How to prepare for labour disputes

1. What is the biggest challenge in human resources and labour relations that foreign companies are faced with What advice would you give them

Foreign enterprises have now been coming to China to conduct business for more than 30 years, and many of them have smoothly achieved complete or partial “localisation”. With China's rapidly expanding economy in recent years, we are confident that numerous foreign enterprises will continue to come to invest every year. Though they are both foreign enterprises, the “newbies” that are fresh off the boat and the “old hands” that have been in China for many years face different situations.

A foreign enterprise that has just landed in China will lack familiarity with the rules of China's job market, the employment system and legal provisions and therefore require a certain period of exploring and learning. The PRC Labour Law and its complementary regu­lations, on the one hand, follow the labour legislation philosophy of the civil law system, and are in the habit of repeatedly stressing and drawing on the “dismissal protection” system in legislation, while, on the other hand, numerous longstanding issues from the past remain in China, continuously bedeviling legislation in the labour law field. These two large chunks of content give rise to China's rather unique labour law system. A foreign enterprise that is fresh off the boat may be baffled by these “special issues” and not know how to deal with them; in particular, enterprises from common law countries used to the values of the “at-will employ­ment” may show signs of disorientation when suddenly brought face to face with China's forceful “dismissal protection” system.

With respect to enterprises that are old hands in China, we believe that in their long-term exploration, they have gradually set strong roots in the China market and, in terms of personnel management and rules and regulations, have adapted to the particularities of PRC legislation. However, due to their many years of development in China, issues such as an employee age structure that is skewed toward older workers, a disconnection between their local and over­seas management as well as complex organisation have slowly arisen. Furthermore, usually, the longer an enterprise has been in China, the more it will have grown and the larger its workforce will be, and with the passage of all this time, such enterprises are likely to have accumulated numerous longstanding issues. Once the economic situation turns bad, these enterprises are very likely to find themselves with overly large workforces. Accordingly, although localised enterprises have gradually adapted to the distinctive system of labour laws in China, they may nevertheless be overwhelmed when reacting to various sudden unexpected situations because their organisations have grown too large or their longstanding issues too numerous.

2. What are the most common sources of labour disputes

The termination or ending of employment relationships is without a doubt the point around which most disputes arise, with employees often wanting to settle the new and old scores together with the “old boss”. Accordingly, in addition to the lawfulness of the termination or ending of an employment relationship, bonus disputes, overtime payment disputes, annual leave wage disputes, etc. have also gradually become hot topics and points that give rise to a relatively high frequency of disputes.

3. What precautions should companies take to prevent disputes or unpleasant incidents, such as strikes, from happening during the termination of labour contracts

Firstly, an enterprise needs to have a relatively accurate idea of an employee's psychological expectations, this being the key to judging the direction any incident will take. The employee's perceptions toward a certain incident (e.g. termination of his/her employment relationship) will commonly depend on the following factors:

(1) his/her sense of identification with, and trust in, the enterprise, e.g. whether there is a disparity between the real reason and the given reason why the enterprise did a certain thing;
(2) his/her degree of satisfaction with the compensation by the enter­prise, including both a vertical comparison with the enterprise's past compensation rate and a horizontal comparison with other enterprises; and
(3) whether there is a worker leader within the enterprise who can lead and bring the other employees together.

Secondly, the enterprise itself must also have a good idea of what collective incidents could arise and make the appropriate prepara­tions. This preparation should be multifaceted and multidimensional, e.g. the division of employee groups, communication with employees, management of the media, maintenance of security and handling of the relationship with the government. Of course, most important of all is having a strong team with extensive experience that can step in to handle any incident that suddenly arises. Only if the enterprise itself can anticipate the occurrence of a situation and duly prepare for it can it find a method of dealing with it at the first hour. If it fails to do so, it is our experience that once a mass incident reaches a stalemate or enters an enduring war, the enterprise is likely to suffer a large economic loss.

4. What were the main legislative developments that affected the labour and employment market in the last 12 months

No legislative activity in the labour law field was more important in the past year than the promulgation of the Tentative Provisions on Temporary Placement (Tentative Provisions) by the Order of the Ministry of Human Resources and Social Security. The Tentative Provisions entered into effect on March 1 2014 and set forth the newest provisions on such matters as the percentage of temporary employees that can be used, the definition of the “three characteristics” of temporary placement, same pay for the same work, temporary placement and outsourcing, sending back of temporary workers, etc.

The impact of the Tentative Provisions on large enterprises mani­fests as two widely divergent situations, depending on whether or not they use temporary workers. The impact or effect on enterprises that do not use temporary workers will be small or non-existent; whereas that on enterprises that have been using temporary workers for a long time, particularly large enterprises as represented by state-owned enter­prises, will be exceptionally hard hitting. The reason for this is that the Provisional Regulations pose a great challenge to numerous current human resource policies and employment models of many enterprises.

In the past year we have been appointed by numerous enterprises and provided to them legal services such as “understanding of regula­tions”, “restructuring of human resources system”, “establishment of remuneration system” and “outsourcing plan design”.

5. In the upcoming year, what labour areas should in-house teams follow up on

It is our belief that with the general increase in the legal awareness of the population, future labour disputes will show a more technical and collective aspect.

The technical aspect is mainly applicable to individual employ­ment disputes. With the increase in legal awareness, the average employee will have a better grasp of the chances of prevailing in an employment dispute, resulting in a decrease in abusive suits and an increase in the difficulty of individual employment disputes. The so-called increase in difficulty will manifest in the chances of either party prevailing to approach or even achieve parity, with whoever is best able to grasp the details signifying who will be closer to prevailing. Additionally, increased difficulty also means that the tech­nical contents of disputes themselves will also increase, e.g. large to the extent of benefits, special bonuses and equity incentive bonuses that were not a common topic of discussion in the past, and small to the extent of high temperature allowances and single child allowances that were topics ignored in the past. With their frequency increasing in future, better explanation of the details will be required.

The collective aspect is mainly applicable to collective labour disputes and mass incidents. In the last few years, employees have become more aware that there is strength in numbers, with this aware­ness being expressed both in legitimate and illegal means. At present, an enterprise's in-house team, particularly those in large enterprises, must have some knowledge on how to deal with collective disputes and mass incidents, as failure will leave it totally unprepared should an urgent situation arise. Furthermore, as the tendency in the last few years for collective action in labour disputes has developed at incredible speed and historically this has been a field in Chinese judi­cial practice in which knowledge, research and preparation has been insufficient, there is little doubt that it will, in future, pose significant challenges for the in-house legal teams of enterprises.