China: New Developments in the Mediation and Arbitration of Labor Disputes in China

Last Updated: 4 August 2011
Article by Linda Yanling Liang

The Law on Mediation and Arbitration of Labor Disputes of the People's Republic of China (Mediation and Arbitration Law) was adopted on December 29, 2007 and became effective as of May 1, 2008. The law has significantly streamlined China's labor dispute mediation and arbitration regime. This article will analyze these changes by comparing the old and new systems.

I. Key Changes of the Mediation and Arbitration of Labor Disputes

A. Single Arbitration Session for Certain Labor Disputes

Before the Mediation and Arbitration Law came into force, all labor disputes are subject to "one mandatory arbitration and two trials" procedure. This means that when a labor dispute arose, the parties had to first try to settle the dispute at a labor dispute arbitration commission, and either party disagreeing with the arbitral award may file a lawsuit with a people's court. The party which disagrees with the first trial decision may appeal to the people's court of second instance. The second instance court decision would then be final. Compared to the procedures of other types of disputes in China, the mediation and arbitration of labor disputes involved the most complicated procedures, a fact that has been widely criticized.

The Mediation and Arbitration Law reduces, to some extent, this procedural complexity by establishing the rule of "One Arbitration, Final Ruling". Article 47 of the Mediation and Arbitration Law provides that:

"Unless otherwise provided by this Law, the arbitral award for the following labor disputes shall be final:

  1. labor disputes involving a claim for unpaid salaries, medical expenses relating to work injuries, or severance and penalties with a disputed amount not exceeding 12 months of the minimum local monthly wage; or
  2. labor disputes arising from the implementation of the government's labor standards including working hours, leave entitlement and social insurance."

However, where the employee disagrees with the arbitral award regarding any of the labor disputes set forth in Article 47, he/she may still fill a petition with a people's court. If the employer disagrees with the arbitral award, the employer is not allowed to file an action at the court, but may petition to cancel the award at an intermediate people's court in certain special circumstances1.

B. The limitation period for applying for arbitration is extended from 60 days to one year.

Under the old labor dispute mediation and arbitration system2, the limitation period within which employees had to file complaints at an arbitration tribunal was 60 days and the existing laws and regulations were silent on the termination and suspension of this period.

The Mediation and Arbitration Law has extended this time limit to one year and has inserted special provisions on the termination and suspension of the limitation, as well as the circumstances in which it does not apply3.

C. The arbitration of a labor dispute must be concluded within 60 days.

According to the previous regulations4, the arbitration tribunal will render a decision within 60 days of the date on which the arbitration tribunal convenes. Where the case is complicated, a hearing can be extended upon the approval of the chairman of the arbitration commission; however, the extension could not exceed 30 days.

The Mediation and Arbitration Law has now shortened the time to conclude the arbitration of a labor dispute. Article 43 of this law prescribes that:

"an arbitral tribunal shall conclude the arbitration of a labor dispute within 45 days of the date of accepting the application for arbitration. Where a hearing requires this period to be extended due to the complexity of the case, the hearing may be extended upon the approval of the president of the arbitration tribunal. The tribunal shall notify the parties of the extension and the extension shall not exceed 15 days."

In addition, Article 43 of the Mediation and Arbitration Law sets forth that "where the arbitral tribunal fails to render a decision within the stipulated period, the parties may file a compliant at a people's court." This provision encourages arbitration tribunals to improve procedural efficiency and prevents excessively slow decision-making.

D. The Mediation and Arbitration Law shifts the burden of proof.

The existing regulations5 were ambiguous about the burden of proof in labor disputes and only one judicial interpretation6 issued by the Supreme People's Court touched upon this issue.

The Mediation and Arbitration Law has clarified this ambiguity. According to Article 6 of this law, the complainant bears the burden to prove the claim. Article 6 sets forth circumstances in which the burden of proof will be shifted to the opposing party as well as the consequences for failing to provide certain evidence: "where the evidence related to the disputed matter is in the form of records kept by the employer, the employer must provide such evidence; an employer who fails to provide such evidence shall bear the adverse consequences of such failure."

E. The Mediation and Arbitration Law highlights the importance of mediation.

To emphasize the importance of mediation as a means of labor dispute resolution, the Mediation and Arbitration Law has included provisions on mediation during arbitration and has increased the regulation of mediation procedures. Article 10 of the Mediation and Arbitration Law keeps the Enterprise Labor Dispute Mediation Commission as a mediation authority and has added another two forms of mediation authorities: (1) mediation organizations at the grassroots level established pursuant to the laws; and (2) organizations that function as the labor dispute mediators in villages, townships and neighborhood communities.

F. The arbitration tribunal in the jurisdiction where the labor contract was executed is the primary tribunal to settle the labor dispute.

To the convenience of the parties and the labor dispute mediation tribunal, the Mediation and Arbitration Law provides that a labor dispute should be handled by the labor distribute commission in the jurisdiction where the labor contract is performed or at the domicile of the employer. When a conflict of jurisdiction arises, the labor dispute arbitration commission at the place where the labor contract is executed should hear the dispute.

G. No fees required for arbitration.

Under the earlier mediation and arbitration system7 , the parties are required to pay arbitration fees. Article 53 of the Mediation and Arbitration Law prescribes that the "arbitration of labor disputes shall be free of charge. The expenses of labor dispute arbitration commissions will be covered by government funds."

H. Other Changes

The Mediation and Arbitration Law also introduces other new rules, including a revised definition of the scope of disputes subject to labor arbitration as well as provisions on partial awards and pre-judgment payouts.

II. The Impact of the Mediation and Arbitration Law

The Mediation and Arbitration Law aims to improve the efficiency of labor dispute settlements by solving the problems with the old mediation and arbitration system including over-burdened procedures and short statute of limitations. The Mediation and Arbitration Law favors employees in labor arbitration procedures due to a series of new measures including the canceling of arbitration fees, shifting the burden of proof under special circumstances, the simplifying of arbitration procedures, the extension of the statute of limitations, and the introduction of partial awards and pre-judgment payouts. The Mediation and Arbitration Law will encourage employees to settle labor disputes via arbitration. In addition, the Labor Contract Law that became effective on January 1, 2008 favors employees, and provides better protection of employees' substantive rights and obligations, and increases the costs of non-compliance for employers. It is expected that the number of labor disputes will increase significantly in the future.

Employers should further standardize and strengthen their human resource management practices, maintain accurate records in the course of daily operations, and minimize potential labor disputes. When a dispute arises, employers should adjust their strategies according to the Mediation and Arbitration Law. The changes that employers can make to their existing strategies include: 1) paying more attention to retain the evidence, especially for those cases which are subject to one arbitration final ruling; 2) establishing a quick decision-making and response mechanism to adapt to the shortened duration of arbitration; and 3) resolving disputes by mediation based on the development and functionality of mediation organizations at the grassroots level based on the Mediation and Arbitration Law.

 The article was originally written in Chinese, the English version is a translation. This article was first published in the firm's periodical China Bulletin August Issue, 2008, Vol.33

Notes:

(1) Article 49 of the Mediation and Arbitration Law provides that:

"The employer may file a petition at an intermediate people's court at the domicile of the labor dispute arbitration tribunal within 30 days from receiving the arbitral award, where such employer has evidence to prove the award set forth Article 47 is rendered in any of the following circumstances :
  1. the application of law is wrong; 
  2. the labor dispute arbitration tribunal lacks jurisdiction over the labor dispute; 
  3. the award is rendered not in compliance with the statutory procedures; 
  4. the award is based on forged evidence; 
  5.  the counterparty has concealed certain evidence that such concealment affects the fairness of the award; or 
  6. the arbitrators has sought or received bribes, sought expedience or distorted the law during the arbitration proceedings."

(2) Before the Mediation and Arbitration Law was promulgated, labor disputes were settled in accordance with the related laws and regulations, including Regulations on Settlement of Labor Disputes In Enterprises of the People's Republic Of China (State Council Decree No. 117, issued by the State Council on July 6, 1993) Ministry of Labor's Circular on the Issuance of Interpretation Regarding Issues Relating to 'Regulations on Settlement of Labor Disputes in Enterprises of the People's Republic of China (Lao Bu Fa [1993] No. 244, effective as of September 23, 1993), Labor Law of the People's Republic of China (Presidential Decree of the People's Republic of China No. 28, effective as of January 1, 1995). Article 82 of the Labor Law stipulates that the party initiating the arbitration shall file an application in writing to a labor dispute arbitration tribunal within 60 days from the date when a labor dispute arises.

(3) Article 27 of the Mediation and Arbitration Law provides:

"...The calculation of limitation period of an arbitration shall resume where the arbitration is suspended because one party files a claim against the counterparty, seeks remedies from the relevant authorities or when the counterparty agrees to perform its obligations.
The calculation of the limitation period shall be suspended: Where either party is prevented from applying for arbitration within the limitation period stipulated in paragraph one due to force majeure or any other justifiable reason. The calculation of the limitation period shall resume from the date on which such force or reason is eliminated. Where a dispute over non-payment of wages arises before the termination of the labor contract, the employee applies for arbitration shall not be subject to the limitation period stipulated in paragraph one; however, where the labor contract has been terminated, the employee shall file an application for arbitration within one year from the termination of the labor contract."

(4) Article 32 of the Regulations on Settlement of Labour Disputes in Enterprises the People's Republic of China:
"The labor dispute arbitration tribunal shall conclude a dispute within 60 days as from the date when the tribunal is convened. Where the hearing of a case requires an extension due to its complexity, the hearing may be extended upon to the approval of the arbitration commission, and the extension shall not exceed 30 days."

(5) Regulations on Settlement of Labor Disputes in Enterprise of the People's Republic Of China, Ministry of Labor's Circular on the Issuance of Interpretation on Issues Relating to 'Regulations on Settlement of Labor Disputes in Enterprise of the People's Republic of China' and the Labor Law of the People's Republic of China are both silent on the burden of proof.

(6) Article 6 of Rules of the Supreme People's Court on Evidence in Civil Procedures ( Fa shi [2001] No. 33, effective as of April 1, 2002) provides:

"In a labor dispute, the employer shall bear the burden of providing evidence where the dispute arises from the employer's decision of dismissal, making public announcement of dismissal, terminating labor contract, reducing remuneration, calculating of the employee's employment period. "

(7) Article 34 of the Regulations on Settlement of Labor Disputes in Enterprises of the People's Republic of China sets forth that: "When a party involved in a labor dispute applies for arbitration, the party shall pay arbitration fees according to the relevant rules of the State."

In practice, before the Mediation and Arbitration Law entered into force, arbitration fees were charged across the country, for example, the arbitration fee for each case was RMB300 in Beijing.

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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