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Wanna Get Sued In China? Your Ex-Employees Can Help.

By Dan Harris and Steve Dickinson

China Daily (h/t to my friend Brian over at China Challenges) just came out with an article headlined, "Cases soar as workers seek redress." The article gives facts behind what many of us already knew: "the number of labor disputes heard by courts has skyrocketed this year." I knew it because my firm's handling of such matters has probably just about doubled in just the last three months. According to the numbers, employee cases have increased by 59 percent over last year. The article rightly ascribes this increase to three things: 1) the economic downturn; 2) "Ever since the implementation of the Labor Contract Law in January 2008, workers have become more aware of their rights and the legal avenues available to safeguard them:" and 3) A reduction of costs for such suits to at most 10 yuan. We are finding that most of these cases arise from one (or more of the following): -- Firing of an employee for a reason not explicitly mentioned in the employer manual or not having an employer manual at all. -- Firing of an employee who was not paid overtime. -- Firing an employee who did not have a written contract. -- Discontinuing a relationship with someone whom the "employer" never considered to be an employee. -- Firing an employee for whom the employer did not make required social insurance or pension payments. The article makes clear the government's position on all this:

We encourage enterprises to assume more social responsibility, and try not to lay off workers or reduce salaries. On the other hand, we suggest workers show more understanding toward enterprises in financial difficulties. Still, courts will punish such violations as arbitrary retrenchment, and guide employees and enterprises in resolving disputes through shorter working hours, training shifts, temporary vacations or salary negotiation.

As bad as all this sounds, my firm's experience with these cases has, almost without exception, revealed the following: 1. Those foreign companies being sued or threatened with legal action did indeed fail to abide by China's labor laws. This is a good thing because it implicitly means that those companies that follow the laws are far less likely to get sued. 2. Even when the foreign company was clearly in the wrong, it has been relatively easy and inexpensive to settle these lawsuits quickly. Our experience says that the employees are very quick to trade some money now for not having to go through the uncertainty of collecting more money at some indeterminate future date. The obvious take homes from all this are that it does pay to comply with China's labor laws (including those regarding overtime and payment of pensions) and that if you are sued, it pays to act quickly to try to settle. Settling quickly not only usually makes sense for the instant case, we are also finding that it makes sense to stay in reasonably good graces with the powers that be. Back in November, 2007, in our post, "China's New Labor Law -- It's A Huge Deal. Huge I Tell You," we pretty much predicted all this. In one comment, I talked about how the new law is not dependent on the government:"It requires lawyer enforcement and there are plenty of hungry lawyers in China who will sue early and sue often on this. I can assure you of that." I predict these cases will continue to increase over the next year or two, but declining after that as the economy improves and as companies finally get wise to the fact that these laws are being taken very seriously and will not be revoked.

Full post as published by China Law Blog on April 24, 2009 (boomark / email).