China: New Interpretation of the Supreme People's Court on Several Issues concerning the Applicable Law for the Trial of Labour Disputes Cases

Last Updated: 22 November 2010

Background

In the regime of labour dispute resolution, China adopts the "one mediation, one arbitration, two trials" system. Mediation is voluntary but arbitration is compulsory and a prerequisite to litigation.

Interpretation III of the Supreme People's Court on Several Issues concerning the Applicable Law for the Trial of Labour Disputes Cases ("Interpretation III"), which came into effect on 13 September 2010, helps to clarify some ambiguities in the Labour Law and the Labour Dispute Mediation and Arbitration Law.

Interpretation III

Interpretation III consist of 18 articles and the key articles are :-

(a) Article 5 provides that in case the employing unit has not applied for a business license; or its business license has been cancelled; or its approved operation period has expired, and the employing unit continues to operate by way of using another's business license, both the employing unit and the lending party should be named as the respondents in labour lawsuits.  This article will prevent the employing unit from escaping its legal responsibilities by claiming no valid business license.

(b) It was reported that since the implementation of the Labour Contract Law and the Labour Dispute Mediation and Arbitration Law, many labour disputes cases are related to overtime work pay. 

According to Article 6 of the Labour Dispute Mediation and Arbitration Law, the burden of proof is on the party who makes the claim.  However, if the evidence on the disputed matter is in the employing unit's control, the employing unit should supply such materials, failing which, adverse inferences will be drawn.

It is usually very difficult for the workers to prove the number of days and hours of their overtime work as the relevant documents are usually kept by the employing units.  On the other hand, if the burden of proof is reversed such that the employing units have to prove that there is no overtime work, the court may be overwhelmed with unsubstantiated cases.  In the circumstances, there is a need to strike a balance on the burden of proof required between the worker and the employing unit. 

Article 9 stipulates that if a worker claims overtime pay, he will be responsible to prove that the overtime work has been done.  However, if he has evidence to show that the employing unit is in control of such documents and it refuses to supply the documents, adverse inference may be drawn on the employing unit.

(c) One of the major objectives of the Labour Dispute Mediation and Arbitration Law is to resolve labour disputes speedily and conclusively.

According to Article 47 of the Labour Dispute Mediation and Arbitration Law, the arbitral award will be final and conclusive provided that the wages, medical expenses for industrial accidents, economic compensation or damages "claimed" by the workers do not exceed the amount equivalent to 12 months of the minimum wages of the city where the dispute arises ("Threshold"). 

Prior to Interpretation III, it was uncertain as to whether the term "claim" stipulated in the Article referred to the amount the worker "sought to recover" or claim in the arbitration or the amount "ruled and awarded" by the arbitration authority.  Further, if a worker "claimed" for more than one category of payments mentioned above (eg both wages and medical expenses), the law was not clear as to whether the Threshold would apply to each category separately or to all categories collectively. 

Therefore, as long as any of the original amounts claimed exceeds the Threshold, the parties could always bring a lawsuit in the people's court again to overrule the arbitral award. This defeats the purpose of the Labour Dispute Mediation and Arbitration Law.  Similarly, if the sum of the wages, medical expenses, economic compensation and damages (or any combination of them as opposed to a single category) exceeds the Threshold, the arbitral award would not be final or conclusive.

Article 13 of the Interpretation III clarifies that if each of the wages, medical expenses for industrial accidents, economic compensation or damages awarded in the arbitral award does not exceed the amount equivalent to 12 months of the minimum local wages of the city concerned, the arbitral award would be final and conclusive.  In other words, regardless of the amount originally sought to recover and whether the total sum of all categories exceeds the Threshold or not, the arbitral award should still be final if the final award in each category does not exceed the Threshold.

Conclusion

The clarification in the Interpretation III should help avoid certain types of labour disputes. If both the employing units and the workers are clearer about their rights and obligations under the Labour Law and the related laws, it is hoped that disputes can be resolved more efficiently or even avoided in the first place.

If you have any questions about the Interpretation III or other issues on labour law, foreign direct investments, joint ventures, mergers and acquisitions in Mainland China, experienced lawyers in our China Business Department will be happy to assist you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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