Reflection And Reconstruction Of The Liquidated Damages System Of Labor Contract In China

Before the Labor Contract Law of the People’s Republic of China （hereafterreferred to as Labor Contract Law） was promulgated, there was no unifiedstipulation regarding the penalty for breaching a labor contract in our country. Usingthe dominant position, an employer might force a penalty clause and require anemployee to pay large amounts of penalty for breaching the labor contract when heleft, which seriously impaired the employee’s rights to choose a job freely and to live;after the Labor Contract Law is implemented, the country takes the attitude of limitingthe penalty for breaching a labor contract, stipulating that an employee shall pay thepenalty only when he violates the stipulation of service time period, which isproduced due to special training expenses, or the stipulation of non-competition.Though it helps in protecting the rights and interests of the employee, actually thissystem stipulated by the Labor Contract Law is contrary to the nature of the penaltyfor breaching a labor contract because it causes the penalty to lose its basicpunishment function. Thus in practice the system brings about plenty of disputes onpenalty.Problems of the present system of the penalty for breaching a labor contract areas follows. Firstly, systematic defects of the overall system. In nature, the systemweakens the punishment function of the penalty so that it impacts the stability ofemployment relationship greatly and the excessive preferential protection of theemployee has impaired the basic rights and interests of the employer; in structure,under the principle of dual structure the system doesn’t stipulate specifically how toapply the penalty between the employer and the employee, which results in plenty ofdisputes in practice; in remedying method, the system doesn’t stipulate the right ofclaiming to change the amount of penalty, which deprives the substantial fairness.Secondly, defects in specific clauses. The scope of situations where service timeperiod can be stipulated is too narrow and the duration of service time period is notincluded in the system; in non-competition clauses the upper limit of penalty amountis not stipulated and the relevant economic compensation lacks paying standard.As for the roots of these problems, legislators become alienated from realityignoring the balance in interests of both the employer and the employee and don’ttake the private law nature of penalty into account neglecting the fundamental principle of the penalty. The excessive protection of the employee causes the law toovercorrect and to deviate from the substantial fairness.Any system shall have a complete constitution, within which specific legalrules coincide with the macroscopic theoretical basis. In the same way, under thetheoretical direction of the principles of contract freedom, profit maximization fromgame theory, substantial fairness and stable employment relationship，the presentsystem of the penalty for breaching a labor contract, whose clauses are abstract andlack operability, shall be reconstructed. Firstly, to reconstruct the overall systempattern by clarifying the penalty’s dual nature of punishment and compensation andby building the applying principle of dual structure. Secondly, to reconstruct specificlegal clauses: enlarging the scope of situations where service time period can bestipulated, stipulating the longest duration of service time period, in non-competitionclauses stipulating the upper limit of penalty amount and clarifying the payingstandard of economic compensation. Thirdly, to reconstruct the remedying method bygranting the right of claiming penalty to the employer as well as the employee.