LEGAL UPDATE

The next labour law

The Labour Arbitration Law, due in May, will be a new piece of the puzzle in China's evolving human resources environment

 ------ By Duncan Thomson

The forthcoming Labour Dispute Mediation and Arbitration Law, or Arbitration Law, is the next piece of the puzzle of China's new labour law regime. The purpose of the law is to fairly and promptly settle labour disputes between an employer and employee within the territory of China. Recent trends in labour law in China have been more favourable to the employee. The Arbitration Law continues this employee-favourable trend with a prediction that there will be an increase in employees applying for labour arbitration. Foreign-invested enterprises (FIEs) must be aware of their new rights and obligations under the Arbitration Law when it becomes legally effective on May 1 of this year.

FIEs must be aware of the following changes:

The majority of labour disputes will be governed by the Arbitration Law. The law also provides that the Labour Arbitration Dispute Commission will have the final word in almost all labour disputes. The Arbitration Commission will issue an arbitration award to determine the outcome of a labour dispute.

The Arbitration Commissions have a strict deadline of 45 days, with a maximum possible extension of 15 days, in which to issue an arbitration award. The short time frame in an arbitration dispute means FIEs must understand the operation of this new regime or risk having an award rendered against them.

The burden of proof rests with a party making claims in the arbitration. However, an employer is under a legal duty to provide evidence under its control in a labour arbitration dispute. While contempt of court provisions do not exist in the Arbitration Law (for which the penalty for breach in many common law jurisdictions is jail), the party withholding such evidence will bear the adverse consequences. In such circumstances, the Arbitration Commission will regard the claims of the applicant as proved regarding the evidence that has been withheld by the employer. In some circumstances the Arbitration Commission may appoint an authentication organisation to authenticate the evidence of the parties to be used in labour arbitration.

If an employer delays or does not pay an employee in full for their wages, the employee can lobby the labour administrative authority to handle the matter. Further guidance is required from the Ministry of Labour and Social Security (MLSS) on how they will handle such matters. The MLSS may use administrative measures, and possibly penalties, in the abovementioned instances.

An Arbitration Commission can help employees recover their wages or medical expenses for a work-related injury by rendering an award for prior execution. The award for prior execution can then be given to the court to be enforced. Such an award will be given if the rights and obligations of the parties are clear, and the living of the employee would be seriously affected.

Types of labour disputes

The Arbitration Law applies to six categories of labour disputes arising between an employer and employee. They are:

  • Confirmation of a labour relationship
  • Labour contracts (conclusion, performance, modification, rescission or termination)
  • Termination/resignation/retirement of an employee
  • Work hours, breaks, vacations, social insurance, benefits, training and labour safety
  • Labour remuneration, work-related injury medical expenses and compensation
  • Labour disputes provided for under laws or administrative regulations
The sixth category of labour disputes will be fleshed out chiefly by administrative regulations from the State Council or MLSS in the future.

Pre-arbitration disputes

The Arbitration Law also defines actions that may be taken before or in lieu of a labour arbitration dispute, including negotiation and mediation. Negotiation involves the employer and employee discussing the labour dispute. The employee may request the trade union or a third party to join the negotiations. The parties may settle the dispute through negotiation or reach a legally binding settlement agreement. In the event the negotiation fails, or a party selects not to negotiate, either the employer or employee may apply for mediation.

The purpose of the mediation is to provide an environment whereby the parties may reach a mutually acceptable settlement. In mediation the parties must apply to an official mediation organisation either verbally or in writing. Mediation organisations are made up of a representative for the employer, a representative for the employee, and a chairman. If a mediation settlement is reached, both parties to the dispute, as well as the mediator, must sign and seal the document for it to be legally binding. If one of the parties fails to abide by the mediation agreement they may apply to a court for a payment order in the following circumstances:
  • Delaying payment of salary
  • Work-related injury medical expenses
  • Indemnity
  • Compensation If mediation fails, or a party chooses not to attend mediation, one of the partyies may apply for arbitration with an Arbitration Commission. Situations where mediation fails and recourse to file with the Arbitration Commission applies may occur in the following two situations: The first situation is if no mediation agreement has been reached within 15 days of when the application for mediation was filed. The second situation is if one of the parties does not sign and seal the application within the deadline outlined in the mediation agreement.

    Labour arbitration

    The jurisdiction of the arbitration will be decided where the labour contract was performed, or where the residence of an employer is located. In the event that both parties apply to different labour dispute arbitration commissions, the labour commission at the location where the labour contract was performed will hear the dispute.

    The two parties in a labour arbitration will be the employer and employee involved in the labour dispute. However, FIEs must be aware that if they hire employees through third parties, such as Fesco, they will be joined in the event of a labour arbitration. Third parties who have an interest in the proceedings may apply to attend the labour arbitration or be notified by the labour arbitration commission that they can attend. If a party appoints an attorney, they must submit a Power of Attorney to the labour arbitration commission. Employees who are legally incapacitated or deceased may have a legal representative, close relative or attorney participate in the arbitration activities on their behalf.

    A written application for arbitration (there are also a few limited exceptions where an oral application will be accepted) must be filed with the Arbitration Commission and contain the following information:
  • Name, gender, age, occupation, work unit and residence of an employee, name and residence of an employer and names and titles of the legal representative or principal of an employer
  • Claims and supporting facts and reasons
  • Evidence, sources of evidence, and names and residences of witnesses The parties have one year from the date on which the labour dispute occurred to file for arbitration. The Arbitration Commission is statutorily obliged to issue an award within 45 days of accepting the dispute. This can be extended for a maximum of 15 days, bringing the total period to 60 days. There are a number of deadlines with which the Arbitration Commission, applicant and respondent must comply (see table for details).

    Appealing an award

    An arbitral award is issued according to the majority opinion of the arbitrators. It is generally final and binding on all parties to the arbitration on the date the award is issued. However, in certain circumstances if a party disagrees with the award they may file suit with the People's Court for its revocation. Grounds for revocation of an award that can be heard by the People's Courts are generally limited to abuse of process by the commission or dishonesty by one party involved in the arbitration.

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