PRC: local courts’ observations on labour disputes

Local courts in Beijing and Shanghai have recently issued whitepapers setting out their observations of employment cases and their positions regarding certain common employment legal issues for the year of 2015. Given Beijing and Shanghai are two of the biggest cities in China, the local courts’ observations and practice may have considerable reference value for employment cases in China (especially Beijing and Shanghai) going forward.

Beijing Court’s Observations

The following observations and positions are set out in the whitepaper issued by the Chaoyang District Court in Beijing.

Key figures and observations

• Employment cases have been increasing. The court handled over 5,000 employment cases in 2015.
• Over half of the claims in 2015 were brought by younger employees – those who were born in 1980s or 1990s.
• Most employment claims in 2015 were related to salary, overtime payment and economic compensation issues.
• Around 80% of the employee claims in 2015 were either fully or partially supported by the court.
• Around 70% of foreigner-related employment cases in Beijing in 2015 involved foreigners who were senior management officers.

Beijing court’s position on certain common employment legal issues

• An employer may not terminate an employee on the ground of not disclosing his/her marriage status to the employer. The court considers that an employee’s marriage status is not related to his/her competency or qualifications for work; therefore, an employer may not rely on such non-disclosure to terminate the employee on the ground of fraud when entering into the employment contract.
• Internal business restructuring is not a “material change in objective circumstances” (which is a statutory ground for termination) if such restructuring is not due to factors beyond the employer’s control. The court has restricted application of this ground. Specifically, the following elements must be fulfilled for an employer to claim that a “material change in objective circumstances” has occurred:
• the change should be substantive and objective;
• the change should be unforeseeable when the parties entered into the employment contract;
• the change is not attributable to the parties to the employment contract; and
• the employment contract can no longer be performed by the parties due to the change.

Shanghai Court’s Observations

The following observations are set out in the whitepaper issued by the Pudong New Area Court in Shanghai.

Key figures and observations

• Most employment claims in 2015 were related to employment contract issues (especially wrongful dismissal claims), salary claims and economic compensation.
• There were an increasing number of employment cases involving claims for a considerable amount (e.g., claim values over RMB1 million) in 2015.
• Typical employment issues attributable to employers included: (i) delayed payment or non-payment of bonus or commissions to employees; and (ii) unilateral change of employee positions by employers not in compliance with the law.
• A typical employment issue attributable to employees is the provision of false information regarding previous working experience, qualifications or salaries when applying for the job. The court considers that employers are entitled to terminate employees if those employees have violated the principle of good faith or engaged in fraud when entering into an employment contract.

Comments

Based on the above court observations and positions as reflected in their whitepapers for the year of 2015, employers may wish to take note of the following:

• In general, the number of employment claims and the value of claims in Beijing and Shanghai has increased.
• The Beijing court tends to be more protective of employees in employment cases and interpret termination grounds in a restrictive manner that tends to favour employees.
• Most of the employment claims in Beijing and Shanghai relate to monetary claims for compensation, bonuses, salary and economic compensation. Employers should be compliant with the statutory requirements in relation to amounts to be payable to employees under law and keep robust record of such payments to mitigate risks.
• Employers should review the grounds for termination of employees carefully and comply with statutory requirements to mitigate risks of wrongful dismissal claims.
• Employers should monitor local practice with respect to the above interpretations, as different local courts can take different positions on the same employment issue.

For further information, please contact Nanda Lau, Partner, Karen Ip, Partner, Jasmine Chen, Associate or your usual Herbert Smith Freehills contact.