China: The deadlock in labor law: no legal recourse to an employment dispute

Last Updated: 24 July 2015
Article by Jiang Junlu and Li Hongchuan
  1. Where no agreement is reached, the law provides no remedy

Coming out of the conference room, Zhang Ran appeared depressed. Leaning on her elbow at the desk, Zhang Ran felt she had met her biggest difficulty since taking the office of HR director. In March, the Head Office informed her that all the legal departments of its China entities would be integrated into the Asia Pacific head office, and accordingly, only the position of Legal Business Partner would still be offered in the China entities. Since then, Zhang Ran had this challenge: how to negotiate with the Legal Director at her branch about the change of position? When she greeted the Legal Director in the office, even the expression on her face became unnatural. Today, they finally had a chance to talk about this matter directly for an hour and a half. During the conversation, the Legal Director expressed reluctance about the change and even struck the desk in anger. At last, the negotiation ended in acrimony. "Oh my goodness...Just a change in title and no change in terms of salaries or other treatment, how can he be so stubborn?" Zhang Ran complained to her colleagues in a low voice.

Li Xiaoqin, the Legal Director, was also unhappy. Through a professional placement firm, he accepted this job principally for the title that greatly satisfied him. He graduated from a law school seven years ago and made great efforts to get a top position in a legal department of a blue-chip company, so he felt that this title should not be taken away so casually. He made his utmost efforts to fight for his view, saying "the position was clearly stipulated in contract, so it should be paid respect", "the position was agreed in the recruiting, so it cannot be changed so easily", "change of employment contract? I consider this as a consequence of negotiation, and I cannot agree with your unilateral action". He vented his dissatisfaction all at once. After thinking over his words and calming down for a while in his office, Li Xiaoqin felt a little regretful and sent Zhang Ran a wechat message saying his words were not meant against her individually.

How could she move forward? Zhang Ran read the legal advice from external counsel again. Corroborating Li Xiaoqin's argument, the advice told her this situation constitutes a change of employment contract, and that the Employment Contract Law only provides that "An employer and an employee may modify the contents stipulated in the employment contract if they both agree upon negotiation." So, there were no measures the company could take when Li Xiaoqin refused to cooperate.

  1. This is a "deadlock" in labor law

In daily HR management, we often meet the following situation: opinions differ between the employer and its employees in terms of a decision or proposal of management. When two parties disagree with each other, laws may give different answers. For example, when we talk about the dismissal of female employees in her pregnancy, maternity leave or nursing period or employees within his/her statutory medical period, labor law says no to the employer. When it comes to job transfer or training for incompetent employees, labor law authorizes some conditional unilateral actions. However, in this case, labor law is silent when no agreement is reached. There comes a dilemma for the company consequently: if measures are taken to enforce the decision, labor disputes may arise, but if nothing is done, the decision may have no effect. We call this a "deadlock" in labor law.

It is not unusual to meet this deadlock in labor law, which often exists in negotiation about salaries between employers and employees as well in the case above.

We assume the following situation: There are thousands of employees in an electronic components company located in a southern province. Their salary is composed of basic salary and overtime pay, the former is slightly higher than the local minimum wage. However, the latter is the main part of the salary. In the past two years, employees could not see any sign that they were going to get a raise. So they elected five employee representatives to talk to the company. Meanwhile, they presented a formal "petition" to the management team. The management team received the petition but didn't know how to deal with it, so they forwarded it to the foreign shareholders. This procedure took a long time, and the employees did not receive any response, which made them angry since they had an expectation that they would receive a higher salary. Some of the younger male employees blockaded the warehouse and claimed double times. They refused to permit goods to leave the warehouse before the employees got an answer to their petition. However, the company has its own difficulties. In recent years, the market has become very competitive; the sale price of their products declined, meaning lower profits for the company. At the same time, the salary paid now is already much higher than associated companies which are located in inland provinces. The management team has been under pressure from the shareholders to control costs. The fact is that the company couldn't meet the requests of employees to increase their salary; the two parties came to a deadlock. This circumstance is actually a wider type of "deadlock".

  1. Next comes the question: how to deal with the "deadlock"?

An employment relationship has both the characteristics of an economic relationship and a personal relationship. Because of the relationship's diversity and complexity, labor law cannot cover all the employment issues. So, it is not surprising to have a "deadlock". Where there is no legal recourse, both parties will be stuck in a dilemma. Since the employer is the party with greater legal obligations, it should find alternative measures instead of only relying on laws.

For example, in the deadlock concerning position restructuring and job transfers, the employer may bring a big picture to the affected employees and reveal to them the purposes behind the decision. It can also make appropriate promises, aiming to let employees see the pros and cons in a long run and encouraging them to actively cooperate. In the deadlock concerning a termination of an employment contract, the employer may also be aware of employees' difficulties and reasons for their reluctance, for example, worrying about severance package or career development. Accordingly, the employer can handle the deadlock through enlightened severance policies or reemployment training. When it comes to concern over salaries, employers may establish employee stock ownership plans if possible, which aim to give the employees a sense of ownership, optimize the welfare structure, strengthen the reputation of the company's brand and give employees a sense of sharing in the collective triumphs and challenges. Employers can also establish a well-run wage negotiation mechanism under the guidance of local labor administration, preventing and resolving deadlocks from the angle of due procedures.

All in all, one party in an employment relationship is always an individual who has emotions and interests. In regards to a deadlock in which the employer cannot turn to laws for remedy, as much as the problem lies with the humans, the answer may also be found with the humans.

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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