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How To Terminate China Employees. Oh, And Be Sure To Pay Them.

By Dan Harris on April 18th, 2013Posted in Basics of China Business Law, Legal News

Though Western companies getting tripped up in China due to differences in legal systems makes for common fodder on this blog, in the employment law context the reverse often holds true. Far too often my law firm gets contacted by companies in trouble for either assuming China’s labor laws are completely different from the West’s or for just not knowing Western labor laws enough even to give their actions much thought in China.

Let me explain.

In the United States, it is pretty common for employers to give fired or laid off employees a severance package, contingent on the fired or laid off employee signing a release of all claims he or she might have against the employer. It is surprising to me how so many employers seem not to realize that doing the same thing typically makes sense in China. It is possible that “my numbers” are skewed but it seems that we get more calls from employers asking us how to handle a recently terminated employee than we do from employers seeking our assistance on terminating an employee. When we do get requests to help with terminations, we usually do some brief research regarding the particular employee’s (or employees) possible claims against our client and then we work with our client to strike a deal with its soon to be terminated employees that will ensure that the employee both will not and cannot sue our client in the future.

Another employment area where we too often see a strange disconnect is in withholding an employee’s pay. I do not know US law very well on this beyond the following:

Virtually all states in the US treat employers incredibly harshly for not paying their employees.

In Washington State (at least a few years ago this was true) an employer that does not pay its employees will be liable to its unpaid employee for double the wages, plus attorneys’ fees. Maybe ten years ago, a friend of mine at a local startup tech company (that no longer exists) came to me because he was owed $19,000 in unpaid wages. As a favor to my friend, I wrote a letter to his employer saying that employer had better immediately pay my friend the $19,000 or risk having to pay him double, plus whatever attorneys’ fees he incurred in having to collect. In response, I received a “screw you” letter from the company’s lawyer saying that my friend had been such a terrible employee and had so often failed to show up for work that nothing was owed to him. That made me mad and so we sued, seeking double damages plus attorneys’ fees. The company fought us for a very short time and then fired their initial lawyer. A new (much smarter) lawyer came on and called me all but begging to settle. Within that same day, we had settled for $45,000. The attorney wisely knew that fighting these cases makes no sense at all.

I think there even can arise a point in some US states where not paying an employee can rise to the level of a criminal offense. Therefore, smart employers, virtually no matter what, pay their employees their wages.

China employees should generally be handled the same way, but too many foreign companies do not realize that.

Twice in the last year, I have been called by companies threatened with lawsuits for not paying a former employee wages owed during the employee’s tenure with the company. In both instances, the companies were justifying the non-payment of wages based on some allegedly horrible thing the employee had done during its tenure. One of these companies also was trying to contend that a contracted-for yearly bonus did not constitute wages.

What these companies did not realize is that China has very strict laws regarding payment of wages and that failing to pay wages can lead to criminal charges. So our advice is always “just pay” and worry about everything else later or not at all. Unless of course the responsible parties within the company are so committed to their legal positions that they are willing to risk having to argue for it from a jail cell.

We first wrote about paying wages to avoid a criminal sentence back in early 2011, in a post entitled, Pay Your Wages In China Or Go To Jail. Do Not Pass Go, back when China formally criminalized non-payment of wages:

The 19th Session of the 11th National People’s Congress last week revised the criminal code to provide that it is a crime for a company to intentionally withhold the wages of employees. A company that does this is subject to criminal fines and the responsible individuals are subject to imprisonment for up to seven years.

This is obviously a very significant issue and we are not surprised by this law change.

We are frequently contacted by owners of WFOEs in China who are experiencing financial difficulties. Very often the owner/manager reports that the company is behind on paying wages. Our advice always is to deal with the wage issue immediately because local officials will not allow a company to liquidate or restructure when wages are outstanding.

Now, our advice on wages is even more critical.

If you do not pay your wages, there is a good chance that you, as the manager/owner, will be charged with a crime and you could face seven years in a Chinese jail. Note also that this law change has retroactive effect. That is, if you failed to pay employees before the law was passed and that failure to pay continues, you are subject to criminal prosecution.

Article 276(1) of the China’s Criminal Code provides that willful withholding of employee wages is a crime. The elements of the crime are as follows:

a. The company has the means with which to pay the wages.
b. The company willfully withholds payment of wages by either refusing to pay or by intentionally transferring assets to escape liability for payment.
c. The situation is serious or the effects are severe.

Failing to pay wages subjects the company to a fine and persons within the company who are directly responsible are subject to fine and imprisonment. Imprisonment is up to three years where the situation is serious and up to 7 years when the effects are severe.

Back then we noted some issues that were unclear about the law, including the following:

1. How does a company demonstrate that it does not have the means to pay? A simple statement will not work. In our opinion, the only way to ensure that there is clearly no means to pay is to file for a formal petition in bankruptcy or to go through the complex economic based layoff system prescribed by the Labor Contract Law?

2. Who is directly responsible? For a normal WFOE, this will certainly include the general manager and the Representative Director. It will also likely include accounting or related personnel if they are actually responsible for making the wage payment decision. This almost certainly means this applies to the foreign Representative Director, even if that person is based outside of China and is not involved in day to day decision making.

We then concluded that the safe thing to do (of course) is not to “rely on these possible defenses to liability”:

You must take payment of wages seriously. You do not want to be in the position of making a defense after you have been arrested for a serious crime. Chinese employees have become very aggressive about ensuring their foreign employers pay their wages. This weapon will be added to the employee arsenal and we expect the weapon to be used aggressively.

In the past, we always stressed to our clients that if they were not going to pay their Chinese employees, they had better leave China before making that clear as we have been involved in a number of hostage situations involving non-payment of debts. We have also always stressed that their failure to pay those wages will almost certainly mean that their company will never be allowed back into China and many of those connected with the company will likely be barred as well.

We will now be telling them that if they stay in China or seek to return to China at some later date, they run the very real risk of going to the big house for a long time.

China continues to get tougher on employers that mistreat their employees and — no surprise — this is particularly true for foreign employers. If you have employees and you have never read China’s Labor Contract Law, I urge you to do so now. If you want something more in depth on China’s labor laws, I recommend you read the book, Understanding Labor and Employment Law in China, by Ronald C. Brown.

Bottom Line: 1) Get full releases from employees you terminate. 2) If you owe wages, pay them. 3) Do not mess around. 4) Do not try to be cute. 5) Do not let your anger at your ex-employee cloud your judgment.

Multinational Corporations Violating China's Environmental Laws and Regulations

Anyone wanting to do business in China, and those that are already doing business here, need to realize what “hot button” issues cleaning up and protecting the environment have become with the Chinese people, and even with government officials. China is going “green”, so the times they are a changing and everyone should take heed and act accordingly.  Ignore what is happening at your own peril. This applies to everyone, big or small.

Over the last three years, the Chinese government has punished 33 multinational corporations for violating the nation’s environmental laws and regulations, according to Ma Jun, director of the nongovernmental Institute of Public & Environmental Affairs. Ma’s announcement in September came as a surprise to many, as the Chinese public has tended to assume that multinational companies abide more strictly by the law than some in fact do in this heavily polluted country.

The exposed companies include subsidiaries of world-renowned corporations such as American Standard, Panasonic, Pepsi, Nestle, and 3M. They were punished mainly for discharges of substandard waste water and for unauthorized construction activities that occurred in the absence of proper environmental impact assessments.

When researchers at Ma’s institute began building a database to map China’s water pollution earlier this year, they used data from the websites of various Chinese environmental protection authorities. During the process, they came across a list of multinational corporations that had been cited for environmentally harmful activities for the years 2004–06.

Ma, who once worked as an environmental consultant for multinationals in China, was shocked by the discovery. “Those enterprises have been talking about corporate responsibility, yet they could not even abide by the law,” he says. “On the one hand, multinational corporations have not kept their environmental promise with respect to a global uniform standard; on the other hand, the implementation power of environmental laws and regulations in China is very weak.”

Mr. Zhao, an authority with the Jilin Provincial Environmental Protection Bureau agrees that, “Multinational corporations have relaxed their environmental standards in China.” And according to Lo Sze Ping, campaign director of Greenpeace China, the “words” of multinationals are often better than their deeds. To address their wrongdoings, companies are more willing to invest in public relations than in actually cleaning up the manufacturing process, he says.

What concerns environmentalists more, however, is the weak governmental and legal oversight of multinational corporations. Lo observes that as local governments seek to attract foreign investment, their affiliated environmental protection bureaus dare not take strict measures to address pollution by multinational corporations. He also believes that since multinational corporations typically perform better than domestic enterprises environmentally, the sub-par activities of foreign companies won’t attract the attention of the country’s top environmental authority, the State Environmental Protection Administration. This leaves a void in supervision.

But Lo also points out that domestic enterprises are more likely than multinationals to lack the capacity to meet environmental protection standards, while for the foreign firms it is more often a matter of willingness to address such problems. “Multinationals should be the ‘lead goat’ of their industries,” he says.

William Valentino, general manager for corporate communications for Bayer Corporation and the chair of the Corporate Social Responsibility Working Group of the European Chamber of Commerce in China, agrees that the poor environmental performance of domestic enterprises should not be used as an excuse for multinationals. “Talk about home electronic appliances, Chinese people will think of Sony; talk about soft drinks, they will think of Coca Cola. As an international enterprise trusted by the Chinese people, one is obliged to bear more responsibilities,” Valentino says.

Trial begins in Michael Jordan suit against Chinese company

Michael Jordon was the undisputed king of the basketball court for many years. Now he is playing in a much different court, and the home team has a home team advantage.  Pursuing a legal action in a Chinese court is never a slam dunk. It will be interesting to see if the court will determine that Mike “still has game”.  

April 30, 2013

Michael Jordan may have gotten married over the weekend, but yesterday was perhaps a bit less celebratory for the basketball legend, as it marked the first day of trial in a lawsuit he filed against Chinese company Qiaodan Sports Co.

Mr. Jordan took the company to court in a case testing China's personal trademark laws. According to Quartz, Qiaodan is a Mandarin transliteration of “Jordan,” and the company sells basketball shoes and jerseys sporting Mr. Jordan's jersey number, 23, throughout China. The company raked in 1.7 billion yuan, or $267 million, last year and had been planning a public listing in Shanghai, the website reports.

Jordan's lawsuit, which he filed in February 2012, claims that Qiaodan duped customers into thinking its products were authorized; it had also filed for trademark applications for “Jiefuli Qiaodan” and “Makusi Qiaodan”—the names of Mr. Jordan's sons, Jeffrey and Marcus.

“Qiaodan Sports has built a business off my Chinese name, the number 23, and even attempted to use the names of my children, without authorization,” Mr. Jordan said in a statement on his website. “I think Chinese consumers deserve to be protected from being misled, and they should know exactly what they are buying. I am taking this action to preserve the ownership of my name and my brand.”

Mr. Jordan's lawyers note that the player has been referred to as “Qiaodan” on Chinese TV since his first appearance in 1984.

The former Chicago Bull is seeking to halt the company's use of his name and is requesting $183,000 in compensation, according to Quartz. In a statement, Mr. Jordan said he will invest any monetary award in “growing the sport of basketball in China.”

Quartz reports that Qiaodan Sports, for its part, says it originally picked the name because it comes from a word that evokes “grass and trees of the south,” and that the name does not belong solely to Mr. Jordan because 4,600 Chinese citizens bear the name “Qiaodan.”

Qiaodan lawyers also pointed out that only Chinese citizens or foreign nationals living in China are protected under naming rights and that Mr. Jordan does not qualify, according to the International Business Times. Moreover, the Chinese company filed an $8 million countersuit against Mr. Jordan for holding up its IPO plans.

The Wall Street Journal reports that Qiaodan Sports first registered for the rights to use the name in 1997 and that the basketball star does not have a registered trademark for the translation in China. However, a provision in Chinese law prevents companies from freely using a famous person's name, even if the celebrity doesn't hold trademarks.

Other athletes have succeeded with similar cases in China. As the Journal notes, NBA player Yao Ming won in a case against Wuhan Yunhe Sharks Sportswear Co., which was using his name on its products. Chinese professional basketball player Yi Jianlian also was victorious over Fujian Yi Jianlian Sport Goods Co. in a case that found that an individual's "name right should be recognized as a prior right."

More information on Mr. Jordan's lawsuit can be found on, a site his lawyers set up to address the case.

Lawsuits involving overseas parties surge in Shanghai

Although it has taken western businesses some time to catch on to the reality of a “first to file” trademark system in China, it is finally sinking in and businesses and IP owners are now seeking out the expert advice of trademark law experts like those experts working for the Lehman Law Firm.  It only makes good sense to consult with experts when you have critical intellectual property protect.  Check out below what is going on now in Shanghai and elsewhere around China.

The number of intellectual property rights lawsuits that involve an overseas party saw a major spike in Shanghai last year amid an even higher increase in the overall number of IPR-related cases.

Shanghai courts handled 240 civil lawsuits involving a party not on the mainland in 2012, a 23.7 percent year-on-year increase, according to an IPR white paper released by Shanghai High People's Court on Thursday.

During the same period, Shanghai courts received 4,575 IPR-related lawsuits, a jump of 44.8 percent.

More than 80 percent of the claims by the overseas parties in cases they were involved got support from judicial departments, the white paper said.

That high percentage does not mean courts in Shanghai play favorites, Zhu Dan, president of the third tribunal for civil trials at the high court, said at a news conference on Thursday about the white paper's release.

"The intellectual property rights of both Chinese and foreign entities are fairly protected," he said.

Yet lawsuits related to an overseas party are always initiated by large foreign companies, which have sophisticated methods in IPR management, application and protection and are fully prepared for the lawsuits they launch in China, he said.

The rise of these lawsuits also shows that some Chinese companies did not show sufficient respect to others' intellectual property rights, and in some cases they intentionally infringed on others' rights, he added.

Many of these cases are related to disputes on a patent that contains advanced technology or related to a well-known brand, Zhu said. "Famous trademarks are hardest-hit by counterfeiting activities or are more likely to have their rights infringed upon," he said.

Two lawsuits related to foreign parties are included in a list of 10 major court cases involving IPR infringement of Shanghai last year.

In one of them, a court ruled in favor of US semiconductor chip maker Intel Corp, which claimed its trademark name was infringed on by a Chinese company that had adopted "Inteljet" as its English logo and website domain.

The Chinese company, based in Shenzhen, Guangdong province, was ordered to provide compensation of 400,000 yuan ($64,800) and publish a statement in a major newspaper to reduce the negative effect its actions had on Intel.

The Chinese firm appealed to a higher court but later withdrew its appeal and reached a settlement with the plaintiff. Both sides declined to reveal the final resolution.

In the second case, 3M Co, a US multinational conglomerate corporation, sued Zhejiang Daoming Investment Co for infringing on its patent. Zhejiang Daoming was ordered to pay 250,000 yuan in compensation.

The list of 10 major IPR cases was topped by the dispute between Shanghai Animation Film Studio and two of its employees for the copyright to "Calabash Babies", the cartoon figures in the animation TV series Calabash Brothers.

Courts in Shanghai ruled in favor of the film studio and decided that its two workers, who designed the cartoon figures, were entitled only to rights of authorship.

Also on Thursday, the Shanghai High People's Court, for the first time, released a report on IPR protection in the city's cultural and creative industries for the period from 2010 to 2012.

According to the report, Shanghai courts handled more than 7,000 civil lawsuits related to the sector during the period, or about 70 percent of the total IPR cases handled by the judicial departments between 2010 and 2012.

Chen Libin, vice-president of the high court, said that the number of cultural and creative industries-related lawsuits has been rising rapidly in recent years, which shows a boom in the cultural sector but also exposes the problem of industry players in the application, management and protection of intellectual property rights.

Edward Lehman 雷曼法学博士
Managing Director 董事长

LEHMAN, LEE & XU China Lawyers

Lehman, Lee & Xu is a top-tier Chinese law firm specializing in corporate, commercial and intellectual property matters. For further information on any issue discussed in this edition of China Law Digest , or for all other enquiries, please e-mail us at or visit our website at

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