Transcript Document

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 ablebodied citizen
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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
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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
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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)
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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)
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Law-Making Institutions
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State Council (Executive)
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Proposes legislation
Implements legislation; adopts regulations
National People’s Congress
(Legislative) – approves laws
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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
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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?
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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
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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
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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
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Duration of Contract
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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
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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
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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
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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
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Employee may Terminate Contract
With 30 days advance notice
 Or without notice if:
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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
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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
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Implementing Anti-Discrimination
Legislation
Disability (1990)
 Regulations on Labor Market
Management – gender, race,
nationality, and religion (2000)
 Sexual harassment (2005)
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Minimum Wage
Labor Law (Art. 48) requires provincial
governments to establish regional
minimum pay levels
 Minimum pay levels are adjusted
annually or semi-annually
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Social Insurance Benefits
Retirement pensions
 Medical insurance
 Accident and illness insurance
 Unemployment benefits
 Maternity benefits
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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
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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
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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
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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
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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
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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
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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
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Comparing Mechanisms
Mediation
Arbitration
1996
80,000
50,000
2000
30,000
130,000
Increase in Arbitration Use
250,000
200,000
ArbitrationCas
es
3-D Column 2
150,000
100,000
3-D Column 3
50,000
0
1996
2000
2004
Arbitration Commission Outcomes
32% - Mediated settlement
 41% - Arbitration award
 27% - Withdrawn or otherwise settled
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Many Settlement Opportunities
Preliminary conciliation
 Mediation
 Mediation by arbitration panel
 Mediation by court
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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
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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?
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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
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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
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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
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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
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