Chinese Labor Law 2014 Year in Review

By Kevin Jones January 19, 2015

There were many changes in labor and employment law and practice in China during 2014 which continue to shape the labor landscape. We discuss several of the more important developments below, which include efforts to improve the rights of certain categories of workers, efforts to address incidents of employee unrest, further defining work-related injuries and the acceptance of social media posts by the People’s Courts in employment-related matters.

Provisional Regulations on Labor Dispatch

Following the amendments to the Employment Contract Law (ECL) in 2013 restricting the use of dispatched labor, the Ministry of Human Resources and Social Security issued the Provisional Regulations on Labor Dispatch on Jan. 24, 2014, which became effective on March 1, 2014 (Labor Dispatch Regulations). Dispatched workers are workers that are employed by authorized labor dispatch agencies and dispatched to work for employers on a contract basis. There is no employment relationship between the companies and the dispatched workers that they use.

The Labor Dispatch Regulations clarified several outstanding issues, the most important two being:

  • Dispatched workers can make up only 10 percent of a company’s workforce. When calculating the 10 percent cap, the company needs to include both employees and dispatched workers.Companies have a two-year period ending on Feb. 28, 2016, to get in compliance with the 10 percent cap, but are required to submit a plan to the local labor authority indicating how they plan to reduce their use of dispatched workers. Until a company is in compliance with the 10 percent cap, it is not allowed to use any additional dispatched workers.
  • Employees need to be consulted to determine which positions are auxiliary positions. Dispatched workers can only be used for positions that are temporary, auxiliary or substitute in nature. The amendments to the ECL indicated that auxiliary positions are noncore positions that provide services to the company’s main business. The Labor Dispatch Regulations put a further requirement on companies to go through a consultation process with employees in accordance with Article 4 of the ECL to determine how to define auxiliary positions. As the employee consultation process requirements don’t require employee consent, companies have reasonable discretion in defining auxiliary positions.

New Work-Related Injury Insurance Provisions

The Supreme People’s Court issued the Provisions on Various Issues Concerning the Hearing of Administrative Cases for Disputes over Work-related Injury Insurance on June 18, 2014, which became effective on Sept. 1, 2014 (Work-related Injury Provisions). The Work-related Injury Provisions complement existing regulations to provide further guidance to courts regarding what circumstances constitute work-related injuries, how to allocate liability in such cases, and other issues. Perhaps the most significant guidance is further clarification as to what constitutes work-related injuries suffered “on the way to or from work.” Existing regulations had indicated that an injury would be considered work-related if the employee suffered it during a commute to or from work, but they didn’t provide guidance as to what is considered a commute to or from work.

The Work-related Injury Provisions now indicate that when there is a work-related injury claim, the claim must be first submitted to the social insurance administrative department (SIAD) to determine whether it is a work-related injury, and the amount to be paid by insurance and the employer, if any. Article 6 of the provisions states that if SIAD determines any of the following to be “on the way to or from work,” a People’s Court should uphold the finding:

  • On a reasonable route between the place of work and place of domicile, usual residence or dormitory of the entity within a reasonable period of time.
  • On a reasonable route between the place of work and the place of residence of an employee’s spouse, parents or children within a reasonable period of time.
  • On a reasonable route with a reasonable period of time doing an activity that is necessary for daily work.
  • On another reasonable route within a reasonable period of time.

Social Media

Social media posts have increasingly been accepted by People’s Courts as evidence in employment-related disputes, particularly those relating to claims of wrongful termination by employees. Employers in China need cause as set out in the ECL to unilaterally terminate an employee, with the most common grounds used being a material violation of the employer’s rules. However, employers face a high burden of proof when having to defend a unilateral termination on this ground. The recent acceptance of social media posts as evidence can help alleviate this burden in some cases. A couple of examples where the termination of an employee for a material violation of an employer’s rules was upheld include the following:

  • An employee was terminated for an unauthorized absence from work. She had gone on authorized sick leave, but her social media posts showed that she was traveling with family instead of resting or receiving medical treatment.
  • An employee was terminated for making negative comments about his employer’s business on social media. The People’s Court accepted as evidence screen-shots of those negative comments on social media.

It is important to note that:

  • Social media posts need to be notarized by a Chinese notary to be accepted as evidence by a People’s Court.
  • It is important to verify that the social media posts were made by the employee in question.
  • Other evidence will likely be required in addition to any social media evidence.

Guangdong Provincial Regulations on Collective Contracts for Enterprises

The Guangdong Provincial Regulations on Collective Contracts for Enterprises (Regulations), adopted by the Eleventh Session of the Standing Committee of the Twelfth People’s Congress of Guangdong Province on Sept. 25, 2014, became effective on Jan. 1, 2015. The Regulations increase the labor union’s involvement in the collective negotiation process, with the aim of providing employees with a process for addressing employment-related issues with employers.The Regulations are in part a response to the rise in incidents where employees have taken matters into their own hands through industrial action, particularly in Guangdong Province.They are intended to provide a channel for employees to raise and resolve issues without having to resort to industrial action.

The national level Provisions of Collective Contracts (Provisions), effective May 1, 2004, contain a general requirement that if either employees or a company makes a written request for a collective contract, the other party should not refuse to engage in collective negotiations without a justified reason. However, in practice this has been too vague to get parties to effectively engage in collective negotiations when issues arose. The Ministry of Human Resources and Social Security and the All-China Federation of Trade Unions (ACFTU) jointly published the Notice on Pushing Forward Collective Bargaining and the Implementation of the Rainbow Plan (Rainbow Plan) on May 5, 2010. The Rainbow Plan requires labor unions to focus on collective wage negotiations in the private sector and labor intensive industries, and put in place collective contracts regarding remuneration-related issues. The Regulations are a natural progression at the Guangdong provincial level to implement the principles of the Rainbow Plan.

The Guangdong Province Federation of Trade Unions level drafted the Regulations and they have significant involvement in the collective negotiation process. The Regulations indicate that if employees intend to initiate collective bargaining with their employer, they should first direct such request to the employer’s labor union, which will in turn decide whether to raise such request with the employer. If more than half of the employees or members of an employee representative congress make the request, then the labor union is obliged to raise such request with the employer. If the employer does not have a labor union, the employees should first direct such request to the local labor union, in which case the same conditions apply. Additionally, the Regulations state that the chief representative for the employees in these negotiations should be the leader of the company’s labor union or, if there is no labor union, an employee representative elected by way of elections organized by the local ACFTU.

Once the labor union, either at the employer level or local level, makes the request for collective bargaining, the employer has 30 days to respond to each point raised in the request and commence collective bargaining with the employees. Collective bargaining negotiations should be concluded within three months from the date of the notice, with a maximum extension of 60 days permitted if both parties mutually agree to the extension. The Provisions do not contain any specific requirements for concluding collective negotiations once those are commenced, so this new provincial level requirement is significant. It is clearly aimed at preventing companies from delaying collective negotiations until they lose momentum and are abandoned.

The Regulations indicate a variety of issues that may be collectively negotiated, but they place special emphasis on remuneration-related issues, which have been the most common source of disputes. In particular, the Regulations indicate that when discussing wage issues, the following should be taken into consideration:

  • Labor productivity and economic performance of the employer.
  • Total payroll and employee’s average wage level in the company in the preceding year.
  • Wage guidelines for companies, issued by labor authorities.
  • Consumer price index information issued by local authorities.
  • Local minimum wage, regional and industrial average wage increase levels.

As most of the industrial action in Guangdong Province over the past few years was over remuneration-related issues, it is not surprising that the Regulations give particular focus to negotiation of such issues. In the past, many companies have been able to negotiate collective contracts with vaguely worded provisions regarding remuneration-related issues, or which simply restated existing company policy.

Additionally, the Regulations state that during the collective bargaining process employees are prohibited from refusing to work, persuading other employees to stop work or disrupting the operations of the employer by obstructing employees or materials from entering or exiting from the employer’s premises or destroying employer property.

Employers in Guangdong Province will face a much more rigorous collective negotiation process going forward. Labor union involvement will mean employers will face more organized and well-informed employees. Collective contracts that contain vague provisions not obligating employers to any specific annual wage increases or other remuneration related concessions will be harder to negotiate. Additionally, the specific timeline for conducting and concluding collective negotiations means that companies will not be able to delay the process once it has commenced. On a positive note, if employees feel that the Regulations give them a real process for resolving labor issues, then they are less likely to take industrial action.

Kevin L. Jones is a partner and head of Faegre Baker Daniels’ labor and employment practice in China, based in Shanghai.

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