Study on Employment Termination by Employer in China - Part. 3

by Giovanni Pisacane (Lawyer) - Greatway Advisory (Shanghai) Co., Ltd.

Categories: Employment Law
Typology: Articles

Abstract

1. The systematic deficiencies of employment termination by the employer in China related to the reasons for termination, termination notice and responsibilities for wrongful termination. (Article published on Tuesday 16.04.2013)

2. The reasons underlying the employment termination by employer system deficiencies in China. (Article published on Tuesday 23.04.2013)

3. Suggestions on reforming and improving the current employment termination structure.

Bibliography

3. Suggestions on reforming and improving the current employment termination structure.

Employer’s termination right on employment contract shall be standardized but to a reasonable level so that employers can realize the efficiency of human resources management and employees can obtain justified compensation and other possible remedies. The application scope of non-fixed term employment contract should be expanded while limitation should be taken on signature of short fixed term employment contracts.

In addition to traditional labor supervision programs, local governments in regions with poor compliance records and high levels of labor conflict have advocated compliance-oriented (or quasi-compliance-oriented) enforcement strategies in recent years. For example, labor authorities in Shenzhen and Guangzhou have introduced blacklisting programs, which publish the names of companies who are persistent violators of wage laws, with the goal of shaming violators into compliance and warning potential employees of these companies' poor track records. Guangzhou has also formalized a system of publicly awarding merit rankings to employers that demonstrate “harmonious labor relations.”  The real impact of these programs on employer incentives is less certain, and they may be more noteworthy for their potential than their current effect. Participation is limited to large employers who are already exceeding compliance expectations and do not need additional incentives, and the arbitrary application processes and selection criteria raise the prospect that such programs are simply a new vehicle for local government corruption. Still, these local collaborative enforcement strategies may become effective tools (Harper).

There is no easy solution to the problem of limited administrative resources at the local level. Labor officials are responding by promoting mediation and early case settlement, hiring more personnel, relying more heavily on part-time arbitrators and establishing more sub-local organizations to diffuse labor conflict. However, since local governments incur all the costs associated with labor arbitration and enforcing labor laws, funding and training gaps are a short-term challenge (Harper). 

While more private enforcement regulatory reforms may create change in corporate practices, there is an urgent need for local labor bureaus to create a compliance-oriented business environment through stronger public enforcement. An effective way to create stronger public enforcement could be through the use of stiffer fines for persistent violators and penalty floors and making these known to the public. Illegal contracting practices could also be deemed a serious violation warranting an immediate penalty, even if they are ultimately corrected. Further reforms might permit labor inspectors to order shutdowns or suspension of violator's business licenses for repeat offenses or if the conduct results in serious or widespread harm. Others could deny blacklisted violators tax and investment incentives or permit banks to deny credit to violators, measures which are already used against environmental law violators. Shenzhen's new “harmonious labor” regulations may also provide useful models (Harper).

One objection to a deterrence-oriented approach is that stronger public enforcement measures can be counter-productive. Research has shown that such measures can backfire both where firms are well-intentioned and ambivalent about the legitimacy and reasonableness of the regulations. With strong market incentives to voluntarily comply with Chinese labor law, most large Western multinationals fall into this type of category, while many cost competing firms at the bottom of the global supply chain fall into the category that would require greater deterrence measures. Such measures can promote evasion and distrust towards regulators, and lead to lower compliance levels and higher enforcement costs. These are obvious dangers in light of the financial situation faced by many employers. However, concerns about overly deterrent enforcement measures do not appear to be justified due to the current regulatory practice and the procedural protections available to employers under Chinese law. Without strong, consistent regulatory enforcement measures in place, compliant firms will continue to operate at a competitive disadvantage while violators go unchecked. Moreover, regulatory agencies are better positioned to address the causes of labor disputes, particularly due to the lack of union representation available to many employees. Litigation and similar private enforcement tactics is a blunt tool that disaggregates conflict, increases the administrative burden of arbitrators, courts, and employers, and is less effective in dealing with certain kinds of systemic labor violations (Harper). 

Even if stronger deterrent measures are introduced, cooperative administrative enforcement approaches that are flexible and focus on education and compliance are important components. Publication of enforcement actions is one technique already being used by local authorities, which can simultaneously deter violators and serve an educational purpose (Harper).

A feasible option available to Chinese employees, due to the insufficiency of the current law enforcement and since China is one of the few countries that allows for class action lawsuits, is filing class action lawsuits against employers that violate labor laws. This is a better alternative to resolving labor disputes, since holding strikes and labor protests are illegal. Moreover, class action lawsuits draw media attention and thus empower workers seeking legal remedies. If the damages awarded in a class action lawsuit are too minimal to hurt an employer, the social and political pressure created by any intense media coverage could compel employers and local government authorities to take action, especially FIEs, since foreign investors generally worry about domestic and overseas publicity. Sometimes simply filing the lawsuit could be enough to compel an employer to settle or attract the interest of high-level government officials. Nevertheless, the number of class action lawsuits that have been filed remains low and there are challenges to filing such lawsuits, including local judges’ unwillingness to accept class action lawsuits due to their potential complexity, individuals not being timely informed of the option to opt in as plaintiffs, and some lawyers’ unwillingness to represent employees filing a class action lawsuit (Zheng).

Bibliography

  • Virginia E. Harper, Contracts to Compliance? An Early look at Implementation under China’s New Labor Legislation, 23 Colum. J. Asian L., 35, 2009;
  • Monique Garcia, China’s Labor Law Evolution: Towards a New Frontier, 16 ISLA J. Intl. Comp. L., 235, 2009;
  • Li Jing, China’s New Labor Law and Protection of Workers, 32 Fordham Intl. L. J., 3, 2008;
  • Marisa Anne Pagnattaro, Is Labor Really "Cheap" in China? Compliance with Labor and Employment Laws, 10 San Diego Int'l L.J., 357, 2009;
  • 1681 PLI/Corp 129, Practising Law Institute - Corporate Law and Practice Course Handbook Series, Working with China’s New Labor Contract, 2008;
  • Alice Shelor Wang, Globalizing in China in 2012, 2012;     
  • Wolfgang Daubler, Qian Wang, The New Chinese Employment Law, 2009;  
  • Zeng Xianwu, Overview of Doing Business in China, 2012;
  • Garner, Yang, Doing Business in China, 20 N. 2 Employ. Indust. Rel. L., 38, 2010;
  • Yin Lily Zheng, It is not what is on paper, but what is in practice: China’s New Labor Contract Law and the Enforcement Problem, 8 Wash. U. Global Stud. L. Rev., 595, 2009.
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