Lily Wei Zhou, Freshfields Bruckhaus Deringer

weilily.zhou@freshfields.com

On April 4 2007, the Chinese government's official newspaper, People's Daily, reported the recent courtroom victory of Tang Xiaodong over his employer, a foreign invested enterprise, in a case of wrongful employment termination. The case attracted significant attention from the Chinese media since Tang was not only a mid-level manager of the company, but also the president of the company's labour union. Furthermore, this case was the first reported wrongful employment termination claim brought by a company's labour union president in Beijing.

The Winning Verdict

The court of first instance, the Beijing Shunyi District People's Court, held that the company's employment termination decision should be annulled and that the prior employment relationship should be reinstated. Additionally, the employer was ordered to compensate Tang with a sum of over Rmb60,000 for lost wages. The main issue contested at the trial was the question of whether the employer's decision to terminate Tang's employment was supported by sufficient factual and legal evidence. The Employer had ostensibly dismissed Tang on the grounds that administrative penalties assessed against the company for sanitary water supply problems were caused by Tang's negligence in his role as the manager of the general affairs department at the company, resulting in significant damages to the company. However, the presiding judge held that the employer "[did] not have sufficient support" (as grounds for employment termination under Article 25 of the PRC Labour Law¹) because the company itself also failed in its oversight and supervision of the same problem.

According to media reports, Tang, as the president of the labour union, had raised concerns over issues of poor water quality with the company's top management numerous times. When he could not get any official response from the company, Tang brought a formal complaint to the relevant governmental authority, which ultimately resulted in the administrative penalties and Tang's subsequent employment termination as described above.

Labour Union Background

Interestingly, the reported court verdict did not include any reference to the PRC Labour Union Law ­ which provides several relevant provisions. Article 22 of the PRC Labour Union Law gives labour unions the power to represent workers to deal with employers in requesting corrective measures for labour, safety and sanitary conditions. Moreover, if the employer refuses to take corrective measures, then the labour union may request that the local government deal with the situation in accordance with the law. Article 52 further provides that if the employer terminates the employment of workers for actions which they performed in their role as members of a labour union, then such employment shall be ordered to be reinstated by the labour administration authority with lost wages duly compensated. The trial judge may have chosen not to use the PRC Labour Union Law as a basis for the judgement because the trial court is not "the labour administration authority" referred to in Article 52. However, the labour union leader's claim of workers' rights protection and his wrongful dismissal by the employer in retaliation was no doubt in the mind of the trial court judge as he decided what constituted "sufficient factual and legal basis" for employment termination in this case.

The Implications

Officials at the National Labour Union cite this case as an example that "demonstrates the many challenges local labour unions face" at various private and foreign invested enterprises. According to a National Labour Union official, more than 40% of all business enterprises in China have yet to establish labour unions, and even where labour unions are established, many local labour union leaders are pressured by their employers not to stand up for workers' rights. As a result, the National Labour Union is actively considering the development of a comprehensive system to protect local labour union leaders from employer harassment.

The increasingly active role of labour unions is also reflected in the draft Labour Contract Law (which may be promulgated in the near future), where Article 35 provides that the employer must notify the labour union in advance of its decision to terminate a worker's employment. The labour union may raise objections to the decision, and the employer must consider those objections and issue a formal written response to the labour union. The "advance notification" and "formal written response" requirements under Article 35 accord significant additional procedural rights to the labour unions and the workers they represent. Existing provisions under the PRC Labour Law simply provide that the labour union has the right to raise objections if the employer inappropriately terminates an employee's labour contract.

This favourable ruling for labour unions and the drafting of progressive labour legislation may be seen as an indication of the Chinese central government's resolve to enhance the protection of workers' rights as part of its efforts to "build a harmonious society", or at least not to continue building a rapidly-growing economy at the expense of its workers.

Endnotes

¹ Article 25 of the PRC Labour Law provides an employee's material negligence causing significant damages to the employer as grounds for employment termination.