Labour disputes in China – what you need to know

Labour disputes can be extremely costly for companies. Whilst robust employee handbooks, policies and procedures can reduce employee disputes, workplace conflicts can still arise. If left unchecked, companies can face not only legal liabilities but also internal operational disruptions, decreased morale and productivity, as well as possible external reputation damages.

Under the Labour Law of the People’s Republic of China (‘Labour Labour’), employers are required to resolve labour disputes through either mediation or labour arbitration first. Litigation should be the last resort as parties must proceed through labour arbitration before a litigation case can be filed.  

Definitions

The Labour Law of the People’s Republic of China defines a labour dispute as a dispute arising from the exercise of labour rights and the fulfilment of labour obligations between the parties with labour relationships. In practice, disputes can involve matters such as termination, dismissal, salary and benefits and compliance with working hours, leave, and other labour rights.

Labour disputes are based on labour relationships specific to the employer and the employee. The employer includes enterprises, individual economic organizations, private non-enterprise entities and state organs, public institutions, and social organizations, as well as partnerships such as accounting firms, law firms, foundations and so forth, within the territory of the People’s Republic of China. An employee is a natural person of legal age to work who signs a labour contract with the employer.

Resolving labour disputes

Labour disputes are often resolved through three steps – mediation, arbitration and lastly litigation.

Although, the Law allows disputes to proceed directly through labour arbitration before pursuing litigation in the People’s Courts. Any settlement of a labour dispute shall follow the principle of legality, fairness, and promptness to safeguard under the Law the legitimate rights and interests of the parties involved.

Meditation

A labour dispute mediation committee (‘committee’) may be established within the company. And employees may apply to the committee for internal mediation. Under the Law, the committee shall be composed of staff and worker representatives, the company, and the trade union. The chair of the committee shall be assumed by a representative of the trade union. If an agreement is reached by mediation, it shall be implemented by the parties. If mediation fails, one party may request arbitration and apply to the labour dispute arbitration commission.

Arbitration

The requesting party is required to file a written application with a labour dispute arbitration committee within 60 days from the date of the labour dispute occurrence. Generally, the arbitration committee determines the arbitration decision within 60 days of the receipt of the application. If no objections are raised, the parties must execute the arbitration decision. If the party to a labour dispute is dissatisfied with the arbitration decision, the party may bring a lawsuit to the people’s court within 15 days from the date of the arbitration award. If no litigation is initiated in a people’s court within 15 days from the day of the arbitral award, the arbitral award will become effective on the sixteenth day, and the parties should perform the arbitral award. If one of the parties fails to do so, the other party may apply to the people’s court for enforcement.

Litigation

Labour litigation refers to when the parties to a labour dispute are not satisfied with an arbitral award made by a labour dispute arbitration committee. Therefore, within a prescribed time limit, they file a lawsuit with a people’s court, and the people’s court conducts hearings and adjudication according to procedures prescribed by law.

Labour disputes can be a complex and costly matter. Companies or human resources should seek professional advice to ensure compliance. If employees’ rights are infringed, companies could bear costly compensation. At Horizons, we have been advising foreign companies in China for over 30 years in labour matters. If you have questions or concerns related to labour disputes or other related matters, please contact Horizons at +86 21 5356 3400 or talktous@horizons-advisory.com.Edit