Employment Litigation in China——the Area of Greatest Vulnerability for Multinational Employers

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2018-05-11 | 来源:本站原创

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1.Basic information on labor disputes in China


(1)Increasing number of labor disputes

China has seen and will be seeing the most comprehensive economic transition in the world. Over the last 26 years, conflicts between labor and capital have been rising dramatically. According to the National Bureau of Statistics, in 1995, when the Labor Law took effect, labor arbitration committees of all levels registered and received a total of 33,000 labor disputes, involving 123,000 people. By 2002, the number of cases received reached 184,000 and involved 606,000 people-approximately five times more than that in 1995. And by 2004, the number of received cases reached 260,000 - approximately 7.9 times more than that in 1995. This was only the beginning! In 2012, 8 years later, the number of cases reached 641,202, while in 2016, it reached 828,714, involving 1,112,375 people. 

Regional disparities can be found in the number of labor cases initiated. The more economically developed a region is, the greater the number. Coastal areas such as Guangdong, Jiangsu, Zhejiang, Shanghai, Beijing and Shandong are the provinces/municipalities with the greatest number of labor cases. In recent years, labor disputes have gradually spread to inland China alongside the ever-developing economies in these areas.


(2)Low win rate of employer

The win-rate of employers in labor disputes is extremely low. According to the latest statistics, in over 800,000 cases that were accepted by the labor arbitration committees in China in 2016, the employer only won 92,405. This accounted for approximately 11% of total claims. Even when the cases are before the court, the win-rate of employer is still low, ranging from 40% to 10% from place to place.


(3)Group disputes happen frequently

Out of all types of labor disputes, group disputes have been increasing at the fastest pace. Group disputes in China refer to disputes arising from collective agreements or involving more than 10 employees simultaneously. According to the latest statistics, the number of group disputes accepted by the labor arbitration committees peaked in 2015 at 10,466, involving 341,588 employees. As was recorded by an NGO located in HK, the number of collective actions changed from less than 200 in 2011 to over 2,700 in 2015. From August 2017 to February 2018, more than 1,000 collective actions were initiated and were published on the internet all over China. 


2.Main categories of employment litigations in China


(1)Conventional categories

Conventional claims, such as claims regarding termination of employment contract, salary and social insurance payments, still dominate employment litigation. Termination claims usually result in an award or judgement, determining whether the termination is legal or not. The court will examine all the evidence related to the legal grounds and procedure of the termination, including the rationality of the measures preceding the termination, i.e. position transfers, training, reasoning and the proportionality of termination versus the employee's misbehaviors or poor performance (if that was indeed the case). What the employer fears most is not the punitive damages, which is double the severance pay, but reinstatement because the arbitration or court can order this with or without the consent of both parties. Salary claims usually include wage arrears, unpaid sick leave, annual leave, maternity leave and overtime payment. Social insurance payment claims usually concern the employer's payment of work-injury benefits to the employee. 


(2)New categories

At the same time, new types of claims have been occurring more frequently as a result of the country's transitioning economy. These cases involve stock rights, sexual harassment, discrimination, social media behavior and personal data. As an example of a social media related dispute: an employee was found to incite other employees to gather and make disturbances in the employees' WeChat group. The employer dismissed the employee due to his serious violation of work rules. The employee argued that he was discussing proposals for safeguarding their legal rights and the contents were within the scope of free speech. The court held that the employee violated the duty of loyalty and obedience and that employee's communications on social media should certainly be viewed as 'inappropriate'. As such, the dismissal was upheld.


3.Major challenges multinational employers are facing in employment litigation in China


(1)The disparities among different local legislations and judicial practices

Although China is a single unitary country, local authorities have the power to make rules within their territories. Law enforcement departments and the courts also have a wide discretionary role. As such, it is common that the application of labor and employment law from territory to territory is made inconsistent by virtue of local peculiarities. Even within a definite region, it's common for the opinions of local law enforcement departments, arbitration committees and the courts to differ. What's more, even in the same court, judgments on cases involving the same or similar facts may be completely different. Judges of the same court are not bound to follow the judgement of a preceding case. The lack of unification between labor & employment laws and judicial practices, produce great uncertainty as regard to the outcome of employment litigation actions. This reality leads to remarkable confusion for - and the great vulnerability of - multinational employers, which usually have many branches all over China. 


(2)The invalidity of employer's work rules

Work rules play a critical part in employment litigation in China. To ensure efficient management, multinational employers usually apply parts of their work rules - produced by their foreign HQ - to their employees in China. However, much of the content of these rules do not conform to China's central or local laws and regulations. Meanwhile, for work rules to take effect, the legally required formulation procedures - involving both democracy procedures and publicity or notification procedures - must be undertaken. In reality, however, many multinational employers fail to subject their work rules to these procedures for various reasons. As a result, work rules and the employer's activities based on these work rules are often held as invalid by the court.


(3)The difficulties in evidence management

Multinational employers are accustomed to communicating through electronic means in their daily working life. As a result, in the course of employment litigation actions, most of the evidence provided by the multinational employers are electronic in nature such as emails and e-messages. However, these electronic forms of evidence, if there are no alternatives (e.g. hard documentary evidence to support them), possess minimal probative force in judicial practice. As such, the lack of sufficiently strong evidence has always been one of the main reasons for multinational employers' losing in employment litigation cases.


(4)The intervention of local governments

This is the most uncontrollable factor in labor dispute trials, especially with regard to group disputes. Labor disputes are closely related to social stability in China, and this is especially true of group disputes. Indeed, social stability is one of the top priorities of all the local governments. As a consequence, in order to guarantee the local social stability of their respective jurisdictions, some local governments tend to intervene directly or indirectly in employment litigation if they deem it necessary. The reality is, these interventions considerably add to the complexity of employment litigation. 

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