In practice, we have encountered many enterprises in their rules and regulations that stipulate that when employees violate certain internal systems or disciplinary rules, the enterprise has the right to directly fine them and deduct the amount of the fine from their wages. In this regard, some people believe that the employer is not a law enforcement agency and has no right to fine employees, and its above-mentioned behavior is illegal; Many people also believe that as long as the company's internal rules and regulations clearly stipulate this, then the company has the right to fine employees. So, is it legal for employers to set fine clauses in their rules and regulations?

By reviewing the current laws, regulations and policies, we believe that employers do not actually have the right to set corresponding fine clauses in their rules and regulations, let alone impose fines on employees based on the above-mentioned internal systems.

1. Legal characterization of the right to fine: administrative punishment exclusive to state organs

(1) Fines are one of the types of administrative penalties, which may only be stipulated by national laws, regulations, and rules

China's Constitution stipulates that the property legally owned by citizens is sacred and inviolable. According to the provisions of the Legislation Law and the Administrative Punishment Law, the punishment of property can only be set by laws, regulations and rules. The employer is an economic organization for profit, and it does not have the right to set fine clauses in the rules and regulations unless it is a powerful organ that can exercise the power of administrative punishment under the Administrative Punishment Law.

From the perspective of historical evolution, the legal source of the right to fine enterprises first comes from the "Regulations on Rewards and Punishments for Enterprise Employees" issued by the State Council in 1982, which is applicable to enterprises owned by the whole people and enterprises under the collective ownership of urban enterprises, and is a product of the era of planned economy. However, on January 15, 2008, the State Council promulgated the "Decision on the Repeal of Some Administrative Regulations", which clearly abolished the "Regulations on Rewards and Punishments for Enterprise Employees". Since then, the right of enterprises to impose fines has officially lost its legal basis.

(2) There is no legal basis for the employer to establish a fine clause in the rules and regulations

According to Article 39 of the Labor Contract Law, the employer may terminate the labor contract if the employee seriously violates the rules and regulations of the employer, or seriously derelicts his duties, engages in corruption for personal gain, and causes significant damage to the employer. Article 90 stipulates: "If an employee terminates a labor contract in violation of the provisions of this Law, or violates the confidentiality obligation or non-compete stipulated in the labor contract, causing losses to the employer, he shall be liable for compensation." Articles 22 and 23 stipulate that if an employee violates the confidentiality obligation or non-compete stipulated in the labor contract, he shall pay liquidated damages to the employer in accordance with the agreement.

From the perspective of the specific provisions of the Labor Contract Law, the employer can only terminate the labor contract for serious violations of laws, rules and regulations, serious dereliction of duty, and personal fraud causing significant damage to the employer; If the employee leaks the employer's secrets or violates the non-compete and other behaviors that cause losses to the employer, the employer only has the right to demand compensation for economic losses from the employee, and does not stipulate that the employer has the right to impose fines on the employee.

2. Attitude of judicial practice: deny the right of enterprises to impose fines

In judicial practice, the court's attitude towards the right of enterprises to impose fines is becoming increasingly clear: enterprises have no right to fine employees.

In a typical case in 2024, Wang was fined 500 yuan by the company in accordance with dormitory management regulations for smoking in the dormitory and deducted from his salary. After Wang resigned, he claimed that the company's fine was for failing to pay labor remuneration in full and in a timely manner, and demanded economic compensation. Although the arbitration commission finally rejected Wang's request, the reasons for the ruling clearly pointed out that although the company did not have a clear legal basis for imposing a fine on him, because the cause of the fine was the employee's violation of discipline, there was no subjective malice in failing to pay the labor remuneration in full and in a timely manner. The ruling indirectly acknowledges the illegality of corporate fines, but only distinguishes them from "failure to pay labor remuneration in full and on time".

More notably, local regulations in some regions have explicitly prohibited fines for enterprises. For example, Article 50 of the 2019 Regulations on Labor Security Supervision of Guangdong Province stipulates that if the rules and regulations of the employer stipulate the content of fines, or the provisions on wage deduction have no legal basis, the administrative department of human resources and social security shall order corrections and give warnings. If the employer imposes a fine on the worker or deducts the employee's wages without legal basis, the human resources and social security department shall order correction within a time limit.

3. The legal path of enterprise management: change "fines" to "rewards"

The reason why employers consider setting corresponding penalty clauses in their rules and regulations is mainly to promote employees to strictly abide by the internal system, perform the corresponding employee duties diligently and conscientiously, and create greater value for the enterprise. If the enterprise cannot directly fine the employee, does it mean that the enterprise is completely unable to effectively protect its rights and interests?

In fact, the law prohibits employers from directly fineing employees, but it does not prohibit employers from assessing and managing employees in a legal way. In practice, the employer can manage employees by "changing fines into rewards", such as the employer can set corresponding "performance appraisal awards" and "perfect attendance awards" in its employee handbook or internal rules and regulations, including refining wage standards, formulating attendance management methods, performance appraisal management methods and other forms of management and standardizing employee behavior. If there is a violation of internal rules and regulations, it will be reduced or deducted according to the corresponding proportion.

The essential difference between this "reward" management and "penalty" management is that the former adjusts the variable salary of employees through positive incentives and legal assessment mechanisms, while the latter directly deducts the fixed salary determined by employees. The former is legal, the latter is illegal.

4. Exceptions: compensation for losses caused by workers

It should be noted that although the law prohibits enterprises from imposing fines, it does not prohibit enterprises from claiming compensation for losses caused by workers.

According to Article 16 of the Interim Provisions on Wage Payment, if the employee causes economic losses to the employer due to his or her own reasons, the employer may require him to compensate for the economic losses in accordance with the labor contract. Compensation for economic losses can be deducted from the employee's own wages, but the monthly deduction shall not exceed 20% of the employee's monthly wages. If the remaining salary after deduction is lower than the local monthly minimum wage, it will be paid according to the minimum wage standard.

However, it should be noted that judicial practice sets strict conditions for the application of "compensation for losses":

1. Degree of fault requirements: Losses caused by general negligence in the performance of duties by workers are normal business risks of the enterprise and should not be passed on to workers. Only if the employee's intentional or gross negligence causes losses to the employer, the employer has the right to recover compensation from the employee.

2. Burden of proof: The employer needs to provide evidence to prove that the employee has intentional or gross negligence, as well as the causal relationship between the act and the loss.

3. Procedural requirements: The deduction of wages must be based on the labor contract or rules and regulations, and the balance after deduction shall not be lower than the local minimum wage standard.

Epilogue

To sum up, enterprises have no legal basis for setting fine clauses in their rules and regulations, which is illegal. Judicial practice and local regulations in some regions have clearly denied the right of enterprises to impose fines. If enterprises want to standardize employee behavior, they should replace "fines" with "rewards" through legal performance appraisal mechanisms to achieve a win-win situation between management and compliance. For the actual losses caused by workers, enterprises can claim compensation under the premise of strictly meeting the statutory conditions, but they must not abuse this provision to impose fines in disguise.