International Labor & Employment Law Committee Newsletter

Issue: November 2012

Editor: Tim Darby | Africa and Middle East Editor: Karen Seigel | Asia and Oceania Editor: Ute Krudewagen | Canada Editor: Gilles Touchette | European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Law Student Editor: Irene Lehne, Earle Mack School of Law at Drexel University


Termination of Striking Employees Upheld as Lawful

Jonathan Isaacs, Baker & McKenzie, Hong Kong

The termination of 17 striking employees for misconduct after the employer negotiated with other employees who returned to work was upheld by the Dongguan No. 3 District People's Court, according to a July newspaper report.

It was reported that employees in a certain department within the company objected to their new managers and sent an e-mail to company headquarters demanding a change in their managers. After the company rejected their proposal, the employees in the department went on strike. The company then actively negotiated with the striking employees and invited the Labor Dispute Mediation Office to mediate. Although most of the employees returned to work, several employees refused to go back to work. The company then terminated 17 strike leaders, who subsequently jointly filed claims against the company claiming double severance for wrongful termination, overtime compensation, and annual leave compensation, etc.

Based on both parties' statements, the court dismissed the 17 employees' claims, ruling that the employees' work stoppage:

  • had no reasonable justification;
  • significantly affected the company's operations; and
  • seriously violated the company's labor discipline.

PRC law does not explicitly provide employees with a right to strike and is silent on whether strikes would be considered illegal. This case indicates that in some strike situations, the courts will look at factors beyond a company's policies, such as the reasonableness of the employees' demands and whether the courts believe the company is acting in good faith vis-à-vis the employees, in deciding whether to uphold an employer's disciplinary actions against striking employees taken in accordance with the company's duly adopted policies.

Amended Civil Procedure Law Enters Into Effect January 1, 2013

Jonathan Isaacs, Baker & McKenzie, Hong Kong

An amended version of the Civil Procedure Law, which will be relevant for employment cases as well as other types of civil litigation, will take effect January 1, 2013, after it was passed by the Standing Committee to the National People's Congress August 31, 2012. The Amendment includes several provisions that may make it easier for employers to take enforcement action against employees in breach of contractual and statutory duties, as well for either party to submit evidence related to any employment dispute.

  • The Amendment provides that preliminary injunctive relief can be granted in all civil cases where the conduct of a party may make enforcement of a final judgment difficult or where significant harm may be caused. Previously, the law only explicitly allowed for preliminary injunctive relief for patent, trademark, and copyright infringements. In the employment context, this could permit enforcement action by employers against employees in non-compete and breach of confidentiality cases. The Amendment requires the company to show that the employee's behavior would probably cause the ultimate court ruling to be unenforceable or cause damage to the company. It is unclear whether the company would have the burden to establish that it will likely succeed on the merits of the case.
  • In addition, the Amendment specifically includes "electronic evidence" as one form of evidence that can be used in civil disputes. As a result, in the future courts may be more willing to admit electronic evidence. The current E-Signature Law already allows for use of electronic evidence, but is sometimes disregarded or interpreted narrowly by the courts in practice. It still remains to be seen in what form the electronic evidence (e.g., emails) should be presented to the court, and whether special preservation procedures for electronic evidence (e.g., notarization) will be necessary in the future.
  • Finally, the Amendment allows for evidence preservation orders to be applied for in pre-trial procedures in the event that the evidence would likely be lost or become difficult to obtain. This may help prevent employers, employees, or third parties from destroying evidence before trial, which is oftentimes a serious problem.

Employer-Employee Agreement Not to Participate in Mandatory Social Insurance System Held Illegal

Jonathan Isaacs, Baker & McKenzie, Hong Kong

An agreement not to participate in the social insurance system that a company had arranged with an employee was illegal, the Suzhou Intermediate People's Court held September 13, 2012. The court upheld a lower court opinion in favor of the employee, who had lodged a complaint against the company after incurring significant medical expenses, and ordered the company to pay RMB 43,000 as medical fee compensation for its failure to enroll the employee into the social insurance system.The court did not impose any other penalties on the employer. Under the law employers are subject to fines for not registering employees for social insurance, but only the administrative social insurance bureau--not a court--has the authority to impose such a fine. Courts only award damages personally suffered by the employee and do not impose penalties for administrative violations. However, the court did not grant the employee the full RMB 61,869.96 compensation requested because it found that the employee was partially at fault, as discussed below.

Both the lower and intermediate courts held that it is mandatory for companies to enroll their employees in the social insurance system and make social insurance contributions as required by law.Therefore, the agreement between the company and the employee not to participate in the social insurance system was found invalid because such agreement was in violation of the mandatory laws and regulations. Given that the lower and intermediate courts found that both parties were at fault for not participating in the social insurance system, the employee was not awarded compensation for the full amount of medical expenses incurred and the company was only ordered to compensate the employee RMB 43,000 for the medical expenses.

In the reported case, the employee submitted a written application to the company in which he agreed not to participate in the local social insurance systems and to bear full responsibility for all the consequences therefrom, and the company approved this application. In November 2010, the employee suffered an illness which resulted in medical expenses of RMB 69,753.32 (of which RMB 61,869.96 should have been payable by the social insurance fund had the employee been enrolled in the social insurance system). Since the employee could not claim any medical expense reimbursement from the social insurance fund, he filed a claim against the company and demanded that the company bear the medical expenses that would have been payable by the social insurance fund.

Proposed Regulations on Ownership and Remuneration for Employee-Created Inventions Released

Jeffrey Wilson and Zoe Wang, Jun He Law Offices, Shanghai

Proposed regulations that would govern ownership and remuneration for employee-created inventions were released November 12, 2012, by the State Intellectual Property Office (SIPO). Formally entitled the "Service Invention Regulations," the draft regulations would supplement provisions in the Patent Law, Implementing Regulations of the Patent Law, and other applicable laws and regulations. The regulations are subject to a public comment period that ends December 3, 2012.

The regulations govern inventions created by employees that may be protected as patents, new plant variety rights, integrated circuit design rights or technical know-how. Highlights from the draft regulations include:

  • "Service Invention" is defined to be an invention created within the course of employment, which may include inventions created one year after termination of employment. Inventions created by employees that fall outside this definition would be treated as "non-service inventions."
  • Employers may implement a reporting mechanism for employees to disclose inventions to employers and claim the invention as a service invention or non-service invention.
  • Employers own the right to file for patents on service inventions. A service invention is treated as trade secret if an employer does not file for a patent or publicly disclose the invention.
  • Remuneration includes awards for the creation of inventions and compensation for the use of the inventions. The minimum amounts are generally higher than those set forth in the Implementing Regulations of the Patent Law.
  • Award requirements range from 100-200% of the average monthly salary of all employees at the employer. Compensation requirements, subject to certain caps, may range from 3-5% operating profit or 0.3-0.5% of sales revenue, and at least 20% of net revenue if the rights are assigned or licensed.
  • Remuneration may be in cash or company shares.
  • An employer may opt out of statutory compensation requirements by issuing company compensation policies or entering into contracts with the employees. The employer may pay compensation in a lump sum, provided that the sum is a reasonable estimation of the minimum compensation figures. Contracts that unlawfully restrict an employee's rights to remuneration are void.
  • Employers are required to continue paying compensation to employees after the employees are terminated or resign. Employee rights may be inherited.

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