Hong Kong: PRC Employment Law - Can a Local Labour Department Seize an Employer´s Property to Pay Outstanding Wages?

Employment issues have often vexed many foreign investors in China and few disputes are more damaging to a foreign investment in China than an employment dispute. In this article, we focus on some rather worrying recent legislation in Jiangxi Province which purports to enable the Labour and Social Security Department to seize an employer's property in the event that the employer refuses to pay wages pursuant to local legislation passed on 1 November 2003, namely the Regulations of Jiangxi Province on Supervision of Labour and Social Security ("Regulations").

Under the main employment legislation in China, i.e. the PRC Labour Law ("Labour Law"), employers must not pay wages which are lower than the minimum wage standard applicable in each different province. Also, all wages must be paid directly to employees in cash and on a monthly basis, subject to certain deductions which are permitted by law, e.g. tax or contributions to social insurance funds.

The average working hours per week for an employee must not exceed 44 hours and employers have to seriously consider whether it is necessary to require employees to work overtime as additional costs will be incurred. Overtime rates are 150% of the hourly rate for an extension of the normal work day, 200% for overtime performed on a rest day for which no day in lieu is provided and 300% for work on a statutory holiday as stated in the Labour Law.

In the event that payment of wages and other payments, such as social insurance premiums, have been delayed or refused, employees must first refer their disputes and apply for arbitration to the Labour Disputes Arbitration Commission in accordance with Article 79 of the Labour Law. The aggrieved party can further appeal and submit the case to the People's Court if dissatisfied with the arbitral award. After the arbitration award or judgment of the People's Court has been granted, the employee can proceed with enforcement proceedings.

However in Jiangxi Province, the Regulations provide that in the event that there is delay or refusal of payment of wages or the relevant social insurance premiums, and the Labour and Social Security Department, during its investigation process, discovers that the employer intends to transfer or conceal any property, it may subject to the supervisor's approval, seize the employer's property of equivalent value and auction it in order to pay the outstanding wages and make the relevant payments.

We question whether the Regulations are actually enforceable as the Labour Law clearly stipulates that employment disputes should be settled by way of arbitration or litigation initiated by the aggrieved parties. By granting the Labour and Social Security Department a power of enforcement without submitting the case to arbitration or litigation, it appears that the Regulations are in conflict with the Labour Law, so we believe their legality may be challenged in due course.

Many foreign investors find some of the issues concerning employment legislation in China unclear or not in line with international practices when compared to employment laws in other countries. Foreign companies should be fully aware of their rights and obligations under employment contracts in China.

If you are uncertain about any aspects of the employment relationship or wish to have a copy of the Regulations or the Labour Law, please do not hesitate to contact the lawyers from our China Business Department in our Hong Kong and Shanghai offices.

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.