[Direct answer]After an employee files a labor arbitration, the company can resolve the dispute through three channels: First, negotiate a settlement agreement before the trial, and then the employee withdraws the arbitration application in accordance with Article 41 of the Labor Dispute Mediation and Arbitration Law (effective May 1, 2008); Second, mediate under the auspices of the arbitration tribunal. According to Article 42, mediation shall be conducted before the arbitration award. The mediation agreement shall take effect upon being signed by both parties and may be subject to enforcement; Third, the case is resolved through court mediation after entering litigation. The prerequisite for settlement are to first assess the risk of losing the case: if the company fails to provide evidence such as attendance records and salaries, it shall bear adverse consequences, and the compensation for illegal dismissal shall be twice the amount of economic compensation. For more information, please consult us.Labor arbitration and legal services for work-related injury compensationAndBeijing Henglu Law FirmDevelop a plan.

I. Problem Background and Typical Scenarios

Receiving a copy of an employee's arbitration application is the first major challenge for many business leaders. Common scenarios include: arrears or deductions of wages, arbitration applications due to unpaid social insurance; dismissing employees for serious violations of discipline only to be sued for compensation for unlawful termination; and disagreements over the calculation of overtime pay, unpaid annual leave wages, and work-related injury benefits. Companies' concerns typically focus on three points: not only having to pay compensation after losing the case, but also the risk of current employees following suit; absent arbitration decisions or procedural delays affecting operations and reputation; and employees demanding far more than the budget allows, leaving them in a dilemma between resisting or settling early. In fact, settlement is not admitting defeat, but a procedural tool to resolve disputes at minimal cost after accurately assessing the risks. The key is to choose the right path and calculate the appropriate compensation.

II. Key points of dispute

  • The timing of reconciliation and the calculation of consideration: Before the defense and evidence collection are completed, it is difficult to assess the probability of winning the case. Offering a settlement amount that is too high will increase costs unnecessarily, while an amount that is too low will not be accepted by employees. For cases involving the recovery of labor remuneration, economic compensation, etc., which do not exceed the amount of twelve months' local minimum wage, the arbitration award is final and binding (Article 47 of the Labor Dispute Mediation and Arbitration Law). The company has limited room for appeal, so it is even more necessary to conduct a precise evaluation before the arbitration decision is made.
  • The differences in the effectiveness of various forms of settlement: The effectiveness and enforceability of out-of-court settlement agreements, withdrawals of arbitration applications, arbitration mediation documents, and court mediation documents vary. If the wrong form is chosen, and the employee changes their mind later, the company may face a second round of disputes.
  • The burden of proof and the risk of losing the case: Evidence related to the disputed matters is in the control and management of the employer, and the employer shall provide it. If the employer fails to do so, it shall bear the adverse consequences (Article 6 of the Labor Dispute Mediation and Arbitration Law); for companies lacking evidence such as wage payment, attendance records, and publicized rules, the cost of losing the case is often significantly higher than that of reaching a settlement.

III. Professional analysis by Henglue Lawyers

The premise of solving this case is to accurately assess the risk of losing the lawsuit. A case of illegal dismissal handled by Henglue Law Firm can serve as a reference for employers. In June 2023, Zhou Ming was employed by a Beijing-based food company as the sales director of the Beijing region, with a base salary of 5,500 yuan and a variable performance bonus of 5,500 yuan, working under a flexible working system. From October to November 2023, Zhou Ming submitted applications for group purchase subsidies for five companies involving 8,680 items and a total amount of 52,080 yuan. In December, the company discovered illegal resale of products and alleged that three of the companies had never sold the products, accusing Zhou Ming of negligent review and fraudulent reporting of subsidies, resulting in losses of 31,248 yuan. On April 30, 2024, the company terminated the labor contract on the grounds of "fraudulent reporting of subsidies and serious violation of company rules" and refused to pay unpaid annual leave wages and compensation. After Zhou Ming filed for arbitration and won the case, the company sued him. Attorney Chen Ping from Beijing Henglue Law Firm represented Zhou Ming and put forward four arguments: the company failed to provide evidence of Zhou Ming signing the system rules; the "Employee Reward and Punishment Regulations" were not stamped with official seals or publicly announced and could not be used as a basis for punishment; the company's "annual leave expiration" clause violated the "Regulations on Paid Annual Leave for Employees"; and the subsidies required multiple levels of review, with Zhou Ming only submitting a preliminary application without evidence of subjective intent or gross negligence. The court ruled that the company must pay Zhou Ming the remaining unpaid annual leave wages of 5,000 yuan from June 1, 2023 to April 30, 2024 and compensation of 33,000 yuan for the illegal dismissal, and dismissed the company's claims. The lesson for employers from this case is: the burden of proof for dismissal due to serious misconduct lies with the company. If the rules are not publicly announced and there is no evidence of losses, losing the case is almost inevitable. In cases with obvious procedural flaws, it is better to calculate the statutory compensation during the defense period and settle the case at a reasonable amount earlier rather than losing the case in multiple procedures and incurring more compensation and litigation costs.

IV. Practical suggestions and legal basis

At the procedural and legal basis level: Article 30 of the Labor Dispute Mediation and Arbitration Law stipulates that the respondent shall submit a defense statement within ten days after receiving a copy of the arbitration application. Completing the inventory of evidence during the defense period is the best window for settlement pricing; Article 42 stipulates that the arbitration tribunal shall first conduct mediation before making a ruling, and the mediation agreement shall take legal effect upon being signed and accepted by both parties. If one party fails to perform the agreement, the other party may apply to the court for enforcement. For issues related to performance and enforcement, please refer to the relevant provisions.Creditor-debtor relations and enforcement case servicesArticle 47 stipulates that disputes over small labor compensation and compensation shall be subject to final arbitration. Article 49 stipulates that the employing unit may apply to the intermediate people's court for the revocation of the arbitration award under statutory circumstances. Article 35 of the "Interpretation of the Supreme People's Court on the Application of Law in the Trials of Labor Disputes Cases (I)" (effective January 1, 2021) clarifies that the agreements reached by the parties on the termination procedures, wage compensation, overtime pay, economic compensation, or compensation are valid if they do not violate mandatory provisions of law and there are no circumstances of fraud, coercion, or taking advantage of others' vulnerability. At the estimation level: the compensation for unlawful termination is twice the amount of economic compensation (Article 87 of the Labor Contract Law), and economic compensation is paid at the rate of one month's salary for each year of service (Article 47). In addition, arrears in wages and unpaid annual leave wages need to be added. Practical suggestions: tiered pricing, written agreements, and stating the one-time settlement and performance deadlines; handling disputes of multiple employees collectively with a unified stance.

5. Henglu Law Firm's Advice

The ability to reach a settlement during the arbitration stage essentially reflects the employer's ability to manage evidence. Companies that have standardized attendance records, wage payments, and the public disclosure and signing of regulations are more likely to reach a settlement with minimal litigation risks. Conversely, companies with incomplete evidence may struggle to accurately calculate the settlement price. It is recommended that enterprises conduct employment compliance checks at three key stages: onboarding, job transfer, and termination, in order to reduce disputes at the source. The design of relevant systems and processes can be optimized accordingly.Business and contract dispute services for enterprisesPerfect. The above-mentioned dispute over the illegal termination of the employment contract is handled by Beijing Henglu Law Firm.Chen PingThe attorney (practice license number: 11101201411619680, subject to the document issued by the judicial administrative organ) acts on behalf of the company. The company lost the lawsuit due to the failure to publicly disclose the system and the lack of evidence for the losses. If you are currently facing employee arbitration, it is recommended that you bring all employment materials to consult a professional lawyer during the defense period. First, determine the risk level, and then formulate a settlement strategy.

Q1: If the company reaches a settlement with the employee during the arbitration stage, will the employee withdraw the arbitration application?

Yes. According to Article 41 of the Labor Dispute Mediation and Arbitration Law, after applying for labor dispute arbitration, the parties may reach a settlement on their own, and those who reach a settlement agreement may withdraw their arbitration applications. In practice, it is recommended that the company first sign a written settlement agreement with the employee, specifying the payment amount, deadline, method, and terms of settling the matter once and for all and waiving other claims, and then have the employee submit a withdrawal application. If the employee only verbally promises to withdraw and does not sign an agreement, there is a risk that they may change their mind and file for arbitration again after withdrawing. For large amounts or where the employee lacks trust, it is better to directly choose to have the arbitration tribunal issue a mediation agreement to conclude the case, which is more stable in legal effect.

Q2: What is the difference between an arbitration mediation agreement and a settlement agreement signed by both parties themselves?

The biggest difference lies in the enforceability. If the arbitration tribunal mediates and reaches an agreement, it shall issue a mediation agreement in accordance with Article 42 of the Labor Dispute Mediation and Arbitration Law. After both parties sign and receive it, it will have legal effect. If one party fails to perform the agreement, the other party may directly apply to the court for enforcement; the settlement agreement reached by the parties themselves is essentially a contract. If one party changes his/her mind or fails to perform the agreement, the other party cannot directly apply for enforcement. Instead, they need to confirm the validity of the agreement in accordance with Article 35 of the Interpretation of the Supreme People's Court on the Application of Law in the Trials of Labor Disputes Cases (I) before making claims. Therefore, for settlements involving large amounts or phased performance, it is preferable to choose an arbitration mediation agreement or a court mediation agreement to conclude the case.

Q3: How does the company determine whether to settle the dispute or not, and how much to offer as compensation?

First, conduct a risk assessment of losing the lawsuit: Review evidence such as wage payments, attendance records, publicized and signed regulations, and termination procedures, and check them one by one against the termination conditions stipulated in Articles 39 to 41 of the Labor Contract Law. If the company holds the evidence but refuses to provide it, it will bear adverse consequences in accordance with Article 6 of the Labor Dispute Mediation and Arbitration Law. Next, calculate the statutory compensation cap: The compensation for unlawful termination is twice the amount of economic compensation (Article 87), and economic compensation is paid at the rate of one month's salary per year of service (Article 47). There are also unpaid wage principal and unpaid annual leave wages. In cases where evidence is clearly insufficient, settlements based on statutory standards are often more cost-effective than going through the full litigation process.

Q4: Which cases are final and binding, and the company has no chance to sue in them?

According to Article 47 of the Labor Dispute Mediation and Arbitration Law, the following two types of cases are subject to final arbitration for employers: First, disputes over the recovery of labor remuneration, work-related medical expenses, economic compensation, or damages not exceeding twelve months' worth of the local minimum wage; Second, disputes arising from the implementation of national labor standards in areas such as working hours, rest and vacation, and social insurance. In such cases, the company cannot file a lawsuit, but may, under certain statutory circumstances, apply to the intermediate people's court for the revocation of the arbitration award in accordance with Article 49. Therefore, the outcome of small-amount disputes is generally determined at the time of the arbitration award. The defense and mediation stages are the last opportunities for the company to influence the outcome. Therefore, it is necessary to make decisions as soon as possible to avoid procedural delays.

Q5: If an employee applies for arbitration after the settlement agreement has been fulfilled, what should the company do?

Handle the situation on a case-by-case basis. If the settlement agreement does not involve fraud, coercion, taking advantage of the other party's vulnerability, major misunderstanding, or grossly unfair terms, it shall be deemed valid in accordance with Article 35 of the Interpretation of the Supreme People's Court on the Application of Law in the Trials of Labor Disputes (I). If the employee claims the same dispute again, the company may use the agreement and payment receipts to defend itself, and generally does not need to make duplicate payments. If the employee claims that the agreement is grossly unfair and is revoked by the arbitration tribunal, the company may need to make up the difference in accordance with statutory standards. There are three key points for prevention: the agreement should stipulate that it is a one-time settlement and a waiver of other rights; the amount should not be significantly lower than the statutory standards; and the video of the signing process and payment receipts should be kept for future reference.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, so as to avoid missing the statutory time limit. →Labor arbitration legal services·Attorney Chen Ping·Beijing Henglue Law Firm