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Comparative Perspectives on a Chinese Labour Dispute
Last Modified:  2012-11-14 11:12:14
An employee who used work time to plan a wedding and treated business trips as a holiday? Or an employer who withheld salary, failed to pay social security contributions, and who demanded automatic resignation if targets were not met?

On November 2, 2012, eleven international students taking CESL’s CLTE course attended a a labour dispute hearing at the Chaoyang People’s Court. CFT Investments was appealing an arbitration award which found that they should pay former employee, DHR, unpaid wages and compensation for termination of her employment contract.

The only point the parties could agree on was that the employment contract had been terminated. The claimant’s salary, when she had last been paid, how long she had worked, when she had resigned, and whether she had resigned due to unpaid wages or “resigned automatically”, were all under dispute.

The majority of labour disputes in China are required to first go to arbitration, however, most arbitral awards are not binding and the low cost of making an appeal, around five yuan (just under one Euro), means that most labour disputes will go to court.

The arbitration tribunal found in favour of the claimant on nearly all counts and awarded compensation for unpaid wages and for termination of the employment contract. CFT Investment lodged an appeal with the Chaoyang District People’s Court because the arbitration award disregarded the facts and “made a judgement on matters which are unclear”.

International student Kamil Biernat, from Poland, remarked that, “It was interesting for us as foreigners to see that both of them were wearing casual clothes, which gave the impression that the Chinese courtroom is much more relaxed and approachable. Furthermore, they seemed to be really young as well as the judge.”

Chinese law works on a principal of finding the truth from the facts. Evidence provided by the Plaintiff of the defendant’s “absence without leave” was disputed by the Defendant and CFT could not even state clearly how much the Defendant earned or even how much the Defendant had been paid.

CESL Labour Law Professor Wolfgang Däubler noted that under German law all labour disputes (apart from those regarding actors or sailors) go directly to court. The judge would try to organise a conciliatory hearing between the parties within two to three weeks and one third of German labour disputes are resolved at this stage.

Chinese and German law is similar in placing the burden of proof on the employee to prove that they were not absent without permission, and usually providing a valid employment contract is sufficient. The employer is then required to provide witnesses or documents that refute this claim. In the case between DHR and CFT, the company provided witness statements, photographs of text messages and photocopies of photographs. DHR, however, disputed the authenticity of this evidence and the arbitrator excluded it, since the witnesses did not appear to testify before the tribunal.

Under Germany law witnesses can be compelled to testify in both criminal and civil cases. Judges can use fines and even ask the police to accompany to the court any witnesses who refuse to appear. False statements and perjury are also punishable.

Professor Däubler noted that, “it seems to be easy in China to contest the authenticity of a written statement. If this is the case, why does the party not bring witnesses to the hearing? If it is possible to say "I do not recognize this signature" and thereby have the document excluded, why does their lawyer not present any witnesses or use other means which cannot be contested? In Germany, the judge would prepare the hearing by telling the parties which are the open points in his view, and sometimes ask the parties to clarify the situation by adequate means.”

CESL Labour Law Professor Hao Qian said that, “According to the Chinese Civil Procedure Law, anyone who has information on the disputed matters should appear in court to testify, and if a witness has difficulty in doing so, he can instead submit written statements with the court's permission.

"However, in practice it is common for witnesses to refuse to testify and when they do many make false statements in civil cases. The requirement that a witness ‘should’ testify makes it a legal obligation; but the court does not have the power to enforce attendance. A ‘difficulty’ which might free a witness from the obligation to testify is also not defined clearly. Moreover, if a witness lies in court, there are not many consequences since perjury only exists for testimony in criminal procedures. As a result, witness testimony is not more reliable than written documents, which in turn reduces the incentive of the court to obtain it.”

Professor Hao further talked about the legality of the clause in the employment contract which stipulated that employees must resign automatically if they fail to meet targets for four consecutive months. “If an employee resigns”, Professor Hao noted, “the employer is not obligated to pay severance pay and is exempted from informing the labor union (as would be required in the case of a unilateral dismissal). However, this clause in effect amounts to an agreement between the parties on a condition to terminate the contract and frees the employer from any mandatory legal liabilities.

"The Labor Contract Law permits termination of contract only under specifically listed circumstances. A voluntary resignation is permitted. But to agree in advance that if certain things happen, an employee must resign, is not a voluntary one-sided decision. Instead it is an agreement on a condition under which the contract shall end. This is prohibited because it does not fit in any of the circumstances under which the contract can be terminated. This kind of agreement would give the employer power to dismiss an employee and do so disguised under the name of ‘resignation’, which saves the employer from paying severance pay and other liabilities. This is exactly the reason why the law does not allow the parties to agree between themselves when to end a labor contract.”

This point is substantially the same as German law. Professor Däubler noted, “A clause in the contract saying that it ends automatically if the targets are not reached during four consecutive months would be null and void: The courts would consider it as a circumvention of the law protecting against dismissal. This law provides for a balancing of interests in every case, which could not take place if the clause would be accepted.”

The judge has so far not ruled, however, any ruling can be appealed by either or both of the parties.

A translation of the Abitration Award is available here and the Civil Complaint here.