Can an employment contract be terminated if the worker's negligence causes significant damage?

This article is reproduced from: Jiangsu Legal Daily

【Case Overview】

On September 1, 2020, Zhou was hired by Company A as the general manager of the e-commerce operations center, with job responsibilities including conducting credit investigations to ensure the safety of company transactions. In June 2021, during business discussions with Company B, Zhou filled out a customer credit investigation form and evaluation form based on information provided by Company B, applying for a credit limit of 2.8 million yuan for Company B. However, he did not verify the authenticity of the information filled in, and the materials he brought back from Company B were later found to be fraudulent. Based on the credit investigation materials Zhou provided, other departments of Company A applied for a credit limit of 5 million yuan for Company B. Subsequently, Company B was suspected of fraudulently transacting with Company A, resulting in over 12 million yuan in goods payments not being recovered by Company A.

In March 2022, Company A terminated its labor relationship with Zhou on the grounds of significant economic losses caused by his negligence at work. The parties could not reach an agreement on the severance payment for the termination of the labor contract, and thus both filed for arbitration and subsequently sued in court.

【Analysis】

Upon investigation, it was found that the labor contract signed between Zhou and Company A stipulated: “Party B (i.e., Zhou) has seriously violated Party A’s (i.e., Company A) rules and regulations, committed gross negligence, engaged in personal misconduct causing significant damage to Party A’s interests, etc., Party A may terminate the labor contract at any time; during the contract period, Party B shall be responsible for the safety of the goods payments handled for Party A, and must not leave post or resign without full recovery of the payment.”

Zhou, based on his job responsibilities, was required to conduct credit investigations on customers, aimed at ensuring transaction safety. However, when conducting the credit investigation on Company B, he failed to fulfill his duty of loyalty and diligence, did not verify the authenticity of the customer information, and caused some misguidance in the subsequent transactions between the two companies, leading to transaction risks. Therefore, Zhou’s negligent behavior is correlated with the economic losses suffered by Company A, and the termination of the labor relationship by Company A is lawful, without the need for severance payment.

Employees must fulfill their duty of loyalty and diligence while performing their labor contracts to avoid causing losses to the employer due to negligence; employees with specific responsibilities bear a heavier obligation regarding their performance.

In practice, regarding employees’ negligent behavior, a comprehensive consideration should be made based on the employee’s job responsibilities, subjective faults, the employer’s supervision situation, and the extent of the damage, to determine whether it constitutes gross negligence. If an employee causes significant economic losses to the employer due to gross negligence, the employer has the right to terminate the labor contract with them.

Employees should genuinely fulfill their duty of loyalty and diligence in their daily performance. Employers should strengthen training and management of employees to reduce the risk of losses caused by job-related actions from the source.