According to Chinese law and regulations, there are four ways to settle the labor disputes: consultation, mediation, arbitration and litigation. Generally speaking, arbitration and litigation are the most helpful ways to settle labor disputes. The parties involved in the dispute can apply to the labor dispute arbitration committee for arbitration within sixty (60)days from the date the dispute arises. The Labor Dispute Arbitration Committee will arbitrate the case and issue an arbitration award. However, this award is not final. If the relevant parties fail to agree to the arbitration award, they can file a lawsuit on the case to the relevant People's Court, which will then make a final decision on the case. In China, the two parties involved in the dispute are not allowed to file lawsuits directly to the People's Court. They must apply for arbitration first. So even though your employee threatened to sue you, he may actually mean that he will apply to the arbitration committee for arbitration of the case.