Contracts, Disputes, and New Jobs: An Overview of China's New Labour Laws

The ECL governs the establishment of contractual relationships between employers and their employees and all aspects in relation to such contracts such as their performance, amendment, cancellation and termination. Under the ECL, the term “employer” refers to all entities that intend to hire workers within the territory of the PRC, enclosing for example enterprises, individual economic organizations and private non-enterprise entities, as well as state authorities, public institutions and social groups.2 Accordingly, the scope of the ECL also covers nonlegal person entities and foreign entities, as long as they hire workers within the territory of the PRC.3 Unfortunately, the ECL fails to lay down the requirements of a contractual employment relationship, which leads to a temporary legal uncertainty concerning its application.4 According to the transitional provisions of the ECL, employment contracts, having been effective before January 1 2008 and continuing to exist after the commencement of the ECL, remain unchanged.

Assignment of Employees

The ECL provides for the possibility of hiring workers by means of staffing agencies.5 Yet the scope of application of the relevant provisions therein remains undetermined. The conclusion of employment contracts requires the legal status of the contractual parties. Therefore, employers that are non-legal persons under Chinese Civil Law are obliged to have recourse to staffing agencies for entering into employment contracts with their employees.6 Against this, legal persons under the Chinese Civil Law may opt for using staffing agencies for economical reasons, as long as the assignment of workers is practiced only for temporary, auxiliary or substitute work.7 In the absence of sector-specific exemptions, legal person entities are by all means entitled to hire their personnel by themselves. These principles also apply to foreign companies like Wholly Foreign-owned Enterprises8 and Joint Venture Companies.9

The employment contract between the staffing agency and the assigned employee and the placement agreement between the agency and the receiving entity form the contractual framework of the employment relationship of the assigned employee. Whereas the staffing agency is legally classified as the employer, as referred to in the ECL, the receiving entity can be rated as the factual employer. Accordingly, the receiving entity has to conclude a placement agreement with the staffing agency. The ECL stipulates that a placement agreement must include provisions regarding the assigned job profiles, the period of placement, the payment of remuneration and social insurance premiums plus the liability for breach of contract. The assigned employee has the right to be informed about the relevant provisions of this agreement.

At the next step, the staffing agency enters into a written, fixed-term contract with the assigned employee. The minimum term of this employment contract has to be at least two years. Further, the contract must contain the mandatory contents for employment contracts in general.10 Additionally, the contract has to include provisions on certain specific matters such as the receiving entity, the term of placement and the profile of the assigned job. In practice, problems may occur in relation to the mandatory minimum term of two years for entities that are obliged to hire workers through staffing agencies.11 If the period of demand for their personnel is shorter than two years, they have to pay compensation to the employee on a monthly basis at the local legal minimum wage, as long as the employee cannot be assigned to other jobs. Given that, the receiving entity should either proactively provide for subsequent jobs of the employee or legally structure the contractual relationship as general service agreement to avoid economic compensation. Moreover, it is reasonable to conclude an additional agreement between the receiving entity and the employee, which stipulates the duty of the employee to comply with the labour rules of the Employment Handbook.

Employment Handbook

The ECL requires the employer to lay down rules and regulations in relation to all essential matters for employees. This set of rules, the so-called Employment Handbook12, has to be discussed either with the employee representative assembly or all staff before its enactment. During this process proposals and comments can be put forward and have to be taken into account by the employer, after having consulted the trade union or the employee representatives on these matters on a basis of equality. The scope of these cooperative rights is not precisely determined by ECL; yet Art. 4 para. 2 ECL suggests that the final decision is up to the employer. In practice, the employer should lay out the final version of the Handbook for a certain period, so that the staff is able to comment to the Handbook. The whole enactment process should be documented for reasons of facilitation of the preservation of evidence. After the adoption of the Employment Handbook, it has to be made public by the employer.

If the trade union or an employee considers certain rules as inappropriate, he has the right to put forward his comments to the employer. The rules in question have to be amended after consultation of the trade union or the employee. Although the ECL does not determine up to what extent the comments have to be considered by the employer, it is more than likely that the legislator intended to devote the final decision to the employer. All in all the employer should exercise reasonable care in drafting up the Employment Handbook, because the scope of essential duties, having to be fulfilled by the employee, is mainly determined by the rules therein.

Effectiveness of Employment Contracts

According to the ECL, an employment contract has to be in written form by no later than one month, after the employee has started to work for the employer and must include mandatory contents.13 Unlike the PRC Labour Law, the provisions of the ECL additionally require employment contracts to contain information about name, place of the registered office and legal representative of the employer, name, address and ID number of the employee as well as working hours, rest, leave and social insurance. Non-compliance with these legal requirements may lead on the one hand to substantial consequences for the employer, reaching from economic compensation to the legal transfer of a fixed-term to an open-ended contract.14 On the other hand, the non-compliance leads to an unlawful employment contract that remains effective, as long as its ineffectiveness is not confirmed in a legally binding manner. In case of labour dispute between the contractual parties, the alleged ineffectiveness of the employment contract has to be ascertained by a labour dispute arbitration tribunal or a People's Court.15

Transfer to Open-ended Contracts

Under the provisions of the ECL, in some cases fixed-term employment contracts have to be transferred to open-ended agreements by the employer: If an employee proposes or accepts to renew an employment contract, the employer is obliged to conclude an openended employment contract among other cases, if the worker has been working for the employer for a consecutive period of not less than ten years or if prior to the renewal, a fixed-term contract was concluded on at least two consecutive occasions.16 In the cases of legally required staff membership of at least 10 years, the employer is not obliged to propose a renewal during a running period of contract, as long as the employee does not propose such a renewal proactively.

PRC LAW ON THE MEDIATION AND ARBITRATION OF EMPLOYMENT DISPUTES (LLD)

The new PRC Law on the Mediation and Arbitration of Employment Disputes strengthens the relevance of mediation and arbitration proceedings on Labour Law disputes in practice. It intends to accelerate labour disputes and reduce the workload of the People's Courts.

Labour Dispute Proceedings

The LLD upholds the basic triad of labour dispute proceedings by distinguishing between mediation, arbitration and court proceedings. Preliminary to mediation the parties might try to settle the law dispute by consultation. If the parties fail to reach an agreement by consultation or a party fails to perform such an agreement, any party may apply for mediation. Mediation procedures are based on the principle of voluntarism. Thus, any party may refuse to fulfill a mediation agreement or apply for arbitration directly. However, in general a party may file a labour law suit not until an arbitration award is rendered.

Labour Dispute Mediation

Labour dispute mediation must be carried out by statutory labour dispute mediation organizations. Thus far, such organizations have only been established as labour dispute mediation committees of enterprises. The LLD additionally provides for grassroots people's labour dispute mediation organizations and local organizations with labour dispute mediation function. Unfortunately, the law fails to provide guidelines for the composition of these new statutory organizations. A party may apply for labour dispute mediation in writing or verbally for record. Where a mediation agreement is not reached within 15 days after a labour dispute mediation organization has received an application, a party may refer the dispute to arbitration. In case the employer fails to perform his duties, as stipulated in a mediation agreement on payment obligations, the employee may apply to the People's Court for a payment order accordingly. In general, labour dispute mediation should only be initiated, if the applicant foresees a reasonable chance to reach a mutual agreement.

Labour Dispute Arbitration

Labour disputes can only be referred to arbitration at competent labour dispute arbitration commissions. In general, locally competent is the labour dispute arbitration commission at the place of performance as stipulated in the employment contract. If agreed upon by the parties, the commission at the place of the registered office of the employer can also be locally competent. The formal application for labour dispute arbitration must be submitted to the competent arbitration commission in writing within one year as of the date, when a party knows or should know the violation of its right. In comparison to the previous laws, the application period has been doubled. The labour dispute arbitration commission has to accept or reject the application within five days as of receiving the application and notify the applicant accordingly. In case of rejection the arbitration commission has to explain the reasons for rejection to the applicant in that notification. If his application has been rejected or the arbitration commission fails to make a decision upon admission within five days, the applicant may file a suit at the People's Court with regard to the labour dispute in question. In general, labour dispute cases are arbitrated by a tribunal comprising three arbitrators, including the chairman, whereas simple cases be arbitrated by one arbitrator. The arbitral tribunal or the sole arbitrator must conduct a conciliatory hearing before rendering the final arbitration award. This award has to be rendered within 45 days as of the date of the acceptance of the application for arbitration.17 The fixed time limit prevents substantial delays and therefore significantly accelerates arbitration proceedings in practice. In cases of labour disputes on monetary matters regarding labour remunerations or compensation, an arbitral tribunal or a sole arbitrator may – upon request of a party – render a provisional order and transfer the case to the People's Court for enforcement.18 In general, the arbitration award is binding, but not enforceable, as both parties may file a labour law suit at the People's Court within a period of 15 days upon receiving an arbitration award. Where decisions have a high priority for the employees in a timely manner, arbitration awards shall be binding and enforceable at the date of its rendering.19 In these cases, an employee may also file a suit at the People's Court within 15 days after receiving the award, whereas the employer may only apply for revocation of the arbitration award within 30 days after receiving the award.20 Under the LLD, arbitration proceedings are free of charge.

PRC EMPLOYMENT PROMOTION LAW (EPL)

The main objective of the PRC Employment Promotion Law is to encourage the creation of new jobs and prevent discrimination at working places. Most of its provisions can be rated as terms of reference for the establishment of an institutional infrastructure of the Chinese labour market. Thus, only certain provisions, granting individual rights to employees, shall be outlined.

Individual Rights of Employees

Up to the enactment of EPL, the PRC Labour Law (中华人民共和国劳动法)already prohibited discrimination on the basis of race, ethnicity, gender, religion or disability. However, provisions, providing for penalties for violation of these antidiscrimination rules, did not exist. Therefore, the former set of rules was ineffective in practice. As a consequence of these deficiencies, the EPL has now improved the framework of anti-discrimination regulations. In addition to the existing rules of anti-discrimination, the EPL prohibits employers to discriminate individuals who are carriers of any infectious disease, when hiring new personnel.21 Further, individuals from rural areas are entitled to equal labour rights as residents. Particularly with regard to this regulation, its strict implementation could lead to the abolishment of the Hukou System. In this case, the EPL would cause a silent revolution of the labour policy of the PRC. Furthermore, the EPL grants individuals the right to file a labour dispute at the People's Court claiming an infringement of an anti-discrimination rule. However, the law fails to stipulate remedies for unlawful discrimination.22 The EPL confirms the fact that an employer may choose employees at its own discretion. However, the employer has to comply with the procedures for hiring as laid down in the EPL. Further, the employer is obliged to keep information of the employee, obtained thereof, strictly confidential. Prior to their hiring, an employer has to obtain the approval of the local labour authority for foreign employees.

CONCLUSION

The revised Chinese Labour Law shows the way towards a reasonably regulated Labour Law, which is similar to the European Labour laws. It copes with some of the crucial problems of the thus far deregulated labour market of the PRC. Yet the implementation process will be difficult and interminable, because of the lack of well-trained personnel within the Chinese judiciary, especially in rural areas.

*About the authors

Jörg Binding is German Attorney at Law and Legal Advisor with the Legal Advisory Service of the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH in Beijing. Kai Thum is a Research Associate at the Faculty of Law (Civil and Labour Law) of the University of Giessen in Germany.

Endnotes 1 For Example, cf. Ligorner/Debiak, “Navigating the New Employment Contract Law“, China Law & Practice 7-8/2007, 26.

2 Cf. Art. 2 ECL and Art. 2 para. 2 of the Provisions on Employment Services and Employment Management, effective January 1st 2008.

3 Uncertainty lies in the application of the ECL in such cases, when foreign employers hire foreign personnel within the territory of the PRC.

4 At present, the precise distinction between employment contracts and general contracts for work and services is exceedingly difficult in practice.

5 So-called foreign service agencies like FESCO or China Star.

6 Affected hereof particularly are particularly entities like Representative Offices and Branches of foreign companies as well as foreign government institutions and non-profit organizations.

7 Cf. Art. 66 ECL.

8 Cf. Art. 64 of the Detailed Regulation of the State Council on the Implementation of the WFOE Law, effective October 28th 1990.

9 Only legal-person Joint Venture Companies, cf. Art. 4 of the Detailed Regulation of the State Council on the Implementation of the Law on Sino-foreign Co-operative Joint Ventures, effective August 7th 1995.

10 Cf. Art. 17 ECL.

11 Cf. also Ligorner/Debiak, “Navigating the New Employment Contract Law“, China Law & Practice 7-8/2007, 29.

12 Ligorner/Debiak, “Navigating the New Employment Contract Law“, China Law & Practice 7- 8/2007, 26.

13 In contrast to that, part-time employment contracts do not require written form, cf. Art. 69 ECL.

14 Cf. Ligorner/Debiak, “Navigating the New Employment Contract Law“, China Law & Practice 7-8/2007, 26.

15 Cf. Art. 26 para. 2 ECL.

16 Cf. Art. 14 para. 2 ECL.

17 In complicated cases the Chairman of the arbitration commission may decide to extend the period up to a maximum of 15 days.

18 Additionally, the requirements of Art. 44 LLD shall be met.

19 Cf. Art. 47 LLD.

20 Cf. for reasons for revocation Art. 49 LLD.

21 Especially regarding Hepatitis B and HIV.

22 It remains yet to be determined whether the plaintiff may also claim monetary damages.