Lehman, Lee & Xu - China Labor Insights - November 2009 (Online Edition)

LEHMAN, LEE & XU

China Labor Insights

Bringing You the Latest Developments in Chinese Labor & Employment Law

December 2009: Online Edition

Overseas Chinese May Buy Domestic Social Insurance

The Ministry of Human Resources and Social Security recently issued a circular stating that an employer may create a social insurance account for an employee who is an overseas Chinese. The account would be with their local social insurance handling agency and the overseas Chinese would need to present their credentials, including a valid passport. The other required procedures for an overseas Chinese to buy various social insurances are the same as a person with Chinese nationality.

More Stringent Regulations on Labor Outsourcing

The Labor Relations Bureau of the Ministry of Human Resources and Social Security recently finished soliciting internal opinions on the draft "Regulations on Labor Outsourcing." Government officials said the next step is to specifically identify the rights and responsibilities of labor outsourcing agencies and their clients (employers). According to a participant at the seminar, the Ministry of Human Resources and Social Security responsible for drafting the regulations had the preliminary intention of "standardizing and promoting the development of labor outsourcing services"; whereas the ACFTU was inclined to "restrict" its development.

Copying Company Price Lists and Contracts to Computer Disks Not Sufficient to Prove Misappropriation of Company Secrets

Brief Introduction of the Case

In October, 2007, Miss Meng was recruited by a small commercial company in Shanghai as a receptionist. Her one year labor contract with the company ran from October 2007 to September 2008, with a monthly salary of RMB 1,400. Besides her receptionists work, Miss Meng was also put in charge of printing materials and quotation list based on the salesman's requirement. Miss Meng's boyfriend was also an employee of the company and he resigned in early 2008.

In May 2008, the company terminated the labor contract with Miss Meng. In the written 'termination notice' sent to Miss Meng, the company stated that she had copied the company's quotation list without authorization and distributed it to persons outside the company. The company also stated that Miss Meng's behavior constituted a material breach of the the company's rules and regulations as set for the in the employee's handbook. Miss Meng did not agree with the company's decision and filed a claim with the Labor Arbitration Commission in Shanghai, claiming two month's damages, totaling RMB 2,800.

During the hearing, Miss Meng stated that before the termination of her contract, the company had begun to employ her replacement. She also stated that her work included printing materials for other salesmen and it was reasonable that she saved these materials to floppy disks. Finally, she stated that she had not misappropriated the company's business secret and thus did not violate the company's rules and regulations.

The company argued that Miss Meng's boyfriend had taken a position with one of the company's competitors and that Miss Meng had the motivation to steal the company's business secrets. The company's legal representative stated that he witnessed Miss Meng trying to take six disks home with her in her personal articles and that the disks contained quotation lists and contracts.

Analysis

This case involves China's Labor Contract Law and the employer's revocation of the labor contract based on the employee's material breach of the employer's rules and regulations. According to Article 39, an employer may terminate the labor contract if the employee materially breaches the employer's rules and regulations.

Therefore, the focus of this case was whether Miss Meng's behavior constituted misappropriation of the employers business secrets and therefore breached the employer's rules and regulations.

According to China's labor law and civil procedure law, the company must provide sufficient evidence to demonstrate that Miss Meng misappropriated the company's business secrets.

There are two disputed points in the case:

1) Whether Miss Meng's copying of the materials to the disks constituted misappropriation of the company's business secrets.

In this case, Miss Meng primary job responsibility was to work as a receptionist. However, the employer also asked her to print documents and quotation lists. The arbitration committee stated that it was not unusual that she had copied these documents onto the floppy disks. In addition, the committee stated that there were no rules regarding document management and that the company had not expressly stated that quotation lists and other contracts constituted business secrets. It was the view of the arbitration committee that Miss Meng had not misappropriated the company's business secret.

2) Whether Miss Meng attempted to remove the disks from the company premises.

The company stated that Miss Meng also attempted to remove the floppy disks from the company premises. The arbitration committee found there was insufficient evidence to show that Miss Meng had the motivation to steal these materials based on her boyfriends work situation. The testimony of the company's legal representative could only be viewed as the company's belief but not as sufficient evidence to prove her motivation.

Based on analysis above, the arbitration committee found that the company had illegally terminated the labor contract with Miss Meng and should therefore pay her damages in accordance with the Labor Contract Law.

"Factory Relocates.and Employee Gets Compensation"

Influenced by financial crisis, the Shanghai factory Mrs. Liu worked for decided to move from the city to the city suburbs, far from the previous location. Mrs. Liu needed to care for her elderly mother and children and the change of factory location proved to be very inconvenient for her. According to a notice issued by the factory, if an employee did not wish to work at the new factory location, he or she could resign their position. Mrs. Liu offered her resignation to his factory. After mutual negotiations between Mrs. Liu and the factory regarding compensation, an agreement could not be reached. Mrs. Liu filed suit in the People's Court of Shanghai claiming compensation.

During the hearing, the factory argued that the reason for the relocation was to save costs in order to resist the effects of the financial crisis. The factory further argued that if the factory were to pay compensation to the workers, the factory's financial situation would become even more difficult.

The court ruled that the place of work is a material factor when an employee enters into a labor contract. The relocation of the place of work means that the contact condition has changed.

According to Article 40 of the Labor Contract Law, an employer may terminate the labor contract if a material change in the objective circumstances relied upon at the time of conclusion of the labor contract renders it impossible for the parties to perform and, after consultation, the employer and the employee are unable to reach an agreement on amending the labor contract. And as per Article 46 of the Labor Contract Law, the employer shall pay the compensation in above circumstance.

Since the employer changed the place of work, constituting a material change to the labor contract, the court entered a judgment in favor of Mrs. Liu and awarded her compensation.

"Employers Not Allowed to Collect Deposits from Employees "

On Dec 21, 2004 Mr. Guo was employed as the driver of a Shanghai concrete company. The company required that Mr. Guo pay RMB 5,000 as a deposit for the training it would be giving him. If Mr. Guo left the company after his training, the employee would forfeit the deposit.

In November, 2009 the company terminated the labor contract with Mr. Guo. In December, 2009 Mr. Guo filed a law suit against his former employer in the Shanghai Minhang Court claiming a return of the "deposit."

The employer was summoned by judicial process but failed to appear in court.

According to Articles 9 of China Labor Contract Law, when hiring an employee, the Employer shall not retain the employee's resident ID card or other documentation, nor demand the employee to provide security or collect property from him/her under some other guise.

The court ruled that the company's collection of money in the name of a training fee or deposit violated Article 9 of the China Labor Contract Law and ordered the employer to return the deposit. The court also found that the company had been legally summoned by the court but had refused to appear in court without due cause and therefore had waived its rights and must bear the adverse consequences.

Guangdong to Organize Vocational Training to Cope with "Migrant Worker Shortage"

Guangdong Province is unveiling measures to cope with the "migrant worker shortage". Among its plans are organizing various vocational training sessions aimed at 6 million participants annually, from 2009 to 2012. By 2012, the goal is to have highly skilled talent accounting for 25% of all the skilled talent.

Henan Province Issues Wage Guidelines for Enterprises

Henan recently issued wage guidelines for 2009, using last year's average wages for all enterprises as the base number. The growth rates ranged from a high of 16% to a low of 4%. The benchmark wage growth rate is 11%. All these three figures are lower than those in 2008.

Subsidies for College Internships Might Be Financed by Both Government and Enterprises

The Guangdong People's Congress Standing Committee recently convened a seminar to solicit opinions on the draft "Regulations of Guangdong Province on Internships for College Students and Probation of College Graduates." Guangdong plans to issue regulations requiring employers to purchase work-related injury insurance for college students and graduates during their internship or probation period. The subsidies will be paid both by the enterprise (40%) and from government fiscal expenditures (60%).

519,000 Labor Dispute Cases

The Ministry of Human Resources and Social Security has stated that China's labor dispute arbitration institutions at all levels, have handled 519,000 labor dispute cases during the first three quarters of this year.

Labor Disputes Skyrocket in Beijing

As of the end of November, 2009 approximately 80,000 workers have been involved in disputes with their employers. This is double the amount in 2008 stated a senior official of the Beijing trade union. The city's arbitration committee has received more than 70,000 labor disputes cases this year, and many involved more than one employee.

There were 26,000 disputes during the same period in 2007 and 49,000 in 2008, said Zhang Hengshun, director of law department of Beijing municipal federation of trade union. The primary factor behind the drastic increase is that labor arbitration is offered as a free service and has been since May 1, 2008, when the Law on Mediation and Arbitration of Labor Disputes took effect.

Prior to 2008, employees were charged RMB 300 for arbitration. Free arbitration has encouraged more employees to choose the legal system to resolve their labor disputes. If employees or employers are not satisfied with the results in labor arbitration, either party may appeal to the People's Courts.

RMB 17,071 the Average Annual Wage of Urban Workers

According to data released by the National Statistics Bureau, employees in private companies in China's urban areas earned an average annual wage of RMB 17,071 in 2008.

Investigation into Wage Payments for Rural Workers to Be Launched, Severe Back Pay Will Result in Revocation of Business License

Beginning in mid December, the Ministry of Human Resources and Social Security, the Ministry of Construction, the Ministry of Public Security and the ACFTU will send surveillance teams to various provinces and cities to specifically investigate wage payments to rural workers. The team will identify employers who have severely failed to pay rural workers large amounts of wages in full and on time. Where gross violations with evil intentions are found, the team may order the employers to stop business until the wages have been paid, reduce or cancel their qualifications, or even revoke the employer's business licenses. The investigation is to last until February 5, 2010.

Guangzhou: Employers Failing to Buy Social Insurance Face Penalty of Up to RMB 20,000

The Guangzhou Municipal Human Resources and Social Security Bureau along with the Local Tax Bureau recently launched an investigation into social insurance payments. From now until the end of the year, the two bureaus will work together in setting up seven surveillance teams to urge employers to buy social insurance for workers. Employers who fail to do so will be given a prescribed time period to buy the insurance or face a penalty of up to RMB 20,000.

17% of Employers Plan to Recruit More Workers in Q4 2009

Manpower, the HR employment and management service provider, recently issued a report on Q4 employment prospects in China showing that 17% of surveyed employers plan to recruit more workers in the final quarter of 2009.

Shenzhen Has the Highest Wages in Guangdong

The Southern Labor Market, the Guangzhou Human Resources Management Academy and the Guangzhou Talent Institute jointly issued the "2009 Research Report on Wage Levels in Guangdong". The report shows that Shenzhen has the highest average wage among Guangdong's cities. Shenzhen showed an average wage of RMB 4,263 per month, followed by RMB 3,942 in Guangzhou and RMB 3,761 in Zhongshan.

Wages in Chengdu Climb 16.4%

According to the Sichuan Provincial Statistics Bureau, as of November, 2009 urban employees in Sichuan have an average wage of RMB 19,338. The average wage in Chengdu is RMB 23,372. This is an increase of RMB 2,724 or 16.4% over November 2008.

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