July 08, 2019 Issue: July 2019

CHINA - ADR in China: Market Expansion and Implications for Workers’ Rights

By: Xenia Dvoriantchikova, M.I.L.R, Cornell School of Industrial and Labor Relations

Introduction

China’s internal and outward-facing labor dynamics and institutions are rarely discussed in the media, despite the fact that its approach to workers is fundamental to its positioning as a powerful player in the geo-political sphere. This article attempts to fill that gap by examining China’s labor laws, institutions, and their connections to the larger agenda of the nation-state.

It is important to make several distinctions and clarifications before proceeding. First, in the United States, labor and employment are clearly differentiated terms. Labor refers to organized workers, while employees are those with individual contracts with their employers. In the context of China, however, legislation concerning workplace issues and the scholarly discussion in this regard often refers to all workers as labor or groups of workers as labor, even if they are employees without genuine representation. Moreover, the only recognized labor union in China is the All Chine Federation of Trade Unions (ACFTU), funded by employers and largely run by the Chinese Communist Party. Given these conditions, the paper will consider individual employees as those affected by the labor laws unless otherwise specified.

History and Details of the Labor Laws in China (Mid-20th Century and Onward)

The Chinese labor legislation most relevant to this essay—the Labor Mediation and Arbitration Law, along with others to be described in more detail—were passed in 2008, at the thirty-year mark after the opening up of the Chinese economy.

A contextual understanding is helpful when considering these seemingly abrupt legislative changes. As China was opening up the economy and experimenting with foreign investment and other market changes, new labor-related issues were arising. The changing economy called for new dispute resolution mechanisms and it was likely difficult for the government to reach a consensus on how to approach the myriad of changes. Throughout the late 1970s and into the 1990s, legislation dealing with labor was consistently drafted on various government levels and in 1994, a national law covering a broad range of work-related matters was finally passed. This was the Labor Law of 1994, and it formed the basis for the additional national legislation that came to be in 2008. Notably, it was the first of its kind in China (Zhao, 2009, 410). This 1994 Labor Law set out the system of contracts that regulate labor relationships, outlined the responsibilities and rights of both employees and management, and created a guideline for how contracts are to be changed or terminated. It also instituted the three-part labor dispute resolution system at a higher level, now covering more employees.

WTO membership in 2001 brought new pressures from the outside world, more publicity, and of course, greater numbers of workplace issues dealing with international trade. In response to these new external pressures alongside internal changes that were likely taking place, China passed a set of laws in 2007 (implemented the following year). These were the Employment Promotion Law, Labor Contract Law, and the Law on Mediation and Arbitration of Labor Disputes.

The major national labor laws passed in 2008 in China are national and may enable the laws to be more easily applied in China’s approach to international labor issues because China doesn’t have to justify or deal with discrepancies between its various provincial and other local laws in areas where international workers may operate. The laws streamline policies, penalties, and processes for all workers and employers within China. The Labor Contract Law of 2008 expands on the definition of labor relationships to include temporary and part time workers, making more workers fall under the jurisdiction of the Labor Arbitration Law (Harper Ho, 2009, 76). The Labor Arbitration Law of May 2008 does not alter procedural rules established by the other concurrent labor laws in China, but specifically seeks to expand access to labor dispute forums and improves the efficiency of the process. It also brings state personnel disputes under LDAC jurisdiction which used to cause redundancies since they were handled also in other ways by the state (Harper Ho, 68). Also, labor arbitration is to be provided for free. Employers and employees can both bring claims “arising from a labor relationship” through three-stage process for resolution of conflicts: mediation, arbitration, litigation.

Use of Labor Dispute Resolution Under the Law

Researchers have identified that more than 350,000 labor cases were arbitrated in 2007, growing drastically from the 1990’s onward, and over 90% were resolved in favor of the employees. A majority of the arbitration decisions are reportedly appealed to the courts, so it is possible that these statistics are not accurate descriptions of the final outcomes (Harper Ho, 2009). Awards are compensatory in nature rather than a method of deterrence for bad employer behavior.

Dispute resolution for labor issues is handled by the LDACs, or Labor Dispute Arbitration Commissions, which are provided by provincial, municipal, and local governments. While mediation is not mandatory, arbitration is a necessary step in labor disputes. Unlike the U.S., however, arbitration decisions can be (and actually must be) disputed in order for the issue to be taken to the litigation stage. However, arbitrators essentially replicate the mediation process if it was skipped as they are required to do this before running the arbitration. Also different from the U.S. is the ability to recharacterize some wage claims or other labor issues as civil claims, which can be litigated without the mediation and arbitration being necessary.

Mediation has reportedly fallen in popularity since 2005, and less than 20% of mediations were successful that year (Zhao, 2009, 414). While previous laws have called for Labor Mediation Commissions to manage mediations, many enterprises may have not set them up or used them effectively. As the capacity of official mediation committees began to fall short of demand around 2009, the government mobilized other bodies such as justice centers and “people’s mediation committees” to handle this part of the dispute resolution mechanism (Zhuang 2015, 11). This mobilization also led to smaller collective cases, but their frequency did not decrease. This suggests that as individuals were funneled more into mediation first (often followed by arbitration), the state effectively reduced the risk of large collective upheavals.

Arbitral awards can be final under the new laws, particularly for certain categories of disputes such as injury compensation claims and working hours. In some cases, only workers are able to appeal, providing some power to the workers in an inherently power-imbalanced situation (especially since they are taking these claims individually).

The 2008 Labor Laws require employers to provide evidence for arbitrations and other dispute resolution proceedings rather than relying on employees to do so, even when it is not favorable for the employers. Nevertheless, these protections in arbitrations have not proven very effective for economic matters, at least in areas studied by researchers. With economic issues on the rise during the 2008 economic crisis, a large number of workers reportedly rejected arbitral decisions in the province of Dongguan because they refused the arbitration commission’s typical offer of a minimum wage base for compensation and sought higher pay through the courts (Chen and Xu, 2012, 96). Success rates are higher for workers in courts than arbitrations in China, so although workers typically use the arbitration process, they often seek to overturn these decisions even for non-economic reasons. Courts may have more discretion because they rely on the law as written while arbitral proceedings are less formal and more subject to influence by local business entities and bureaucracies.

The implementation of the Arbitration and Mediation Laws have also been correlated with decreases in the number of collective disputes, supporting the idea that these mechanisms are aligned with reducing the potential of collective social upheaval and that workers are dealing with issues individually through these mechanisms (Zhuang 2015, 2).

Implications Within the Context of the Chinese State, Culture & Geopolitics

Mediation, arbitration and other means of peacefully resolving disputes that affect society are well fitting to the Chinese history of Confucian and Maoist principles. Confucianism, for instance, can be said to emphasize the responsibility of the individual to cultivate internal harmony and then project this harmony to his or her society (Bell 2008, 24). It suggests that conflicts should be handled first and foremost at their most fundamental level—within the individual, within the family, within the community, and only then outwardly. Mediating workplace disputes is well aligned with this. The Maoist then period introduced emotion-driven politics into the discourse, where individuals were rewarded externally for compliance and punished for noncompliance with particular agendas, contributing to a collective memory of repression during social upheavals and possibly further encouraging the public desire to avoid large-scale conflicts (Liu, 2010, 333).

Courts and organizations such as Arbitration Commissions cannot be separated from their role as representatives of the state, and their duty to be emblematic of the state’s political agenda. Several have written on this subject. Chen and Xu, for instance, have stated that “courts’ sympathy for workers’ legal rights is often entwined with or overshadowed by their political concern over workers’ potential for collective action” (Chen and Xu, 2012, 88). Harper Ho further suggests that the dispute resolution process is a way of “diffusing and channeling socially destabilizing conflict through formal institutional channels” (Harper Ho, 2009, 57).

Labor arbitration, as mentioned previously, tends to be handled on an individual basis with employees lacking genuine collective means to address their concerns. If this is the case, why would the Chinese state need to have concern for social unrest and collective action? The answer may lie with the nature of the labor disputes and their potential to be collective issues.

I believe that managing disputes which have the potential to create social disruptions is increasingly important as China begins to allow migrant workers in large numbers to work on large development projects, such as railroad expansion. According to news sources, China has announced that it will establish Belt and Road Courts to manage all disputes that arise under the Belt and Road Initiative (BRI). Notably, these courts have been established under China’s Supreme Court. This announcement suggests that all disputes under BRI have to be dealt with under China’s jurisdiction, giving the nation tremendous control over the migrant workers participating in the construction projects of BRI (Shira, 2018). There are existing ways for China to deal with issues implicating international workers under provisions of treaties and agreements with ASEAN such as the 2012 “Agreement on Dispute Settlement Mechanism of the Framework Agreement on Comprehensive Economic Cooperation.” China’s decision to manage disputes independently from the provisions in these agreements, and in a centralized manner, may suggest that China is strategically centralizing control at an early stage of the process of expanding its employment and commercial relationships with other countries.

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Xenia Dvoriantchikova

M.I.L.R, Cornell School of Industrial and Labor Relations