The Labour and Employment Disputes Review: China

Introduction

Labour disputes in China mainly show the following characteristics:

  1. Since the implementation of the Labour Contract Law in 2008, the number of labour dispute cases has surged and remains high. According to data published by the National Bureau of Statistics of China, the total number of national labour dispute cases was 785,323 in 2017, 894,053 in 2018 and 1,069,638 in 2019.2
  2. The success rate for employees in labour dispute cases is relatively high. According to data published by the National Bureau of Statistics of China relating to labour dispute arbitration cases that closed in 2019, employees were successful in 29 per cent of cases and employers were successful in 11 per cent of cases. In the remaining majority of cases (60 per cent), there occurred partial success for the two sides (including settlements).
  3. Labour dispute cases are still mainly about remuneration, termination of employment contracts and benefits, though number of disputes regarding non-compete agreements and confidentiality are continuously increasing.
  4. The handling of labour dispute cases is subject to mandatory labour dispute arbitration as a first procedure.

The substantive legal basis for resolving labour disputes includes:

  1. laws (including the Labour Law, the Employment Contract Law, the Trade Union Law, the Law on Mediation and Arbitration of Labour Disputes, the Social Insurance Law, the Employment Promotion Law, the Law on Prevention and Control of Occupational Disease and the Work Safety Law);
  2. the relevant judicial interpretation of the Supreme People's Court on employment law;
  3. administrative regulations;
  4. local regulations and rules;
  5. administrative regulations of state administrative departments of labour; and
  6. normative documents issued by local labour administrative departments.

When handling labour dispute cases, the relevant provisions of local regulations, normative documents and the adjudication standards of local labour arbitration commissions and courts vary.

In addition, the Civil Procedure Law, the Law on Mediation and Arbitration of Labour Disputes and relevant judicial interpretations set out detailed provisions on the procedural aspects of labour dispute resolution.

China's labour legislation adopts the principle of 'inclined protection', which is to say, while it does take into account the interests of employers, it is more inclined to protect the interests of employees. The principle of inclined protection is reflected in some legislative content and in the standards observed in judicial practice.

Procedure

The resolution of labour disputes in China can involve consultation, mediation, arbitration and litigation.

Consultation is mostly used to settle labour disputes within an enterprise. When a dispute arises, an employee may consult with his or her employer, or request the trade union or a third party to jointly consult with the employer, to reach a settlement agreement.3 If the procedures used and the content of the settlement agreement are found to be lawful and effective, the arbitral tribunal may use the settlement agreement as evidence.4

When a labour dispute arises, if one party does not desire a consultation, if both parties fail to settle the dispute through consultation, or if one party does not comply with the concluded settlement agreement, either party may apply for mediation by the labour dispute mediation committee within the enterprise, or a legally established grassroots people's mediation organization, or an organisation established in a township or neighbourhood community that has a labour dispute mediation function. Where an agreement is reached through mediation, a mediation agreement paper shall be drawn up. That paper shall be signed or sealed by both parties and take effect after the mediator signs it and the seal of the mediation organisation is affixed thereon. The executed mediation agreement paper is binding upon both parties. If one party fails to perform the concluded mediation agreement within the time prescribed in the agreement, the other party may apply for arbitration. If a mediation agreement is drawn up on a matter of delayed payment of labour remuneration, medical expenses for a work-related injury, economic compensation or damages, and the employer fails to comply within the time prescribed in the mediation agreement, the employee may apply to the people's court for a payment order based on the mediation agreement and the people's court shall issue a payment order according to the law.

Consultation or mediation is not a legally mandatory procedure for resolving labour disputes. When a dispute arises and the parties are not willing to make use of consultation or mediation, or the consultation or mediation fails, or one or both parties fail to comply with the settlement or mediation agreement, the parties may apply directly to the labour dispute arbitration commission that is responsible for arbitrating disputes arising within the district under its jurisdiction. And arbitration is a mandatory pretrial procedure for labour disputes.

The statute of limitations for applying for labour arbitration shall be one year, from the date when the party concerned becomes or should have become aware of the infringement upon its rights. The one-year statute of limitations shall be suspended if one party raises any claim against the counterparty. For example, if the employee seeks any remedy from the competent authorities, or if the employer agrees to perform its obligations, the one-year statute of limitations shall be recalculated.

There is an exception for the one-year statue of limitation. In the case of a dispute arising from a default in payment of labour remuneration during the existence of an employment relationship, the employee may apply for labour arbitration without being restricted by the one-year time limit. However, if the employment relationship ends, the labour arbitration application for the dispute must be submitted within one year of the end date of the employment relationship.

The arbitration tribunal shall be composed of three arbitrators, although simpler cases may be arbitrated by one arbitrator.

The hearing of a labour dispute case normally includes five stages: (1) the applicant's statement on the claims and facts; (2) the respondent's answers; (3) adducing the evidence and cross-examination; (4) the arbitrator's inquiry; and (5) the debate. The arbitral tribunal will mediate before making an award. It will render the award within 45 days of the date on which the labour dispute arbitration commission accepts the arbitration application.

If any party is dissatisfied with the arbitral award, or the labour dispute arbitration commission rejects an application or fails to make a decision within the specified time limit, any party may submit the dispute to a people's court with jurisdiction. In the trial of first instance of a civil case by a people's court, a collegiate panel shall be formed by judges and jurors , or judges only in cases applying summary proceedings, and the total of panel members shall be an odd number to avoid deadlock. Civil cases using summary procedures shall be tried by one judge. The hearing of labour dispute cases is conducted in six stages: (1) the plaintiff's statement on the claims and facts; (2) the defendant's answers; (3) adducing the evidence and cross-examination; (4) the court investigation; (5) a debate between the parties; and (6) final statements by the parties. When a civil dispute is deemed to be suitable for mediation by the courts, a mediation shall be carried out first, except when a litigant refuses to mediate. If a litigant disagrees with a judgment of first instance, it will have the right to file an appeal with the higher-level people's court within 15 days as of the date of the judgment letter being served. If a litigant disagrees with a ruling of first instance by a people's court, the litigant will have the right to file an appeal with the higher-level people's court within 10 days of the date of the ruling letter being served.

There are also special procedures of dispute resolution for a special type of employment contract. China's labour law provides for a collective negotiation system, through which the labour union or the employee representatives may enter into a collective contract on behalf of all employees with the employer, agreeing on labour remuneration, working hours, leave and holidays, labour safety and hygiene, insurance and welfare and other related matters. Concluded collective contracts should be submitted to the labour administrative authority, and will only come into force where the labour administrative authority raises no opposition within 15 days of receipt of the contracts. A collective contract lawfully concluded will have binding force on both the employer and the employees.

If a dispute arises in the course of collective negotiation and cannot be resolved by the parties through consultation, each or all parties may apply in writing for the administrative department of labour security to coordinate a resolution of the dispute. The administrative department of labour security shall bring together the relevant personnel from three sides, such as the labour union and the enterprise organisation, at the same level to jointly coordinate a resolution of the dispute. If there is a dispute about the implementation of a collective contract, an application may be filed with the labour dispute arbitration commission to seek arbitration under the law. The resolution procedure is basically the same as that of individual labour disputes.

Types of employment disputes

According to the Law on Mediation and Arbitration of Labour Disputes, disputes that arise between employers and employees within the territory of China mainly fall within one of the following categories:

  1. disputes arising from the confirmation of employment relationship;
  2. disputes arising from the conclusion, performance, alteration, cancellation or termination of labour contracts;
  3. disputes arising from expulsion, dismissal, resignation or severance;
  4. disputes relating to working hours, leaves and vacation, social insurance, welfare benefits, training and occupational protection;
  5. disputes arising from labour remuneration, medical expenses for job-related injury, economic compensation or damages, inter alia; and
  6. other labour disputes prescribed by laws and regulations.

To facilitate litigation and to standardise the work of the people's court on filing, trial and judicial statistics, the Supreme People's Court has formulated the Provisions on Causes of Action for Civil Cases to classify and manage civil cases. According to these Provisions, labour dispute cases largely fall into two categories: labour disputes and personnel disputes. Labour disputes can be subdivided into disputes about employment contracts, social insurance or benefits. Disputes about employment contracts can be further divided into disputes about confirmation of employment relations, collective labour contracts, labour dispatch contracts, part-time employment, labour remuneration, financial compensation and non-compete agreements. Disputes about social insurance can be further divided into disputes about pension insurance, work-related injury insurance, medical insurance, maternity insurance and unemployment insurance. Personnel disputes refer to those between public institutions and their employees regarding resignation, dismissal or the performance of employment contracts.

Notably, since January 2021, 'protection of personal information' and 'liability for damage caused by sexual harassment' have been added as new causes of action for civil cases and it will be interesting to see whether more employee personal rights cases will arise.

Year in review

i Labour disputes

As a result of the covid-19 pandemic and the overall recession, the number of labour disputes has been increasing continuously over the past year. High people's courts and labour and social security authorities of Beijing, Shanghai, Tianjin and Guangdong have issued guidelines for the handling of labour disputes related to the covid-19 pandemic; regulating the handling of pandemic-related cases; and answering frequently asked questions, so as to unify the law enforcement standards for the arbitration and trial of labour dispute cases during the pandemic in a fair and efficient manner.

In addition to the 'traditional' disputes (i.e., labour remuneration, termination, and work-related injury), the number of cases about non-compete, confidentiality, employee stock rights and senior employee disputes is increasing significantly and these cases often involve many topical and complex issues. For example, on 4 December 2020, Beijing No. 1 Intermediate Court published its Ten Typical Labour Disputes Involving Management Personal. It is reported that, from 2015 to 2020, Beijing No. 1 Intermediate Court concluded 122 labour disputes involving management personal. Features of these labour disputes could be summarised as follows: litigation claims were diverse; subject matters concerned were of relatively high amount; management personal performed better in court than ordinary employees; quite a number of employers involved are from emerging industries; and cross-application of laws.

ii Termination of employment

In cases arising from unilateral termination by an employer owing to an employee's gross misconduct, the employer bears a heavy burden of proof as required by the legal provisions and in judicial practice, which puts the employer at a great risk of losing the case. For example, aside from having to prove the employee's conduct, the employer is required to have written internal rules or regulations that specify that such conduct of the employee renders the employer the right to unilaterally terminate the employment contract. Besides, during the course of formulating their rules and regulations, employers must follow the legal procedures for seeking advice from employees or labour unions, announcing the rules and regulations, and keeping employees informed. In recent cases, courts and arbitral tribunals have paid more attention to good faith and the professional ethics of the employees, and if an employee is proved to have committed gross misconduct, courts and arbitral tribunals were inclined to uphold the employer's unilateral termination.

iii Electronic employment contracts

According to the Letter on Several Issues Regarding the Conclusion of Electronic Employment Contracts issued by the Ministry of Human Resources and Social Security in March 2020, an employer may enter into a written labour contract in electronic form with an employee by mutual consent. Beijing would facilitate the use of electronic employment contracts and gradually encourage the application of electronic employment contracts and set up a platform at municipal level for the management of electronic employment contracts.

iv Judicial interpretation of labour disputes

On 30 December 2020, the Supreme People's Court released the first seven judicial interpretations to support the Civil Code, including the Interpretation of the Supreme People's Court on the Application of Law in the Trial of Labour Disputes (I). These interpretations came into effect since 1 January 2021. The previous Interpretation of the Supreme People's Court on the Application of Law in the Trial of Labour Disputes (I), (II), (III) and (IV) issued by the Supreme People's Court in 2001, 2006, 2010 and 2013 respectively have been abolished.

v Protection of personal information

Protection of employees' personal information has been given added attention. The Civil Code, which came into force as of 1 January 2021, clarifies the definition of personal information and stipulates the principles and conditions for personal information processing. Employers have the obligation to ensure the safety of personal information, and shall not overuse the personal information of employees collected and stored by them and shall prevent the leakage of personal information.

vi Flexible employment

In July 2020, the General Office of the State Council issued measures for flexible employment through multiple channels, including proposals that:

  1. individually owned businesses should be encouraged;
  2. part-time employment should be supported;
  3. efforts should be made to spur internet platforms to create more flexible jobs; and
  4. prudent and tolerant oversight for emerging forms of employment, including online retail and ride services, as well as online education and medical care, should be implemented.

Outlook and conclusions

National and local employment policies will need to be adjusted in response to any developments in the covid-19 pandemic and this will indirectly affect the rules of adjudication of labour disputes in judicial practice. Owing to the economic recession and increasing disputes about senior employees with enhanced employment bargaining power, the judicial interpretation may also reflect the shift from inclined protection of employees to 'balancing the interests between employers and employees', which has been evident in some labour disputes in recent years.

Given that the competition between enterprises for talent and technology is increasingly intense, dispute cases involving trade secrets and competition restrictions will continue to increase. These types of disputes involve many practice areas, including labour law, competition law, intellectual property law and criminal law, and the handling of cases in these areas is relatively complex.

The combined effects of the covid-19 pandemic, the tense China–United States trade relationship and the economic recession, mean that enterprises need to make adjustments against greater risks of bankruptcies, liquidations, closures and business relocations. But, at the same time, business strategy adjustments may lead to staff redundancies or reorganisations. As a result, the number of collective dispute cases relating to staff redundancy placements is highly likely to increase.

Footnotes

1 Zhenghe Liu, Jun Shen, Lin Sun and Yana (Hellen) Cui are partners at AnJie Law Firm.

2 From the data published by the National Bureau of Statistics of China, available at https://data.stats.gov.cn/easyquery.htm?cn=C01&zb=A0S05&sj=2020 (in Chinese only).

3 See Article 4 of the Law on Mediation and Arbitration of Labour Disputes.

4 See Article 11 of the Provisions on Negotiation and Mediation of Labour Disputes of Enterprises.

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