[Q&A] Interpreting
2025. 3. 14
Question: How to Accurately Interpret "Incompetence of the Employee" in Article 40 of the Labor Contract Law Regarding No-Fault Dismissal?
Answer: Article 40, Paragraph 2 of the Labor Contract Law stipulates that if an employee is unable to perform their job duties and remains incompetent even after receiving training or being reassigned to a different position, the employer may terminate the labor contract by providing the employee with a 30-day written notice or by paying an additional month's salary in lieu of notice.
This provision reflects one of the most fundamental conflicts of interest in labor relations. On one hand, the determination of "incompetence" directly affects the employee's right to employment. On the other hand, it concerns the employer's right to dismiss. Therefore, accurately interpreting and applying this clause is crucial for enterprises seeking to balance the interests of both parties and maintain social stability.
From a legislative perspective, the fundamental purpose of this provision is to ensure that the employment relationship enables the employer to receive continuous labor performance to achieve employment benefits. Thus, if an employee is unable to fulfill their labor obligations due to insufficient work capabilities, and when the fundamental purpose of the employer's labor contract cannot be achieved due to prolonged and continuous non-performance, the employee may be deemed incompetent.
However, this interpretation remains highly abstract and theoretical. Based on an analysis of judicial cases involving this clause on online platforms, the probability of courts and labor arbitration tribunals actually recognizing an employee's incompetence is less than 10%. To safeguard the reasonable and lawful employment interests of enterprises, we recommend seamlessly integrating the "incompetence" clause with the company's labor management system, particularly the performance evaluation system, while retaining procedural evidence. Below are suggestions for scientifically establishing such a system:
1. Develop a Performance Evaluation Plan
Publicly announce the performance evaluation plan company-wide and provide each employee with a job description for their position. Retain evidence demonstrating that the performance evaluation plan has been publicly announced and that employees have received and acknowledged their job descriptions through the communication system. When formulating the performance evaluation plan, "incompetence" should be quantified specifically, rather than relying on systems like "forced ranking",which only relatively reflect insufficient labor performance. Additionally, differentiated quotas and metrics should be established for employees in different positions to ensure the plan's rationality and relevance.
2. Refine the Evaluation Process
When evaluating an employee's performance for each cycle, focus on workload or actual task completion rather than using scoring or grading systems that do not directly reflect the employee's actual output. After each evaluation, ensure that records such as email notifications, internal system announcements, and public training sessions are retained to confirm that employees are aware of their performance evaluation results and that these results have been delivered to them. If an employee commits a serious error or receives customer complaints during the evaluation period, relevant evidence should also be retained.
3. Implement Appeals and Training
After each internal determination that an employee is "incompetent", provide the employee with a platform and mechanism to appeal. After fully considering the employee's input, conduct an open investigation and provide written feedback. If the appeal is unfounded, offer targeted and standardized training to help the employee regain their work capabilities.
4. Reassign Positions
The employer also can choose to reassign the "incompetent” employee to a different position. The new position should consider the employee's educational background, work experience, or personal preferences. We recommend maintaining the original salary level and work location for risk control purposes, even if the job content changes. However, the employer may adjust the salary based on the actual circumstances of the new position. If the employee refuses the reassignment, deliver a "Reassignment Notice" to them in person.
After the training or reassignment, the employer shall conduct a second round of performance evaluation. If the employee is still deemed "incompetent" in the second round of performance evaluation, the employer will have the right to dismiss the "incompetent" employee. Dismissal involves both the employer's right to manage labor and the employee's right to stable employment. Therefore, clarifying the rights and obligations of both parties and setting reasonable boundaries for the exercise of these rights is essential for protecting the legitimate interests of both sides.