The Chinese economy went up and down and was unsettled in 2015. The shadow of overcapacity hung over the macro environment as the economy gradually slowed and a myriad of industries struggled on the brink of profitability. Many enterprises ceased manufacturing and put employees on leave retaining a skeleton staff. A legacy of old employment structures and historic incremental salary and benefit increases is hindering the repositioning of the economy. On the other hand, Crises surfaced continuously from issues embedded earlier in the rapid development of the market economy with problems stretching from the environment to health and safety. Concurrently, the prosperous growth of Internet + Industry ignited a round of heated discussion about the level of compliance needed for this new form of activity. It is against this background that the labour law regulating of relationships between men and businesses, has gained unprecedented attention from all sections of society.
So, what were the noteworthy workplace events in 2015? This article selects seven for discussion.
The Explosion in the Binhai New Area—Production Safety is now a Priority
On the night of August 12th, 2015, an explosion in the Binhai New Area of Tianjin made the front page of every Chinese social media platform. The accident caused massive destruction of property and casualties and claimed global attention.
On the 20th of December, 2015, there was a serious landslide incident in the Guangming New Area of Shenzhen. Five days later, the ad hoc investigatory task group determined that the incident was caused by the collapse of a pile of earth and construction waste in a former quarry. It was an industrial safety accident rather than a natural disaster.
These two serious industrial safety accidents once again raised safety concerns about production in heavy industries like mining and refining. On the map again were the various problems embedded in China’s pell-mell growth such as cutting corners in construction projects, poor safety in mining and careless management of operation and warehousing in chemical production .
The public had grown somewhat indifferent with a growing stream of such incidents. However many forward looking firms especially small and medium sized businesses that used to overlook safety issues have now started to give them more attention. Topics related to workplace accidents have become a focus including compensation for injured personnel, assistance for work-related injury and a drive to establish safe workplaces.
Lessons from the past must be taken in order to prevent tragedies and to minimize the potential casualties and property damage from future accidents. To reassure the public, enterprises must improve their examination of potential dangers, consider preventative measures and put in place contingency plans for tackling crises.
It is vital that firms have sound OHS (Occupational Health & Safety) systems but unfortunately many enterprises are still strangers to OHS. However some have started to take action by making prevention a priority rather than just focusing on production safety.
Shanghai Jahwa V. Wang Zhuo—Thoughts on Dismissing Executives
On the 25th of September, 2015, the Second Shanghai Intermediate People’s Court issued a judgment on an employment contract dispute between Shanghai Jahwa United Co., Ltd. ("Shanghai Jahwa") and its former director and general manager Wang Zhuo. It found that the termination of Wang’s employment contract was unlawful and that he should be reinstated.
This case drew the attention of academics and practitioners because of its special facts. Wang was dismissed as a director and general manager by Shanghai Jahwa in May, 2014 because of a negative audit report by PwC on Shanghai Jahwa’s internal controls which resulted in adverse media coverage and subsequent damage to the company’s reputation. In essence, he was fired for gross misconduct and dereliction of duty.
After the judgment Wang’s was reemployed by Shanghai Jahwa as a “researcher on the application of Chinese culture” . He was responsible for making a monthly report of not less than 20,000 words on the progress of Chinese cultural research. Wang was paid RMB 6,000 per month for the new position and this was much lower than his remuneration as a general manager.
The conflict between Company Law and Labour Law is clearly reflected in this case . Companies expect to be able to fully utilize the discretionary power conferred upon them by company law to freely employ or dismiss executives while labour law requires that the power to manage and terminate employees, including executives, must meet strict conditions including proactive intervention. In these circumstances executives, with a special status peculiar to them, are put in a dilemma when current laws are, if we may say, slightly out of place.
Often in recent years, through the ups and downs of the Chinese economy, aggressive investors have radically interfered with the management of recently acquired businesses. After being hired with attractive packages, professional managers have been abruptly dismissed for not adapting to the new environment or other changes. Executives who have been terminated carry the stigma of having caused damage to their employer and they will suffer an ongoing loss of reputation. Other damage to terminated executives may include future loss of high salaries, bonuses, stock rights and options. If an executive is to be terminated then it is only fair that the company should at least offer a reasonable compensation package so as to achieve a peaceful breakup and smooth transition.
The new sharing economy in the era of Internet Plus—the equivocal employment relationship
It is undeniable that, at a time where Internet technology is enjoying exponential growth, a new form of economy, the sharing economy, may provide a new beneficial path for the development of commerce. The most emblematic case is the online car reservation platform.
Companies such as DiDi, Shenzhou Zhuanche and Yidao are providing chauffeur car and fast car services in China. This new type of car reservation service makes the most of Internet technology to achieve a disruption of the traditional taxi industry’s closed circuit system. It utilizes a fuller sharing of resources to achieve a closer balancing of supply and demand.
But the evolution of law is always one step behind that of technology and the interests and legal relationships of each party in this new model are not yet ascertained and protected by legislation. The relationship between drivers and platforms, inter alia, is an area to be regulated.
The Ministry of Transport has published the Interim Measures for the Administration of the Operation of Online Taxi Reservation (Draft for Soliciting Public Opinion) and the Guidance on Deepening the Reform and Expediting the Healthy Development of the Taxi Industry (Draft for Soliciting Public Opinion). The former stipulates that “online car booking service providers should ensure that each driver possesses the required legal license and executes an employment contract with each driver”. If this provision is to be implemented, drivers of online car booking service providers will be considered employees and their rights are then protected. Nevertheless, at the same time, the providers will also have to answer for the tremendously increased HR costs and, consequently, further development of the car booking service industry will be severely restricted.
In considering the employment relationship between the platform and drivers, we might as well review how it all got started. Uber, which appeared on the radar in 2009, has been repeatedly criticized globally for its controversial relationship with its drivers and it was even banned from operating in several countries. In the U.S., Uber has suffered continual arbitration and litigation cases and it was not until 2015 that the California Labor Commission ruled that the relationship between Uber and its drivers is an employment one. Nonetheless, this ruling is still not final according to U.S. authorities.
It is noteworthy that, in China, online car booking is still burgeoning and its performance in the market and adaptability in a complicated Internet environment are still to be seen. If a decision is quickly made too quickly on the nature of the employment relationship between platforms and drivers before the situation has a chance to reveal itself, then this new form of commerce might sustain a lethal blow. At this time of crucial importance, it is suggested that more time should be given for consideration and observation before any decision is made.
Alibaba V. Ding Jisheng—Honesty Is to Be Underlined
This is a case that overthrew existing interpretations of the Labor Law.
An employee of Beijing Alibaba Cloud Computing Technology Co., Ltd. (“Alibaba”) was diagnosed with neck arthritis and applied for sick leave. The next day approval was given, meanwhile on the same day Ding boarded a flight to Brazil for “traveling”. Alibaba later terminated Ding’s employment contract for a false sick leave and gross misconduct. Ding claimed that his going to Brazil was due to severe air pollution in Beijing and he was resting instead of traveling in Brazil and the sick leave was not a false one. The court held that Ding’s flying to rest in Brazil was not gross misconduct in that there was no restriction on the venue for taking sick leave in Alibaba’s internal policies.
The judge in this case expressed the interesting opinion that resting abroad is one way of taking sick leave and if the company does not have proof to the contrary, it could not be considered that the employee was using sick leave simply to travel abroad.
Generally speaking, going abroad, as a Chinese citizen, requires a visa which entails filling out forms, paying fees, submitting documents and examination by an embassy, and furthermore, purchase of flight tickets and booking of hotels in advance. One simply cannot just leave whenever one decides to do so. In this case, the employee was diagnosed with neck arthritis the day before he flew to Brazil and we cannot help wondering whether this showed efficiency or whether we should think harder on his motive of applying for sick leave?
The relationship between an employee and an employer is a fiduciary one and it is this derivative nature that requires both parties to trust each other. Honesty is an important principle to be maintained by enterprises in their relationship of trust with employees and therefore, underlining honesty was more important regardless of what the truth was in this case.
The Implementation of the Two-child Policy—Will Female Employees Become Unemployed?
The last few days of 2015 witnessed the release of the much covered news on the “two-child policy” and “abolishment of leave for marrying and bearing a child at a late age”. The amendment of the Law of the People's Republic of China on Population and Family Planning is, possibly, the most important legislative event for HR departments in 2015.
After the initial period of panic over the vanishing of leave for bearing a child at a late age, many female employees were then relieved by the promulgation of a plethora of regulations on leave for giving birth at any age and the change of the expression from “encourage a couple to have one child” to “encourage a couple to have two children.”
The right to having two children, maternity leave, rewarded leave (prolonged annual leave for mothers with two children) and so forth are indeed important measures for the protection of maternity rights and deserve appreciation from everyone. However, it is fair to say that female employees of childbearing age might create an understaffed situation and consequently increase the HR cost of enterprises. Hence, these favorable measures may actually produce prejudice against female employees by certain management personnel.
It is possible that female employees may be subject to unwelcome conditions and that more females seeking employment will be rejected. In the long run it is also likely that more acute employer/employee conflicts will break out because of actual or perceived sex discrimination.
Layoffs—the Enduring Pain Hurting Enterprises and Employees
Accompanying waves of global layoffs, in 2015 the underperforming Chinese labor market saw the fiercest round of layoffs in history. With news of layoffs at IBM, Sony, Tesla, Yahoo at the beginning of the year and then Blackberry, Microsoft, Intel, HP and Ifeng.com in the middle of the year to the news about Alibaba and Lenovo at the end of the year, many people have started to panic over the fact that foreign enterprises and large Chinese enterprises which were practically immune to layoffs are no longer safe harbours.
For foreign enterprises the factors leading to layoffs are manifold: they are under the double influence of a gloomy global economy and more favorable protection of employees provided by the 2008 Employment Contract Law which substantially increased their cost of manpower and hence the disappearance of the cheap labor days. At the same time, they are also suffering from problems of their own such as being unable to adapt to the Chinese environment strategically. Furthermore, the problem of over-paid executives or sales personnel can be a headache because when a business underperforms, it will have to tackle the problem of being overstaffed.
State-owned and private enterprises are not enjoying their days either as the Chinese economy has stepped into the deep end of the reform pool and the adjustment of industrial structure will, inevitably, stifle many labor-intensive enterprises. The increasing cost of manpower will present problems when enterprises discover that the increase of labor productivity is outmatched by that of salaries and profit margins becomes thinner and thinner. When businesses cannot make profits by adapting to the market, layoffs become the only viable option.
Laid off employees will of course experience sorrow and rage but because more media attention is being paid to layoffs employees have a growing awareness of how to protect their rights and how to fight layoffs. Employees have become more “professional” in layoffs. This is evidenced by their engaging attorneys, familiarizing themselves with and using information about layoffs by other companies, skillfully using terms of compensation such as N+1, N+2 and 2N. They are utilizing group chats to share information, taking collective action to prevent being persuaded one by one and uploading their employer’s actions to social media platforms in pursuit of support. These have made enterprises more concerned and careful in handling layoff events.
If, as predicted, the Chinese economy continues to suffer a low rate of growth in 2016 then enterprises will have to wield the axe of layoff so as to get through the bush of a weak economy. As to the Provisions on Layoffs of Enterprises (Draft for Soliciting Opinion) which was published in 2014, although it was practically dormant during 2015, it is possible that we will witness its first cry in 2016.
Lou Jiwei’s Speech at Tsinghua University—A Possible Signal of Amendment of Law
On the 24th of April, 2015, the Minister of Finance Lou Jiwei gave an address at Tsinghua University School of Economics and Management entitled “The Possibility and Route to Medium-high Speed Growth”. Minister Lou pointed out that the current Employment Contract Law lowered the liquidity and flexibility of the labor market and that it has a severe drawback. He also mentioned that the onerous legal restrictions on unilateral termination of employment by employers have made many investors leave China.
Minster Lou’s speech also canvassed the problem an aging population faces regarding contributions to retirement funds. He pointed out that raising an employers’ obligation to payment for social insurance is not a good option to balance the expenditure and income of a social insurance fund. He also compared other countries’ practice where retirees make medical insurance payments and Chinese retirees do not, in order to seek solutions to such costs in an aging society.
Whether the Minister of Finance’s opinions indicate an imminent change to Employment Contract Law and Social Insurance Law remains to be seen. If the Employment Contract Law is to adjusted to remove over-protection for employees it was stressed by Minister Lou that reaching a consensus on an amendment will be difficult to achieve. The 2008 Employment Contract Law offers all-round protection to employees on salary, rest, termination, compensation and so on and it is a law favorable to employees. Reducing or even abolishing all the protections provided to employees would possibly be a step backwards and it would be hard to convince the legislators to take this step.
Employees before the 2008 Employment Contract Law were not fully protected, if protected at all. The implementation of the Employment Contract Law changed the situation and drastically benefited the formation of standardized employment and contributed to bettering the wellbeing of people. However, the legislators and policy executors might not have predicted the huge influence of this law on the economy which led to the “fleeing” of many foreign enterprises and contributed to waves of layoffs. Coincidently, though, such a situation also contributed to the reform of the Chinese economy in the way that transformed labor-intensive industry which was in need of such incentives for its development.
Any revisions made to the law need to be proportionate with the status quo. In the current environment where the global economy is in depression and the market is in recession, labor law should cease adding fuel to the fire by overly restricting the development of enterprises and hurting their morale.
In order to adapt to the development of economy, the law may need adjusting periodically while fairly balancing the various interests. So, in 2016, will China witness the comeback of mercantilism? While it is uncertain whether the amendment of law will take place, it is likely that we might see some variations to the application of law and to legal standards.
2015 is a year filled with conflict between labor law, the economy and society.
In China, as economic reform deepens, the regulation of labor law is perfected and judicial practice matures, so, labor law is bound to have more influence over the progression of society.
Let us wait and see what 2016 has to offer.