International Labor & Employment Law Committee Newsletter

Issue: May 2012

Editor: Tim Darby | European Editor: Paul Callaghan |Canada Editor: Gilles Touchette |Asia and Oceania Editor: Ute Krudewagen


National Regulations Push for "Democratic Management" of All Enterprises

Andreas Lauffs and Jonathan Isaacs, Baker & McKenzie, China Employment Law Group, Hong Kong/Shanghai/Beijing

Employee representative councils (ERCs) shall ("yingdang") be established in enterprises to carry out democratic management of the enterprise, pursuant to the February 2012 Regulations on the Democratic Management of Enterprises (Democratic Management Regulations). An ERC has the right to be informed on various management matters and to be consulted on employee-related matters. Further, collective contract drafts must be approved by the ERC.

While in the past, ERCs were mandatory only in state-owned enterprises, this is the first time national regulations expand this requirement to all enterprises, presumably also foreign-invested enterprises (FIEs). However, the Democratic Management Regulations do not appear to put the burden of establishment of ERCs on enterprise management, nor do they stipulate any penalty for the failure to form an ERC.

The Democratic Management Regulations were issued by six high-level government, Communist Party and quasi-governmental bodies. However, they were not endorsed by the State Council, nor by the Ministry of Commerce or the Ministry of Human Resources and Social Security. This may be the reason why the Democratic Management Regulations call for implementation at the local level. Some cities, such as Shanghai, have already enacted ERC-related legislation, and it remains to be seen whether they will now start to enforce them.

Until national or local implementing regulations are passed and in the absence of court rulings on whether decisions taken without proper involvement of the ERC can be legally challenged, it is unlikely that the Democratic Management Regulations will have a significant impact on the operations of FIEs.

Continued Work after Termination Deemed by Shanghai Court as New Employment

Andreas Lauffs and Jonathan Isaacs, Baker & McKenzie, China Employment Law Group, Hong Kong/Shanghai/Beijing

A company that failed to sign a written employment contract with an employee who continued working for the same company after the termination of her prior employment contact was ordered to pay double salary to the employee by the Shanghai No. 1 Intermediate People's Court in March 2012 as penalty for the company's failure to offer a new written contract.

PRC law requires a company to sign a written employment contract with all its employees within the first month of employment. Otherwise, the company may be ordered to pay double salary as penalty to the employee starting from the second month of employment.

In the reported case, the employee started working for the company in March 2009 under a three-year employment contract. On 5 May 2011, the parties reached an agreement to mutually terminate the employment and the company made the required termination payments (e.g. severance) on the same day. In spite of the termination, however, the employee did not actually leave the company, but rather continued working for the company until 30 July 2011. During that period, the company paid regular salary to the employee, but it did not offer her a new written contract. The court held that a new employment relationship had been established between the parties as of 6 May 2011.

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New Legislation Passed Protecting Older Employees in Corporate Reorganizations | National Regulations Push for "Democratic Management" of All Enterprises | Continued Work after Termination Deemed by Shanghai Court as New Employment | Requiring a Non-Workman to Perform Certain Duties of a Workman Does Not Amount to Unfair Labor Practice, Supreme Court Holds | Supreme Court Rules against Deemed Confirmation of Employment of a Probationary Employee | Establishments Are not to be Grouped Together for Retirement Provident Fund Purposes Merely Because Different Family Members Own Them All, Court Holds | Allowances to all Employees Are to Be Included in Calculating Provident Fund Retirement Plan Contributions, Court Holds | Backpay Agreed on In Settlement is to Be Paid Without Employee Proof He Did Not Obtain Further Employment Following Termination, Supreme Court Rules | Proposed Law on Sexual Harassment at Workplace Delayed | Employee Consent Is Pre-Requisite to Business Transfer Deals | Rules for Issuance of Employment Permits to Foreign Nationals Amended | Fixed Bonus to Be Included in Ordinary Wage, Supreme Court Rules | Amendments to Labor Code Proposed Reducing Some Employee Protections and Increasing Some Employee Benefits

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