Employers, prepare for tribunal trouble

“There is a lot of game playing going on by the employees,” says Richard Grams, partner of Stephenson Hardwood & Lo's Guangzhou office. “They know very clearly that they are doing something wrong, but they think it's worth giving it a try. It's like playing [the lottery]; they have a chance to win, so why not?”

From April 2008, Grams began to receive a lot of complaints from clients who said their staff had refused to sign their employment contract. Some of them, Grams says, even demanded benefits to which they were not entitled.

“We have clients who hired staff on a part-time basis or on a consulting basis, but [the employees] were threatening to go to arbitration if the employer didn't give them full benefits of full-time employees,” Grams says, adding that the workers were hoping to scare his clients into providing more benefits.

Employers under pressure

The free-of-charge arbitration system provides an easy channel through which employees can sue their employers. Meanwhile, companies have to bear greater burdens as they battle increasing economic difficulties.

Joseph Lee, executive committee member of the Chinese Manufacturers' Association of Hong Kong, owns factories in Shenzhen and Ningbo. He agrees that the burden is heavier after the issuance of the new employment law. Some employees, he says, think wrongly that the rules allow them to sue their employers, regardless of minor or major issues.

Lee urges the government to get involved and clarify to the public that the concept employees are holding is inappropriate. In the midst of economic uncertainties, he says, employees should also consider the difficulties that employers are having, as disputes and arbitration will only create more jobs losses and bankruptcy.

“It would be better if both employers and employees had a better understanding of the rules, rather than keep on criticising each other,” he says.

The government is not ignorant of the impact of the economic problems and has been issuing a series of stimulus measures in an attempt to revive the market. By the end of 2008, the State Council had decided to extend Rmb100 billion (US$14.61 billion) of loans to the country's policy banks, while planning to raise the currency supply by 17%. The government also announced its decisions on the Rmb4 trillion stimulus package as well as the restoring of value-added tax rebates on exports. Guangdong also became the first province in China to suspend the implementation of the Employment Contract Law.

None of this can erase the possibility of employers being sued, and the government's constant and unstable changes to its regulatory approach may even worsen the situation. Lawyers say that although the delay to the implementation of the Employment Contract Law is a relief to their clients, its short-term nature and uncertain length has created confusion.

“It's not good because of uncertainty. [The employers] don't know how long the delay would be. It could be another year, another 15 months or 18 months. Who knows?” asks Grams.

The unpredictable changes could also affect employers' decision-making on company headcounts. Although the employment law delay is partly meant to stimulate hiring, companies are still reluctant to invest in new workers for fear that the labour law could be put into place at any time.

“We [will be] forced to lay off once the government changes its mind,” Lee says. “But we can't afford to hire and lay off people every several months. The delay of implementation rules could give us a headache.”

Companies in Guangdong, he says, not only need to cope with the economic difficulties but must also adjust their policies so as to comply with the changing regulations. But the adjustments, which require time and resources, mean more expenditure for employers. Without any clear direction, employers will also find it hard to plan strategically whether they should continue their businesses in Guangdong or whether it would be more economical to move their factories to other provinces or small towns.

“I think the government needs to provide clear guidelines and directions,” Lee says. “Imagine if we can't cope with it, and then everyone will go to the court and sue us.”

Employers will not usually be too concerned about a labour arbitration case if they are not at fault. But in mainland China, the arbitration tribunal is very much biased toward the employee. According to Tony Lai, senior partner of Long An Law Firm, employees have always been seen as on the weak side. The arbitration tribunal thus favours them and will sometimes overlook the violation of an employment contract by employees. There is also an automatic assumption that employers can bear financial losses more readily then employees. In most cases, therefore, employees win.

“90% of them win,” says Grams. “If it's about money and disagreement on payment, unless the employee is trying to [de]fraud the employer, the employee will win every time, not 90% but 100%.”

Foreign companies at risk

While all employers are more vulnerable when labour disputes occur, foreign employers are most likely to be sued by their employees. According to Andy Wang, lawyer at Pinsent Masons in Shanghai, employees who work for foreign-invested companies usually have a higher awareness of the labour arbitration system and will mostly go to arbitration for help.

“What lawyers can do,” says Echo Liu, attorney-at-law of Guangda Law Firm, “is to try to reduce the possibility of having arbitration and advise clients to follow the regulations strictly.”

According to Liu, employers should pay more attention to their company policies now in order to try to avoid being sued. Since the burden of evidence lies heavily on the employer's side, it is crucial for employers to maintain constant records and solid evidence related to their staff should a case occur.

Helen Chang, partner of Pinsent Masons, says that written records are essential when evidence is requested. However, it is not convincing just to have a letter stating that the employees did not fulfil certain expectations. The letter, she says, should include the company's policies and how the employee violated them. Notes recording the dates when the employee failed to attend work on time or did not follow instructions can also be considered as evidence. In cases that involve many employees, employers are strongly advised to consult with the local government first.

The first priority for lawyers to consider is reaching a settlement before reaching labour arbitration, as agreements between both parties could avoid further disputes and costs.

Although foreign-invested companies may consider grappling with local rules to be their main challenge, it is often their own policies which will create an issue when disputes occur. A lot of them have not been localised according to PRC law, and so are incompatible with local rules. When arbitrators look at these global policies, there is a possibility that the policies will not appear to be consistent with Chinese regulations.

Putting into place uniform employment rules may not solve a company's problems: local employees might also find global policies unacceptable. According to the local rules, for example, if an employee is absent from work for 15 days or more, the employer has the right to terminate the contract. But 15 days of absence might seem too long a period to foreign employers, who may then reduce the time in their rules. Some employees might then find these amended rules too strict.

“Employees would be more likely to accept policies that are favourable to them.” Liu says. “It is important for both parties to come to an agreement on the policies.”

There is no question that one of the biggest problems for employers is labour disputes. And as the Guangdong arbitration tribunal is now well understaffed, cases will continue to increase significantly in the year to come.

“Under the current legal system, the only thing we can do is to prepare and get ready upfront so as to reduce the chances of having labour arbitration cases,” says Liu.

Labour disputes checklist for foreign enterprises

Most labour disputes arising between employers and employees within the PRC fall into the follow categories:

(1) Disputes arising from the removal or lay-off of an employee

ADVICE: Foreign enterprises should show sufficient grounds in support of their decisions. For example, they should have put in place rules to be obeyed and employees should be notified of these rules. They must also show evidence that the employees have violated those rules.

(2) Disputes arising from the resignation or retirement of an employee

ADVICE: Foreign enterprises should pay attention to procedures for handling the issues in point 1. If it is reasonable for the employees to resign or retire, enterprises should not set up any barriers and need to facilitate proceedings such as transferring the files of their social insurance to their next destination, paying up unpaid dues, and so on.

(3) Disputes arising from over-time work hours and payment

ADVICE: Foreign enterprises should calculate over-time work hours correctly and legally.

(4) Disputes arising from treatment and medical expenses for work-related injuries

ADVICE: Foreign enterprises should buy work-related injury insurance for employees, ensure a safe working environment, do their best to prevent injuries during working hours and send the worker to hospital promptly in case any injury happens.

(5) Disputes relating to social insurance

ADVICE: Foreign enterprises should buy social insurance for the employees and pay attention to the payment method and the percentage in their salary. It is not wise to calculate the social insurance as part of the salary.

By Tony Lai, Long An Law Firm, Shenzhen