December 01, 2010

Interpretation on Several Issues Concerning the Application of Laws in the Trial of Labor Disputes (III)

Issuing Body: Supreme People's Court
Issuing Date: September 13, 2010
Effective Date: September 14, 2010

China's Supreme People's Court (SPC) has released a new interpretation—the court's third—of the Labor Contract Law of the People's Republic of China (Labor Contract Law) and the Law on Mediation and Arbitration of Labor Disputes of the People's Republic of China (Mediation and Arbitration Law). Released on September 13, 2010, and effective the next day, the Interpretation on Several Issues Concerning the Application of Laws in the Trial of Labor Disputes (III) (Labor Disputes Interpretation III) seeks to clarify conflicts in interpretation of the Labor Contract Law, which took effect in January 2008 (see the September 2007 issue of China Law Update), and the Mediation and Arbitration Law, which also took effect in 2008.

China's top court has previously published the Interpretation on Several Issues Concerning the Application of Laws in the Trial of Labor Disputes (I) and the Interpretation on Several Issues Concerning the Application of Laws in the Trial of Labor Disputes (II) in 2001 and 2006, respectively. Both, of course, predate the revised Labor Contract Law and Mediation and Arbitration Law. The Labor Contract Law and the Mediation and Arbitration Law contain new and comprehensive provisions relating to the execution, performance, modification, and termination of labor contracts and labor dispute resolution, making it necessary for the SPC to issue the new judicial interpretation and address issues that have arisen in the past two years. Key provisions that are most relevant to foreign investors are summarized below.

Disputes Regarding Social Insurance

The Mediation and Arbitration Law says that disputes related to social security fall within the category of labor disputes and are therefore under jurisdiction of China's People's Courts. However, there has been controversy over the question of whether all social security-related disputes should be available for trial in such courts. Article 1 of the Labor Disputes Interpretation III holds that where an employer fails to complete social insurance formalities for employees and such defaults can not be repaired by working with China's social insurance agency, an employee can require his or her employer to compensate him for the losses. Such social security-related disputes are subject to the jurisdiction of People's Courts.

Disputes Regarding Overtime Pay

According to general principles of Chinese law, if an employee makes a claim for overtime pay, he or she assumes the burden of proof. But it is almost always difficult, in practice, for an employee to provide such evidence. As a result, Article 9 of Labor Disputes Interpretation III provides that, where an employee makes a claim for overtime pay, he shall assume the burden of proof as to the fact he has done overtime work; but where the employee has evidence that the employer possesses but has failed to provide evidence proving there was overtime work, the employer shall bear the adverse consequences (an admittedly vague clause, most likely meaning the court will adopt the employee's claims and hold that he or she did indeed work overtime).

Effects of Agreements Between Employees and Employers

Article 10 of the Labor Disputes Interpretation III allows employees and employers to resolve labor disputes by themselves. Any agreement reached between an employee and his or her employer regarding relevant formalities for rescinding or terminating a labor contract, payment of salary, remuneration, overtime pay, economic indemnity, or compensation shall be deemed valid, provided that the agreement does not violate mandatory requirements of laws and administrative regulations and is not concluded through fraud or threat, or by taking advantage of the other party's unfavorable condition.

However, if the relevant party requests revocation of such an above-mentioned agreement based on a claim that there is a major misunderstanding or the agreement is obviously unfair, the People's Court shall support such a request.

This Article 10 provides more flexibility for employers and employees to resolve labor disputes in a friendly manner—a positive step, since clearly all disputes need not go through arbitration or a lawsuit before settlement.

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