How to determine years of service of employee who is continuously employed by affiliated companies

Question

Employee A entered into an employment contract with Company B, the term of which is from July 1, 2017 to June 30, 2020. Upon expiry of the employment contract, Company B informed A to enter into a new employment contract with Company C, which is an affiliated company of Company B. The term of the contract is one year, and the work location and position remained unchanged. One month before the expiry of the employment contract, Company C notifies A that the contract will not be renewed. How much economic compensation should Company C pay Employee A?

Our opinion

In accordance with Article 10 of the related Implementing Regulations, where an employee is transferred from his/her former employer to a new employer for reasons not attributable to himself/herself, his/her years of service with the former employer shall be consolidated into his/her years of service with the new employer. If the former employer has paid economic compensation to the employee, the new employer shall not take into account the employee's years of service with the former employer when calculating economic compensation payable to the employee for terminating or dissolving the employment contract in accordance with the law.

In addition, according to Article 46 of the Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (I), where an employee is transferred from his/her former employer to a new employer for reasons not attributable to himself/herself, the former employer does not pay economic compensation, and the employee terminates the employment contract with the new employer pursuant to the provisions of Article 38 of the Employment Contract Law, or the new employer proposes rescission or termination of the employment contract with the employee, if the employee requests to consolidate his/her years of service with the former employer to that of the new employer for the purpose of calculation of economic compensation or damages, the people's court shall uphold the request.

Where an employer falls under any of the following circumstances, it shall be deemed that "an employee is transferred from his/her former employer to a new employer for reasons not attributable to himself/herself":

(I) The employee is still working at the original workplace and position, but the subject of the employment contract is changed from the former employer to the new employer;

(II) The employer transfers the employee to other jobs in the form of designation or appointment by the organization;

(III) The employee is transferred to other jobs due to merger or division of the employer, etc.;

(IV) The employer and its affiliated enterprises enter into employment contracts with the employee in turn; and

(V) Other reasonable circumstances.

To sum up, if an employer does not pay economic compensation to an employee when the employee terminates the employment relationship with his/her former employer, his/her years of service with the new employer and that with the former employer shall be consolidated when the employee terminates the employment relationship with the new employer. If the employer attempts to reduce employment costs and the payment of economic compensation through conclusion of an employment contract between affiliated companies, it is difficult to be upheld by the court.

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