China: Latest Judicial Guidance On Trial Of Labor Disputes

Last Updated: 25 January 2017
Article by Xu Xiaodan and Wang Zhaogang

On 30 November 2016, the Supreme People's Court published the "Minutes of the Eighth National Working Conference on the Courts' Trial of Civil and Commercial Cases (Civil Part)" (the "Minutes"). This article analyzes and interprets the employment-related parts of the Minutes as trial guidance.

1.If an employee suffers a personal injury caused by a third party, and the injury is identified as work-related, he or she is entitled to both compensation for the personal injury and work-related injury insurance benefits. Nevertheless, the medical expenses can be claimed once only.

Article 9 of the Minutes provides: "An injured worker is entitled to work-related injury insurance benefits or other social insurance benefits, but the perpetrator's tort liability will not be mitigated or exempted because of the victim's entitlement to social insurance benefits. According to Articles 30 and 42 of the Social Insurance Law, the victim has the right to claim work-related injury insurance benefits or other social insurance benefits from the work-related injury insurance fund or other social insurance."

Article 10 of the Minutes states: "In the event that an employer fails to pay work-related injury insurance premiums in accordance with the law, an employee who suffers a third-party inflicted injury that constitutes a work-related injury, the employee is entitled to the employer's payment of work-related injury insurance benefits excluding the medical expenses. If the employer has prepaid the injured employee the work-related injury insurance benefits, it is entitled to reimbursement of the medical expenses by the third-party for which the third party is liable."

Article 42 of the Social Insurance Law provides: "Where a work-related injury is caused by a third party, and the third party refuses to pay the medical expenses for the work-related injury or the third party cannot be identified, the medical expenses should be prepaid out of the work-related injury insurance fund. The work-related injury insurance fund will be entitled to claim compensation from the third party after paying the medical expenses."

The following conclusions could be drawn from the above three provisions:

  • If an employee suffers from an personal injury caused by a third party, and his/her injury is also identified as work-related, the employee will be entitled to both the compensation for the personal jnjury from the third party and work-related injury insurance benefits.
  • A perpetrator's tort liability will not be mitigated or exempted because of the victim's entitlement to social insurance benefits. The perpetrator should compensate the victim for his/her personal injury, including medical expenses. 
  • If the third party refuses to pay the medical expenses, the work-related injury insurance fund may pay the medical expenses and then claim compensation from the third party. If the employer fails to contribute work-related injury insurance premiums for an employee in accordance with the law, and the third party has compensated the employee, the employee will only be entitled to require the employer to pay work-related injury insurance benefits excluding the medical expenses. If the employer has prepaid work-related injury insurance benefits, it will be entitled to claim reimbursement of the medical expenses by the third party for which it is liable. 

2.How arbitration tribunals and courts will act under "Res judicata" 

Article 26 of the Minutes provides that after an arbitral award is issued by any labor arbitration tribunal, if a party does not file a lawsuit within the statutory time limit, and he or she applies for arbitration again instead, and the labor arbitration tribunal decides not to accept the application, one of the following would happen after the party brings the case before the court:

If, after review, the court decides that the two arbitration matters are different from each other, it will accept the lawsuit; or 

If, after review, the court decides   that the two arbitration matters are identical, it will not accept the lawsuit or will dismiss the lawsuit if it already accepts the case.

The Minutes for the first time explicitly provides how a labor arbitration tribunal and a court would act under the  "res judicata" principle. If a party does not file a lawsuit within the statutory time limit after receiving an arbitral award, the arbitral award will come into effect and the case will not proceed into the litigation procedure. However, where a party applies for arbitration again with the same claim as that under the previous arbitration application, the labor arbitration tribunal will reject the case. If the party files a lawsuit regarding the same matter, the court will not accept the case, and any cases already accepted will be dismissed.

3.Defense of elapsed statute of limitations for arbitration

Article 27 of the Minutes provides: "If a party does not plead the defense of elapsed statute of limitation in an arbitration proceeding, and does so during the litigation proceeding after the labor arbitration tribunal has issued a substantive award, the court will not support such a defense. If a party does not make a defense on elapsed statute of limitations in accordance with the relevant provisions and then applies for retrial or makes a retrial defense based on the elapsed statute of limitations for arbitration, the court will not support such a claim".

Considering the above, we suggest that employers deal with arbitration proceedings carefully, and hire professional lawyers to handle the case. If the defense of elapsed statute of limitations is not raised during an arbitration proceeding, it will be impossible to resort to such a defense in a litigation proceeding.

4.Parties may demand adjustment of liquidated damages for breach of non-compete obligation if the amount of agreed liquidated damages is lower than the damage actually incurred, or exceeds the losses incurred by 30%

Article 28 of the Minutes provides: "If the amount of liquidated damages agreed upon between an employer and an employee in their non-compete contract is significantly lower or higher than the losses actually incurred, and a party requests the court to adjust the amount of liquidated damages, the court will deal with it according to Article 29 of the Interpretation II of the Supreme People's Court of Several Issues concerning the Application of the Contract Law of the People's Republic of China ("Interpretation II").

Article 29 of the Interpretation II provides: "Where a party claims that the agreed liquidated damages is too high and requests a proper reduction, the court should consider the request   based on the actual losses incurred, take into consideration of the performance of the contract and the parties' fault and expected benefits in a holistic manner, and make a fair ruling in good faith. If the liquidated damages agreed by the parties exceeds the losses incurred by 30%, it can generally be deemed as 'significantly higher than the losses incurred' as mentioned in paragraph 2 of Article 114 of the Contract Law."

It could be seen from the above that if the amount of the agreed liquidated damages for breach of non-compete obligation is lower than the actual losses, or exceeds the actual losses by 30% (i.e. the amount of liquidated damages is 1.3 times of the amount of actual losses or more), the relevant party could request the court to adjust the amount of the liquidated damages.

5.Further clarifying that the "elimination of the least competent by competition" and "competing for positions" are not statutory grounds for dismissals

Under Article 29 of the Minutes, if an employer unilaterally terminates an employment contract through "elimination of the least competent by competition" or "competing for positions", the employee can demand reinstatement or compensation for the wrongful dismissal".

The Minutes makes it clear that neither the "elimination of the least competent by competition" nor "competing for positions" is a statutory ground for dismissals. Even if an employee is the least competent based on performance assessment or fails in "competing for a work position", as long as his or her incompetence has not been proven, the employer may not fire the employee.

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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