, the client expressed hesitation: Should we continue to appeal? Should we accept this “discounted” outcome? At that time, the reality was clear: continuing the appeal would entail additional time and litigation costs, and it is well known that overturning a judgment on appeal is difficult, with an extremely low success rate. However, after careful evaluation, the handling attorney still advised the client to file an appeal. This decision was not based on blind optimism, but rather on an anticipation of “unknown factors.”
After the case entered the second-instance proceedings, there was a change in the company’s leadership. While this change appeared unrelated to the case itself, it became a critical turning point in subsequent negotiations. The handling attorney had successfully applied for property preservation during the first-instance proceedings, freezing the company’s accounts. The new leadership was inclined to resolve pending litigation properly, as they did not wish for the company to remain mired in disputes for an extended period. Furthermore, the freezing of the company’s accounts substantially impacted its normal operations, thereby creating room for mediation.
Litigation is like a chess game; victory or defeat does not hinge on the gain or loss of a single move, but on control of the entire board. A comprehensive victory in the labor arbitration stage does not guarantee a definitive outcome in the first-instance trial; similarly, a partial defeat in the first instance does not mean the case is beyond salvage in the second instance. Every “unknown factor” in a case can become the “butterfly’s wing” that alters the course of the game. A lawyer’s duty is to keenly identify these variables, make decisive decisions at the right moment, and transform uncertainty into certainty that benefits the client.
