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China's Labor Law. The Bark Is The Bite.

By Dan Harris and Steve Dickinson

Got a call last week from the HR officer of a US company. She was looking for my firm to assist her on a labor law issue. The US company's China WFOE had laid off a female employee who had come back saying she was entitled to ten months pregnancy pay. The employee gave three legitimate sounding reasons for this entitlement. I learned that this employee's yearly salary was about $3600 and that the WFOE was in Shenzhen. I also learned that this employee did not have a written contract and that the WFOE did not have an employee manual. I told the HR officer that for us to research whether this ex-employee was entitled to what she is seeking, we would need to research the laws of China, of Guangdong province and of Shenzhen. I then told her that the cost of our doing that would be so close to what the employee was seeking and that I was very dubious that our research would reveal any cost savings (particularly because this employee had no written contract and this WFOE had no employee manual) that it would almost certainly not make sense for us to take on the matter. But I also told her that if the WFOE chose to pay this ex-employee her ten months salary that it needed to have her sign an appropriate release, in Chinese, making it so that she would not be able to sue the company and win, even after receiving payment. I told her that from what we have been hearing, foreign companies lose pretty much every time in these sorts of employee disputes and they usually lose a lot more than just the one case. I told her that what happens is that the company loses the one case, all the other employees hear about it and then they sue as well. I stressed again the need to contain the problems stemming from this one employee right away by means of a well-crafted written agreement in Chinese. She is to get back to me this week, after she talks with the company owners.

Full post as published by China Law Blog on June 28, 2009 (boomark / email).