Since the implementation of China's Employment Contract Law in 2008, the implementation of the relevant provisions of Employment Contract Law, especially those on dispatched employment and non-competition agreement, have been controversial. Due to local regulations and relevant guiding opinions promulgated by the local high courts and intermediate courts at provincial and municipal levels, the judicial practices on relevant employment issues lack some consistencies to certain degree. At the end of 2012, the Decision regarding the Modification of Employment Contract Law (the "New Amendment") was passed by the National People's Congress to specify relevant implementation issues relating to dispatched employment issues, which will become effective as of July 1, 2013. Soon afterward, on February 1, 2013, the Interpretation of Several Issues on the Application of Laws of Employment Disputes IV (the "Interpretation ") was promulgated by the Supreme Court to clarify certain controversial issues for the courts when dealing with labor disputes from the highest judicial level. This article will discuss and analyze the new legislation on China's Labor Law hotspot issues.
I. Dispatched Employment
The New Amendment clearly expresses the qualification of the dispatch service providers, the administrative license for dispatch service, the "equal pay for equal work" of the dispatched employees and the positions that could apply for such dispatch service.
The New Amendment mainly has the following requirements regarding the qualifications of the dispatch service provider: (1) increasing the registered capital requirement of the dispatch service provider from RMB 500,000 to RMB 2,000,000; (2) requiring the dispatch service provider to legally apply for and obtain the prior administrative license from the competent labor administrative bureau. The enterprise which engages in the dispatch service before July 1, 2013 shall obtain the administrative license and apply for the change registration before June 30, 2014.
The Employment Contract Law only stipulates that the dispatched employee shall be generally applied to the temporary, ancillary and substitute positions without any specific definition. The New Amendment further explicitly defines that dispatched employment shall be an ancillary method of the employment and only can be applied to the temporary, ancillary and substitute positions. The temporary position means the position existing no more than six months, the ancillary position means the position relating to non-core business which provides certain services to the core business positions; and the substitutive position means the position can be substituted by other labor when the employee can not perform his/her duties for certain period due to full-time study, vacation and other reasons. The enterprise using the dispatched employees shall strictly control the number which shall not exceed certain ratio of the total employees (which ratio will be regulated by the labor administrative department of State Council).
In view of the foregoing, companies need to review relevant qualifications of the dispatch service providers while using dispatched employees. In addition, companies also need to further review whether the positions that are going to hire dispatched employees comply with the requirements of the New Amendment.
II. Continuous Calculation of Service Years
According to the Interpretation, employee's request to combine their former employment term to the new one for a final determination of severance shall be granted by the court, if the employee, due to non-personal reasons, is transferred to the new company from the former company which has not paid any severance when the new employment contract is terminated by the new employer. In addition, the Interpretation further specifies specific conditions which shall be deemed as "transferred to the new company from the former one due to non-personal reasons".
In a circumstance that the counterparty of the employment contract is changed from the former company to a new one whilst the employee maintains the same position at the same place of work, the old format as signing up a new employment contract after rescinding the first one may not be applicable. The acquiring company should request the merged unit to pay the severance to avoid potential legal risks in terms of the prescribed compensation.
III. Non-Competition Compensation and Liquidated Damage
The Interpretation clarifies that when parties have a mutual agreed non-competition covenant without a specific amount of compensation, an employee's demand that compensation be paid by the employer on a monthly basis shall be granted, up to 30% of monthly average salary of his/her previous twelve months salary. This is the first time that the PRC law clearly provides the remedy of specific performance in the context of employee non-competition, but it remains to be seen how such remedy will be rendered and enforced in the judicial practice.
The requirement of 30% of monthly average salary prescribed in the Interpretation is not applicable to certain areas, such as Shenzhen, where its local protection to employees is higher than the standard set out here, up to 50% of monthly average salary.
The Interpretation also provides that the employee has the right to terminate the non-competition agreement if the employer fails to pay the stipulated non-competition compensation for 3 months. Additionally, an employer has the right to release the employee from non-competition obligations during the non-competition period. But under such condition, the employee still has right to obtain 3 months' non-competition payment.
It is confirmed by the Interpretation that a non-competition agreement will remain effective even if an employee has violated the relevant provisions and has paid the relevant liquidated damage to the employer. And the employer has the right to require the employee to continuously perform the non-competition agreement till the end of the non-competition period.
IV. De Facto Change of Employment Contract
The Interpretation stipulates that if a verbal modification of an existing employment contract is generated and has been performed as a matter of fact for more than one month, and it is not against any laws, administrative regulations, state policies or public moral standards, neither party's petition shall be granted as claiming the modification is void as a result of failure to it put in writing.
The Interpretation confirms the effectiveness of de facto change to a verbal modification of an employment contract, which set a higher requirement of the preservation of non-written evidences.
The new legislation on certain controversial labor issues provides consistent opinions at the national level and guidance on the human resource management for the companies. However, in dealing with more complicated labor law issues, the more factors, such as the local judicial practice, still need to be considered to minimize the risks of the companies on employment.