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Court Rules on Employment Disputes

20 February 2011

Recently, the Supreme People’s Court issued the Third Interpretation on Several Issues on the Applicable Law of Judging Employment Dispute (“Interpretations”), effective 14 September 2010. The Interpretations can have a great impact on how certain kinds of employment disputes will be handled; when managing their human resources, employers should carefully consider the following points in particular.

1. Claims against employers for failing to complete Social Insurance procedures

Pursuant to the Interpretation, courts shall grant claims of an employee for compensation against his or her employer where the employee is unable to enjoy social insurance benefits – such as pension, injury, un-employment, maternity and medical benefits – because the employer has failed to complete Social Insurance registration procedures.

2. Additional penalties for failure to pay due wages within the labor bureau’s deadline.

An employee may be entitled to additional compensation over-and-above their claim for salary arrears, over-time, wages below minimum wage, and severance payments. If the labor bureau has ordered an employer to pay wages but the employer has not paid within the mandated deadline, the employee is entitled to initiate litigation in the people’s court against the employer for wages as well as additional compensation at a sum greater than 50% and less than 100% of the payable amount. The Interpretations clarify that, in such circumstances, the people’s court will accept the case.

3. Distinctions between labor disputes and service disputes

The Interpretation clarifies that where a dispute involves personnel that are in a special position –which includes employees on leave with suspended pay, in early retirement, laid-off, removed from a position or waiting for a position, or on an extended holiday due to a drop in production – the relationship between both parties shall be identified as a labor dispute. Based on this, the rights and liabilities of the employer and the said special employees are subject to the Labor Law and the Employment Contract Law. The employer has the obligation to pay social insurances for these employees, compensate for injuries, and pay compensation upon termination or expiration of the Employment Contract. Meanwhile, where an employer recruits personnel that has received pension benefits or has already received retirement pay, the relationship is one of service, which means that where a dispute arises, the rights and liabilities are determined based on general civil law rather than being subject to relevant employment laws.

4. Burden of proof for overtime work

Where in a dispute involving payment for overtime neither the employee nor the employer can provide proof to evidence whether or not such overtime has been worked, China's courts will generally favor the employee’s claims. Pursuant to the Interpretation however, any employees who claim over-time payments shall bear the initial burden of proof about the existence of over-time work. Only in the event that the employee can prove that relevant evidence is controlled by the employer (e.g. time tables, shift records, records of clocking in and out, notices and approvals for over-time work etc.), and the employer refuses to provide access to such proofs, then the court should find in favor of the employee.