Overview of Chinese Employment Law

Thursday, June 14 Beijing 2007

China’s Constitution: Art. 42 Work

 Citizens of the People’s Republic of China have the right as well as the duty to work  The State creates conditions for employment  Work is the glorious duty of every able bodied citizen

China Constitution: Art. 6 & 7 Socialist Ownership

 The basis for the socialist economic system is socialist public ownership of the means of production  “From each according to his ability, to each according to his work”  The State-owned economy is the leading force in the national economy

China Constitution (1992): Socialist Market Economy

 The basic task of the nation is to concentrate its efforts on socialist modernization along the road of Chinese-style socialism  The Chinese people will follow the socialist road to develop a “socialist market economy”

China Constitution: Art. 48 Gender Equality

 Women in the People’s Republic of China enjoy equal rights with men in all spheres of life  The state protects the rights and interests of women, and applies the principle of equal pay for equal work

China Facts

 World’s most populous nation (1.3 billion people)  Sixth largest trading nation  Per capita GDP in 2002 = $4,475  Average annual GDP growth of 9.2% for past decade

Question

 Over the past twenty years, China’s economic growth has far outpaced other national economies  Why has China experienced greater economic growth than other – Developing countries?

– Previously planned economy regimes?

1950s – 1970s Planned Economy: The Hukou System

 Household registration (hukou zhidu)  Governmental job assignment (tong’yi fenpei)  Personnel dossier (dang’an zhidu)

The Iron Rice Bowl (tiefanwan)

Through an employee’s State-owned enterprise (SOE) work unit (danwei), a worker received  Permanent employment at low wages  Subsidized housing and health care  Free education  Pension and disability benefits

Economic Liberalization Begins in 1980’s

 Rural collectives disbanded; urban factory work encouraged  Special Economic Zones created attracting foreign investment  Restrictions on Ee movement eased  Contract employment system introduced for new hires

Socialist Market Economy Reforms

 Reduce size of State-Owned Enterprises (SOEs)  Make SOEs more efficient (labor contracts, lay-offs)  Growth in private employment, particularly Foreign-Invested Enterprises (FIEs)

China Is A Code Country

 Principal legal regulation is through statutory codes rather than common law  Some codes reflect traditional methods of Chinese legal regulation  Some borrowing from other code countries (Germany, Soviet Union)

Law-Making Institutions

 State Council (Executive) – Proposes legislation – Implements legislation; adopts regulations  National People’s Congress (Legislative) – approves laws – Standing Committee authorized to enact some laws when NPC not in session

1994 Labor Law

 Systematic and detailed codification of employment law rules  Law generally applies same rules to all sectors  Emphasis given to contractual nature of employment relationship

Question

 The 1994 Labor Law represents a shift in policy to an explicit rule of law regime  What factors likely influenced the Chinese government to adopt these more specific legal rules?

Incentives for Greater Reliance on the Rule of Law

 Symbol of governmental legitimacy  Private financial investors find comfort in a predictable rule of law regime  Explicit legal rules help to protect workers from exploitation in transition from planned economy to market economy

China Today

 A quickly expanding and modernizing economy  Employment characterized by more flexibility, but less employment security  Although many changes – – SOEs still employ more than 50% of urban workers Hukuo system still quite important

China’s Labor (Employment) Law

Monday, June 18 Beijing 2007

1994 Labor Law

 Systematic and detailed codification of employment law rules  Law generally applies same rules to all sectors  Emphasis given to contractual nature of employment relationship

Employment Contracts

 Labor Law requires parties to enter into an employment agreement detailing the employment relationship  Agreement terms may not contravene statutory or regulatory requirements  Agreement is be “voluntary” and not procured by fraud or duress

Required Contract Provisions

 Duration  Job description  Health & safety conditions  Compensation  Labor discipline  Termination  Liability for breach

Optional Contract Provisions

 Contract may set forth a probationary period not to exceed six months  Contract may contain provisions affording protection to employer’s trade secrets  Parties may agree to additional terms

Duration of Contract

 May be for a limited period (1-2 years is common)  May be unlimited (entitlement for employee who has worked for same employer for more than ten years)  May be limited to performance of specified task  Contract expires upon end of durational term

Employer May Terminate Contract

 If employee proves unqualified during probationary period  Employee commits serious violation of labor discipline rules  Employee is seriously derelict of duty  Employee has committed a crime

Employer may Terminate with 30 days Notice Plus Severance Pay When

 Employee suffers non work-related injury or illness and unable to return to work following exhaustion of sick leave  Employee unable to perform work even after training or reassignment  Fundamental change of circumstances making contract impossible to perform

Economic Lay-offs

 Permissible only if employer faces impending bankruptcy or serious production difficulties  Employer must consult union (or workforce) and labor administrative authorities  Lay-off with severance pay

Employer may not Terminate Except for Cause Where

 Employee is partially or totally disabled due to work-related injury or illness  Employee is on authorized sick leave for non work-related injury or illness  Employee is pregnant, on maternity leave, or nursing

Employee may Terminate Contract

 With 30 days advance notice  Or without notice if: – During probationary period – Employer uses force, intimidation, or other means violative of Ee’s personal rights – Employer fails to pay wages or provide working conditions as contract stipulates

Substantive Job Security: How do China’s Rules Compare to:

 U.S. employment termination rules, &  German employment termination rules?

 In this regard, how would you rate the three systems in terms of – Efficiency – Equity – Voice?

Anti-Discrimination

 Labor Law (Art. 12) bans discrimination on basis of nationality, race, gender, and religious belief  Labor Law (Art. 14) bans discrimination on basis of disability and minority nationalities  Note: Age is not a listed trait

Implementing Anti-Discrimination Legislation

 Disability (1990)  Regulations on Labor Market Management – gender, race, nationality, and religion (2000)  Sexual harassment (2005)

Minimum Wage

 Labor Law (Art. 48) requires provincial governments to establish regional minimum pay levels  Minimum pay levels are adjusted annually or semi-annually

Social Insurance Benefits

 Retirement pensions  Medical insurance  Accident and illness insurance  Unemployment benefits  Maternity benefits

Provision of Social Benefits

 Until the adoption of the Labor Law, most benefits were provided by SOE employers  Now, China is moving toward benefits (funded by employer and employee contributions) provided at the societal level by government rather than at the enterprise level by employers

Dispute Resolution Process

1) Mediation 2) Arbitration 3) Court

Types of Claims Subject to Dispute Resolution Process

 Unpaid wages  Benefit disputes  Safety and health  Termination  Unrecouped training expenses  Collective disputes

Defining Terms



Mediation:

Process of voluntary dispute resolution in which the parties are assisted by a third party facilitator 

Arbitration:

Informal adjudicatory process in which a third party determines the outcome of a dispute

Step 1: Mediation

 Chinese law encourages the creation of Enterprise Mediation Committees  EMC to be composed of worker, enterprise, and trade union representatives  EMCs generally exist only at SOEs  Mediation step is optional

Step 2: Arbitration

 Local governments establish labor arbitration committees composed of representatives of labor bureau, union, and enterprise  Committees appoint one or three arbitrators to hear dispute  Attempt mediation first, then arbitration

Timelines

 Mediation period may only last 30 days  Party must file with Arbitration Committee within 60 days of dispute  Arbitration panel then has 60 days to issue its decision  Aggrieved party may seek court review if file within 15 days of arbitration award

Step 3: Court

 Court is authorized to consider dispute de novo.

 About 50% of arbitration cases appealed to court  Courts generally attempt mediation before deciding the merits

1996 2000

Comparing Mechanisms

Mediation Arbitration 80,000 30,000 50,000 130,000

Increase in Arbitration Use

250,000 200,000 150,000 100,000 50,000 0 1996 2000 2004 ArbitrationCas es 3-D Column 2 3-D Column 3

Arbitration Commission Outcomes

 32% - Mediated settlement  41% - Arbitration award  27% - Withdrawn or otherwise settled

Many Settlement Opportunities

 Preliminary conciliation  Mediation  Mediation by arbitration panel  Mediation by court

Remedies

 Article 91 authorizes an order awarding the payment of wages and other economic loss, including damages, in the event of a violation  It does not appear that an award of punitive damages or attorney fees is authorized

Questions

 What significance should be attached to the steady rise in arbitration cases?

 To the use of mediation at every step in the process?

 To the de novo court review of arbitration decisions?

Alleged Problems

 Growing income inequality  Large floating population of rural migrants often working outside of hukou system without contracts  Some employers ignore legal rules  Lax enforcement of legal rules

Chen Weili v. Lai Guofa

 An independent contractor can sue directly in court w/o prior recourse to arbitration  Worker injured on the job can obtain damages subject to reduction for contributory negligence  Father’s “settlement” not binding

Liu Jianfa v. Shanghai Otis Co.

 FIE that assumes the workforce of another employer by joint venture is bound by prior employment contract as a successor employer  Employer’s failure to give notice to union voids attempted termination  Employee reinstated

Capital Co. v. Chen Jingke

 Employer justified in terminating employee under terms of contract for being absent without leave for 2 months  Based on another contract provision, court ordered Chen to repay employer for cost of training expenses