Sources of regulation
The relevant law on termination
of employment in China is contained primarily in the Labour Law of the
People's Republic of China, 1994 (the "Labour Law"), which came
into effect in January 1995, and in 17 regulations pertaining to Labour
Law promulgated
in 1994. Twelve years after the promulgation of the Labour Law in 2006,
a bill of Labor Contract Law, [1] which has a separate chapter and more
detailed provisions for termination of the employment contract, was brought
before
the National People's Congress. However, at the time of writing of this
study, it has not passed yet. The most important of these regulations as
regards termination of employment are the Circular of the Ministry of Labour
on the Provisions on Personnel Reduction due to Economic Reasons in Enterprises
(No. 447) and the Circular of the Ministry of Labour on the Measures of
Economic Compensation for the Violation and Revocation of Labour Contracts
(No. 481).
In addition, some provisions applicable
to employment termination were contained in the Provisional Rules on Dismissal
of Workers Violating Labour Discipline in State-Owned Enterprises, 1986
("the Rules"). However, in 2001, this Rule was invalidated by the Decision
of State Council on Abolishing some Administrative Regulations and Rules
Promulgated before the End of 2000, (No. 319, Oct. 6,
2001). The reason for
its abolition is that it has been replaced by the Labor Law and Unemployment
Insurance Regulation.[2]
In addition to law and administrative
regulation, the local people¡¯s congress and the governments of provinces,
autonomous regions and municipalities may (and most of them do) issue detailed
measures and rules for the implementation of the Labour Law. Such detailed
measures are promulgated based on the Labour Law, with changes and specific
details made in light of local conditions. Thus, in practice when dealing
with labour or employment matters in China, reference should always be made to the
administrative regulations and local regulations in addition to the Labour
Law.
Although China is not a case law country, the judicial
interpretation of the Supreme Court plays a de facto role of law and has
binding effect on courts at every level.[3] In case of termination of employment, the
judicial Interpretation of the Supreme Court on Application of Laws in
Trail of Labour Dispute Cases (1)[4] and (2)[5] are concerned.
The enactment of the Labour Law
heralded a new dawn for industrial relations in China and must be viewed within the context of
increasing economic and political change. Since the 1970s, new policies
have been introduced promoting economic reform and efficiency, which in
general means relinquishing governmental control and increasing privatization
of industry and foreign investment. The impetus away from communist-type
State control of employment has brought with it significant and new problems
for industrial relations [6] and security of employment as private employers
gain increased autonomy in the workplace. The new initiative is a radical
change from the previous traditional framework which was based on the premise
that the economic system was run as a single, large State enterprise.
Scope of legislation
The Labour Law applies to all categories
of employees (except public servants, employees of institutions and social
entities (who are treated in accordance with public servant regulations),
agricultural workers, those actively serving in the army, family nurses,[7] and
apprentices of a self-employed person[8]) and enterprises. The Rules apply only to
employees of the State and act as a supplement to the Labour Law. Although
this study focuses on the examination of principles of dismissal in relation
to the private sector, consideration of employment in the State sector
is relevant in the case of China because of the tradition of all employment
being considered as State employment.
Contracts of employment
There are three types of firms in the
traditional industrial structure,[9] the
largest group being state-owned enterprises. Under the traditional industrial
scheme there are two categories of employment: permanent (or lifelong)
employment and temporary employment, with the former comprising the overwhelming
majority of employment relationships. Clearly, therefore, security of employment
is less of an issue under the traditional structure. Termination of "lifelong"
employment was subject to the official approval of the State (the "iron
rice bowl").
The new policies have placed severe
constraints on the ability of the traditional labour system to protect
workers' rights and have created the need for new labour legislation to
cope with these changes, particularly in relation to the power to dismiss
workers. A central feature of this radical change has been the creation
of a contract system whereby workers are engaged for an indeterminate period
of at least one year under written contracts. However, there are no
minimum requirements for the duration of labour contract as regards the
probationary period. It is provided that if the duration of the
labor contract is less than six months, the probationary period shall be
no more than fifteen days.[10]
In some instances, however, the
concept of permanent employment still applies, even in firms where some
workers are employed under written contracts. It is provided that the employer
has the obligation to conclude an indefinite-term labor contract with an employee if he/she has been
working in the same employing unit for ten years or more; provided, however,
that the parties concerned agree to extend the term of the labor contract
and the employee concerned asks to do so (Sec. 20, Labour Law). Probationary
periods are permitted up to six months (Sec. 21, Labour Law).
Termination of
employment
There are three types of termination
of employment: termination on agreement, dismissal by the working unit
(in the discourse of Chinese law, working unit means employer), and terminating
the labor contract unilaterally by the employee.
Employees must also give 30 days.
notice before leaving (sec. 31, Labour Law). However, if there is
any one of the following circumstances, the employee may notify the employer
at any time to revoke the labor contract: (1) within the probation
period; (2) where the employing unit forces the laborer to work by resorting
to violence, intimidation or illegal restriction of personal freedom; or
(3) failure on the part of the employing unit to pay labor remuneration
or to provide working conditions as agreed upon in the labor contract (sec.
32, Labour Law).
If the employee breaches the labour
contract by illegally terminating employment, he or she shall compensate
the enterprise for economic loss resulted from this breach (Sec 102, Labour
Law).
Dismissal
Dismissals unilaterally made by
an employer can be categorized as "unfair dismissal" (Sec. 29), "summary
dismissal" (Sec. 25, or disciplinary dismissal), "normal dismissal" (Sec
26) and "economic dismissal" (Sec. 27).
Although there is no broad principle
requiring that all dismissals be effected for a valid or just reason, and
the term "unfair dismissal" is not specifically mentioned, the employer
does not have the freedom to terminate employment at will in all circumstances.
The law has created specific categories of dismissals which will be considered
to be invalid. Thus, under sec. 29 of the Labour Law, a claim of
unfair or illegal dismissal would be successful where the worker is dismissed:
- for
reasons of incapacity to work due to disease or injury suffered at work;
- where
the worker is in receipt of medical treatment; or,
- in
the case of a woman worker, during pregnancy or the puerperal or breast-feeding
period.
In addition, it should be pointed
out that the Labour Law is open-ended because under sec. 29 it envisages
"other circumstances stipulated by laws, administrative rules and regulations".
As this is very recent legislation, it is reasonable to assume that other
categories of "unfair dismissals" will be created in the future in accordance
with this section and in light of the declaratory principles of the law,
which state that the aim is "to protect the legitimate rights and interests
of labourers, ... and promote economic development and social progress"
(sec. 1, Labour Law). The concept of the right to work is also specifically
mentioned under sec. 4 of the Labour Law, but this appears to be
merely declaratory.
The list of automatically illegal
reasons for dismissal under sec. 29 is very brief and excludes reasons
such as trade union membership and subject matters in respect of which
it would be discriminatory to dismiss.
As regards dismissal on grounds
of membership in a trade union, it is prohibited by the Trade Union Law,[11] Sec
52, and the remedies for this unfair dismissal may include reinstatement.
Nevertheless, in relation to the
latter, the broad principle enshrined under sec. 12, which prohibits
discriminatory practices in employment on the basis of ethnicity, race,
sex or religious belief, can, in accordance with the fundamental principles
of the law, be read as prohibiting dismissals which are discriminatory.
Certain categories of dismissal
are explicitly stated to be fair under Chinese law. Such dismissals may
be effected without notice in some instances.
Dismissal without notice, akin to
the concept of "summary dismissal" under the common law, is provided for
under sec. 25 of the Labour Law. This is restricted to serious violations
of "labour discipline", or the rules and regulations of the employing unit,
or causing "great losses to the employing unit due to serious dereliction
of duty or engagement in malpractice for selfish ends". Where the worker
is being investigated in connection with a crime, he or she may also be
dismissed without notice.
Probationary employment may be terminated
where the employee fails to fulfill the required standards for work.
Sec. 27 of the Labour Law also makes provision for
collective dismissals in redundancy situations. The grounds for such dismissals
are narrowly defined. The employer may make a reduction in the workforce
where the employing unit "comes to the brink of bankruptcy or runs into
difficulties in production and management, and if reduction of its personnel
becomes really necessary".
A limited attempt is made to alleviate
the negative consequences of dismissal from employment. In the case of
redundancy situations, priority for re-employment must be given to redundant
employees where the employing unit recruits personnel up to six months
after the redundancy. Further, employees who have been dismissed or disabled
due to work-related injury or disease are entitled to social insurance
benefits.
Notice and prior
procedural safeguards
It is compulsory that notice be
given for certain categories of dismissals. This is merely a procedural
safeguard and does not affect the employer¡¯s right to dismiss the employee
in such circumstances. Notice is required where the worker is:
- unable
to continue his or her original work after illness or injury not suffered
at work;
- not
qualified for the required work; or
- unable
to reach agreement with his or her employer on the modification of the
labour contract when its objective conditions have changed.
The notice period for such categories
of dismissal is 30 days (sec. 26, Labour Law).
Also important, in practice, are
the serious social restraints on dismissal. For workers in State enterprises,
their work unit provides a variety of services, and dismissal involves
much more than the loss of a job. However, with the development of the
Social Security system and social services, the impact of dismissal is
not as severe as before.
There is a requirement that the
appropriate trade union and workers be consulted and their opinions sought
on proposed collective dismissals. Further, the labour administrative department
must be informed although there is no need for prior authorization. A notice
period of 30 days is required for consultation in relation to redundancy.
In case of individual dismissal,
the Trade Union Law provides that the enterprises shall first inform the
union (Sec. 21).[12]
Several provisions provide regulations
on: payment of compensation where the worker is unqualified for the position,
where the employing unit breaks a labour contract, [13] or in the event of personnel reduction.[14]
The 1994 Circular on Personnel Reduction
reinforces the provisions of the Labour Law and reiterates that reduction
of personnel is only permissible when the employer is on ¡°the brink of
bankruptcy¡± or ¡°deep into difficulties in production and management¡±. This
Circular also requires employers to explain the situation to the trade
union and workers 30 days in advance, and consult on a plan of personnel
reduction. Certain employees may not be retrenched, including victims of
occupational accidents, pregnant employees or workers on sick leave.
Severance pay
Where the employee has been dismissed
for economic reasons or in accordance with the provisions of sec. 26 (see
above), the employer is required to provide economic compensation. This
is also the case where the employee¡¯s contract is terminated by agreement
under sec. 24. No compensation is granted where the employee is
dismissed for violation of labour discipline or where he or she neglects
his or her duty or engages in malpractice.
Remedies for individual dismissal
must be in the form of damages as there is no provision for reinstatement.
However, as mentioned before, Sec. 52 of the Trade Union law provides for
reinstatement. In cases of dismissal during the period of pregnancy, the
judgment of reinstatement is common.
In the case of collective dismissals,
a redundancy payment is made. Since the law allows compensation for dismissals
due to agreement and for frustration of the contract, it may be more accurate
to describe this type of compensation as a severance payment. The basic
rate of economic ¡°compensation¡± is one month for each year of service.
Avenues for redress
Under sec. 30 of the Labour
Law, a worker has the right to appeal his or her dismissal to arbitration,
or take legal proceedings where arbitration is unsuccessful (sec. 77).
The avenues for redress include consultation, mediation, arbitration and
litigation.
Similar provisions are also found
under sec. 5 of the Rules in relation to State employees. Arbitration
is effected by means of labour dispute arbitration committees, comprised
of representatives from the labour administrative department, the trade
union and the employing unit, which have the power to make arbitration
awards or binding decisions. The committee is obliged to follow the principles
of ¡°legality, fairness and promptness¡±. However, the employee retains the
right to bring a case to the People¡¯s Court at any stage of the proceeding.
Where the employee wishes to appeal to the People¡¯s Court against a decision
from the arbitration committee, he or she must do so within 15 days.
Further information
Labour Code of China (in English)
[1] The Chinese version of the draft of the Labor Contract Law
[2] Decision of State Council on Abolishing some Administrative Regulations
and Rules Promulgated before the End of 2000, No.319, Oct.6, 2001, (in
Chinese)
[3] Regarding the role
of the judicial interpretation, there are detailed analyses in Wang Chenguang,
Law-making functions of the Chinese courts: Judicial activism in a country
of rapid social changes, Frontiers of Law in China Volume 1, Number 4 December, 2006, Higher
Education Press, co-published with Springer-Verlag GmbH.
[4] Judicial
Interpretation of the Supreme Court on Application of Laws in Trail of
Labour Dispute Cases (1) was promulgated on March
22nd, 2001 and came into force on April 30th,
2001.
[5] Judicial
Interpretation of the Supreme Court on Application of Laws in Trail of
Labour Dispute Cases (2) was promulgated on August
14th, 2006 and came into force on October 1st,
2006.
[6] For further discussion of some of the problems
of industrial relations generally, see Y. Zhu: ¡°Major changes under way
in China¡¯s industrial relations¡±, in International Labour
Review (1995), Vol. 134, p. 39.
[7] Sec
4, Circular of the Ministry of Labour on implementation of Labour Law,
No. 309, 1995.
[8] Sec 7 (5), Judicial Interpretation of the Supreme Court on Application
of Laws in Trail of Labour Dispute Cases (2), No.6, 2006.
[9] State-owned enterprises (SOEs), which belong
to the State; collective ownership enterprises (COEs), which belong to
the responsible collective; and domestic private enterprises (DPEs), which
belong to the individual.
[10] Sec
3, Circular of Ministry of Labour on Implementation of Labor Contract Systems,
[1996] No.354.
[11] Trade
Union Law of the People¡¯s Republic of China, adopted at the Fifth Session
of the Seventh National People¡¯s Congress on April 3, 1992, amended in
accordance with the Decision on Amending the Trade Union Law of the People¡¯s
Republic of China made at the 24th Meeting of the Standing Committee of
the Ninth National People¡¯s Congress on October 27, 2001. The
English version is available at the website of the All China Federation
of Trade Unions.
Section
52 provides that in any of the following cases in which the provisions
of this Law are violated, the administrative department for labor shall
order that the victim be reinstated, his remuneration payable during the
period of the termination of the labor contract be made up, or that a compensation
two times the amount of his annual income be given: (1) the labor contract
of a worker or staff member is terminated due to his participation in trade
union activities; or (2) the labor contract of a trade union functionary
is terminated due to the performance of his duties and functions prescribed
by this Law.
[12] Section 21 of the Trade Union Law: ¡°If an enterprise or institution
punishes a worker or staff member in a manner that the trade union considers
improper, the trade union shall have the right to advance its opinion.
Before unilaterally
deciding to dissolve the labor contract with a worker or staff member,
the enterprise shall inform the trade union of the reasons why; and, if
the trade union considers that the enterprise violates laws, regulations
or the contract in question and demands that it reconsider the matter,
the enterprise shall study the opinion of the trade union, and inform the
trade union of its final decision in writing.
Where a worker or staff
member believes that the enterprise infringes upon his labor rights and
interests and therefore applies for labor dispute arbitration or brings
the case before a People¡¯s Court, the trade union shall give him support
and assistance.¡±
[13] Circular of the Ministry of Labour on Printing
and Distributing the Measures of Economic Compensation for the Violation
and Revocation of Labour Contracts (Dec. 1994).
[14] Circular of the Ministry of Labour on Printing
and Distributing the Provisions on Personnel Reduction due to Economic
Reasons in Enterprises (14
Nov. 1994).
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