China issued the new Labor Contract Law on 1 January 2008 and on 18 September of the same year, released the Regulations on the Implementation of the Labor Contract Law. However remaining ambiguities caused problems during the trial and settlement of labor disputes, especially in the current economic crisis.

In order to solve various problems occurring during the trials of labor dispute cases, the Beijing High People’s Court and the Beijing Labor and Social Security Bureau recently organized a conference to discuss some of the substantial and procedural matters that need to be settled and have reached a consensus on some of the more problematic legal issues. The legal opinions agreed at the conference will play a crucial role in future trials of labor disputes in Beijing and will serve as guidance for lawyers during the negotiation and settlement phases of labor disputes.

In May 2005, a Shanghai restaurant hired Mr Li as a cook and entered into a labour contract setting Li’s pay at RMB 3000 per month. Almost four years later, in April 2009, the company terminated the labor contract with Li, claiming that he had materially breached its rules and regulations. Mr. Li then requested labor arbitration and executed subsequent litigation, claiming damages for illegally terminating labor contract, and overtime work wages (OT wages) for his work in weekdays’ extension working time, weekends, and holidays.

During the hearing, Mr. Li said the working time for weekdays was from 9:30AM to 9:30PM. He also stated that he should have had four rest days and that he worked during the holidays totaling 40 days. However, the company did not pay him any overtime. He also claimed that the company terminated his employment without any reason. Mr. Li’s claim before the court was for RMB 24,000 in damages for illegal termination of the labor contract as well as RMB 156,000 in OT wages for working extended work hours during the workweek as well as on weekends and holidays.

The court found that Mr. Li had established the labor relationship with the company. The court also found that while the company terminated the labor relationship, the company did not provide any evidence to prove that Mr. Li had materially breached the company’s rules and regulations. The court therefore found that the company should pay Mr. Li damages for illegal termination of the labor contract in accordance with Article 87 of the Labor Contract Law. Article 87 states that “If an employer revokes or terminates a labor contract in violation of this Law, it shall pay the employee double the amount of damages provided for in Article 47 of this law”, and further to Article 47, “financial compensation based on the number of years he has worked for the Employer at the rate of one month’s wages for each full year worked. Any period of not less than 6 months but less than one year shall be counted as one year.” In this case, the court found the company was liable to the employee for eight months salary for damages.

In deciding the issue of Mr. Li’s overtime payments, the court found that Mr. Li had proven there was a “work attendance checking policy” in the company. Therefore, the burden of proof should transfer to the company to provide the ‘working attendance checking book’ to prove that Mr. Li did not perform OT works in the weekdays, weekends, and holidays. In the absence of such proof, the company would be liable to pay the overtime claimed by the employee. In this case, Mr. Li’s claims regarding OT work wages were supported by the court.

Mr Liu began working for China Energy & Environment Conservation Guarantee on October 21, 2007 without entering into a full labor contract with the employee. Two months later, the company entered into a probationary agreement with Liu of three months’ duration, from December 21 2007 to March 20 2008, and a monthly salary of RMB 4,000.

After the probation period, Liu asked the company to enter into a formal labor contract with him. They refused, and Liu resigned two months later on May 20 2008. Liu filed a claim in labor arbitration, claiming twice his monthly wages as compensation for the period he worked for the company without an employment contract in place.

The arbitration committee ruled that the company must pay to the employee, 4 months wages as compensation for the four months’ working period during which no labor contract was signed between the company and Liu. The probation agreement should be deemed as the labor contract between Liu and the company, and the period from December 21 2007 to March 20 2008 shall be regarded as the term of the labor contract. According to Article 19 of the Labor Contract Law, if a contract merely contains a probation period, such probation period shall be deemed as the term of the labor contract. Regarding the other four months for which no labor contract existed (October 21 to December 20 2007 and March 21 to May 20 2008), in accordance with Article 82 of the Labor Contract Law, for each month that a business employs someone who has worked for them for at least a month without a written labor contract, the employer shall be liable to pay that employee double their regular wage.

As no labor contract was provided to Mr. Liu during his two-month probation or during the next two months, the company was liable to pay Mr. Liu twice total his wages for the entire four month period. The company appealled to the Beijing Dongchen Court, but the court agreed with the arbitration committee’s reasoning and upheld the decision.

From July 1 2009, two kinds of qualified migrant workers in Shanghai may participate in the basic old-age pension fund system for urban workers. Previously, migrant workers were not part of such system and employers who hired migrant workers were only required to pay for comprehensive insurance. However, Shanghai will not completely cancel the comprehensive insurance system at present, because not all migrant works can apply to the basic old-age pension fund system for urban workers. The two types of migrant workers who may apply are:

1. Migrant workers who hold urban household registration of the other provinces
2. Migrant workers without the urban household registration of the other provinces, but who are professional and technical personnel with professional and technician titles necessary to the employers.

Under current regulations, where an employer makes insurance contributions for migrant workers according to the standards of the urban workers’ old-age pension fund, the payment shall be RMB 948 per person. In contrast, if an employer makes such contributions in accordance with the ‘comprehensive insurance’ standard, they need only pay RMB 247 per person. Consequently, if an employer changes from the comprehensive insurance to urban basic old-age pension fund for its migrant workers, employers will experience an additional cost of RMB 700 per employee.

China’s State Administration of Taxation recently issued the ‘Circular of the State Administration of Taxation on Specifying the Issues Relevant to Implementation of Several Policies on Individual Income Tax’. The Circular states that when an employer pays an employee “double monthly salary” at the end of the year, a common bonus system in China, the double salary shall be taxed as one amount, rather than two separate amounts.

The Ministry of Human Resources and Social Security recently issued the ‘Provisions on Employment Services and Employment Management’. The Provisions, which come into effect on January 1, 2010, prohibit employers from using job advertisements that say “salary is negotiable”; instead, candidates must be informed of the exact salary amount.

China’s State Administration of Taxation recently issued the ‘Circular of the State Administration of Taxation on Specifying the Issues Relevant to Implementation of Several Policies on Individual Income Tax’. According to the Circular, the fees paid to a director or a supervisor should be taxed under wages or salary if the director or supervisor is an employee of the company or a related party.

The Guangzhou Local Taxation Bureau has issued a statement that the maximum tax-free housing fund deposit base has been increased by RMB1,293 to RMB11,340. The revised policy has taken effect from July 1, 2009.

According to the Shanghai Construction and Transportation Committee, the Shanghai supplementary housing fund contribution limit will remain at 8% for both employers and employees.

The Zhejiang Provincial Government has released an official document stipulating that employees who suffer from work-related injuries caused by a third party shall be entitled to compensation by the infringer, as well as entitled to enjoy any work-related injury insurance benefits provided by the employer.

The State Administration of Work Safety (SAWS) recently held a briefing on its ‘Tentative Regulations on Workplace Occupational Health Administration’, which provide for the closure of enterprises and fines from RMB 100,000 to RMB 300,000 in the event of an enterprise causing serious damage to its employees’ health or life. The Regulations took effect nationwide on September 1, 2009.

The ACFTU recently issued its ‘Circular on Further Enhancing Democratic Management In the Course of Enterprise Reorganization, Restructuring, Closedown and Bankruptcy’. According to the Circular, an enterprise’s reorganization proposal will be ineffective unless it has first been submitted to the Workers’ Congress or Workers’ Assembly for review and approval. In addition, all important matters that directly affect the workers, such as company downsizing, shall not be implemented until the matter has been reviewed and approved by the Workers’ Congress. Any decisions which are neither made public nor approved by the Workers’ Congress shall be invalid.

According to the ‘Circular of the General Office of the State Council Concerning Statutory Holidays in 2009’, the 2009 China National Day and 2009 Mid-Autumn Festival are to be combined. This combined national holiday will run from October 1st through October 8th.

Employees who are requested to work on October 1st, 2nd, 3rd or 6th, shall receive overtime pay at not less than 300% of their normal hourly wage.

Employees who are requested to work on October 4th, 5th, 7th or 8th shall be offered an equivalent number of days off as compensation, or be receive overtime pay at 200% of their normal hourly wage.

The Guangdong provincial government has announced that it is preparing to issue a set of local regulations and policies relating to labour and employment, including: the ‘Regulation on Implementation of Labor Contract Law in Guangdong Province’; the ‘Regulation of Guangdong Province on Labor Dispute Arbitration’; the ‘Measures of Guangdong Province for Implementing Employment Promotion Law’; the ‘Revised Regulation of Guangdong Province on Labor Supervision’; and the ‘Revised Regulation of Guangdong Province on Work-Related Injury Insurance’.

In addition, the Guangdong provincial government is working on measures to implement old-age pension schemes for for rural workers, as well as an adjustment of the minimum wage.

The Shanghai Municipal Government recently unveiled a set of measures to attract financial talent to the emerging financial hub, including the following:

1. Making it easier and more convenient for financial talents to obtain Shanghai residence and permanent residence permits, opening up eligibility for child education, medical coverage, and housing benefits;
2. Offering lump-sum subsidies and rent subsidies to financial institutions recently headquartered in Shanghai; and
3. Establishing schemes to award “financial talent” and “financial innovation”.