Several pieces of legislation govern employment relationships in China, among them the Labor Law, the Employment Contract Law, the Implementing Regulations of the Employment Contract Law, and the Social Security Law, together with other implementing rules and regulations and local legislation at provincial or municipal level.
Regarding wage, working hours, rest and vacation, the main rules and regulations generally include the Regulations on the Composition of Gross Wages, the Interim Provisions on Wage Payment, the Minimum Wage Provisions, and the Regulation on Paid Annual Leave for Employees.
Employees who form an employment relationship with enterprises, individually owned economic organizations, state departments, institutional organizations, and social groups in China, are protected by the employment law.
Labour disputes can be extremely costly for companies. Robust employee handbooks, policies and procedures can reduce employee disputes; however workplace conflicts can still arise. If left unchecked, companies can face not only legal liabilities but also internal operational disruptions, decreased morale, and productivity, as well as possible external reputation damages.
Under the Labour Law, employers are required to resolve labor disputes through either mediation or labor arbitration first. Litigation should be the last resort as parties must proceed through arbitration before a litigation case can be filed.
The Labour Tribunal
The Labour Tribunal in China offers employers and employees the means for a speedy and informal resolution of their disputes in a cost-efficient manner. However, its jurisdiction is limited to monetary claims for breach of employment contracts or for non-compliance with the Employment Ordinance. Issues relating to the jurisdiction of the Labour Tribunal often arise, especially where it involves mixed claims or counterclaims.
There is often a fine line between the jurisdiction of the Labour Tribunal and the courts.
The increase in the number of applications by litigants to transfer proceedings from the Labour Tribunal to the courts (and vice versa) has led to more cases exploring the interplay between the various forums and their respective functions.
Depending on the case, the court may find that the claims fall exclusively under the Tribunal’s jurisdiction.
For instance, in the case of Xinhua News Media Limited & Anor v. Chan Chun Wo & Anor, the District Court found that the employers' claims for recovery of alleged overpayment of wages and reimbursements fell within the jurisdiction of the Labour Tribunal.
The District Court condemned the employers for abuse of process, saying that 'the whole exercise of putting forward such additional allegations does raise some suspicions that it was for “window-dressing” to justify initiating a claim at the District Court to frustrate the proceedings at the Labour Tribunal', which were presented by the employees against them for arrears of wages and other payments. The employers' claims at the District Court were accordingly struck out.
In Dock Brian v. Pacific Gourmet Holdings Limited, the High Court remitted a case back to the Labour Tribunal for determination. This case concerns an employee's claims for certain statutory entitlements under the Employment Ordinance, namely severance payment and terminal payment or damages.
The Labour Tribunal adjourned this case in view of a document signed by the employee upon the termination of his employment confirming that 'there is no other outstanding amount owing to [the employee] by [the employer]'.
The Labour Tribunal held that it had no jurisdiction to hear the claims because the document, being a valid settlement agreement, prevented the employee from making such claims and the document would have to be declared void before the employee could proceed with his claims.
On appeal, the High Court took a different view, stating that the Labour Tribunal does have jurisdiction over these claims for statutory entitlements under the Employment Ordinance. The judge observed that the employee was seeking relief under the Employment Ordinance rather than seeking a declaration that the document was void. The case was then remitted back to the Labour Tribunal for determination.
But some cases are not this clear, especially when there are mixed claims. In Lee Yiu Hong v. Well-in Hotel Supplies Company Limited, the employer appealed against a Labour Tribunal judgment in favor of its former employee on unpaid commission. The employer argued that the Tribunal failed to discharge its statutory duty to investigate and consider its complaints against the former employee's breaches or misconduct, which the employer argued would have allowed it to use the defense of set-off to extinguish or reduce the unpaid commission payable to the former employee.
Upon a closer examination of the employer's claims of breaches or misconduct by the former employee, which included failure to return important documents, misuse of confidential information and disruption of business, it was held that these claims were either grounded in tort or were mixed claims grounded in both tort and contract, thus bringing them outside the jurisdiction of the Labour Tribunal.
The court referred to the Schedule of the Labour Tribunal Ordinance, which expressly provides that all claims in tort and all mixed claims in both contract and tort are excluded from its jurisdiction. Accordingly, the Labour Tribunal was not at fault for not investigating or considering these alleged breaches by the employee, and the employer's application for leave to appeal was dismissed.
The Labour Tribunal's jurisdiction may be subject to territorial restrictions
In Ma Ngai Cheung v. Cobow Contracting & Engineering Company Limited, the defendant's (Hong Kong employer) attempt to strike out the plaintiff's (the employee) claims at the District Court on the ground that the claims should be within the exclusive jurisdiction of the Labour Tribunal was unsuccessful.
The defendant denied the existence of the employment relationship by contending that the employment was between the plaintiff and another mainland China company.
It was not disputed that the plaintiff mainly performed his duties in mainland China. The Court held that, in determining whether there was an employment relationship between the plaintiff and defendant, it would likely involve conflict-of-laws elements and difficult points of law because of the out-of-jurisdiction performance.
As a matter of policy, such issues should be kept away from the Labour Tribunal and be dealt with by the court where parties will have the benefit of legal representation. Therefore, the District Court refused to strike out the employee's claims.
The Labour Tribunal has the discretion to transfer the claim to other courts
In Kuok Chung Fai & Anor v. EBP Global Limited & Anor, the employer company appealed against the Labour Tribunal's decision not to transfer the employee's claims to another court.
The employee's claims included arrears of wages and end-of-year payments, while the employer counterclaimed against the employee for breach of fiduciary duties and employment duties for alleged misappropriation and sought injunctive and other relief.
The Labour Tribunal declined jurisdiction to adjudicate the employer's counterclaims as they were founded in tort and other areas of law. As regards the employee's claims, the Labour Tribunal held that they fell within its jurisdiction because these claims were straightforward and did not involve any complex issues of fact or law. The Labour Tribunal thus refused to exercise its discretion to transfer these claims to another court.
The employer's appeal was dismissed on the grounds that the Labour Tribunal's refusal to exercise its discretion to transfer the claims was not plainly wrong or wrong in principle and did not result in injustice. The court affirmed that the Labour Tribunal's discretion is wide and unfettered and the decision as to whether to exercise this discretion is ultimately a case management decision, which an appellate court will be reluctant to interfere with.
Joint employment
It is common for corporate groups to have one company within the group named as the employer under the written employment contracts with its employees working for the group and for such employer company to pay the salary and other payments for its employees.
However, this does not prevent another company within the group from being a joint employer and from being jointly responsible for the employees' entitlements.
In the case of Yung Wai Tak Abraham William v. Natural Daily (NZ) Holdings Ltd, the employment contract was between the employee and a wholly owned subsidiary of a listed company.
Even though the wholly owned subsidiary was the named employer under the contract and was the entity paying for the employee's salary and making contributions to the employee's mandatory provident fund, the court was prepared to look beyond that by adopting an 'overall impression' approach to assess whether the listed parent company should also be seen as an employer at the same time and be held liable for the unpaid salary and other payments.
In this case, the undisputed facts were that most of the employee's job duties concerned the affairs of the listed parent company as he was the company secretary and a member of the management committee of the listed parent company.
The court also considered the recruitment process (e.g., the job advertisement was published in the name of the parent company and interview conducted by the parent company) and the parent company's subsequent conduct (e.g., it was the one issuing notice regarding salary adjustment for the employee).
Furthermore, the evidence showed that the subsidiary employer company merely acted as a 'treasury center' of the entire group and had no actual business. It would receive funds from the parent company or other companies within the group and paid for the group's expenses, including advertising fees, operational expenses, legal expenses, and the salary of the group's employees. The court also rejected the argument that the employee was only assigned or outsourced to the parent company.
The court concluded that the overall impression was that the subsidiary and parent company were both employers and so both were liable for the unpaid salary and other payments.
Directors may be considered an 'employer'
If an employer is convicted of an offence under the Employment Ordinance, the court has the discretion to order an employer to pay any outstanding wages at the time of the conviction.
In Hong Kong Special Administrative Region v. Eternal Rich (Hong Kong) Limited & Anor, it was affirmed that a director of the employer company may fall under the definition of an 'employer', and thus the court had the discretion to order the director to be personally liable to pay the outstanding wages.
Under Section 2 of the Employment Ordinance, an 'employer' is defined as 'any person who has entered into a contract of employment to employ any other person as an employee and the duly authorized agent, manager or factor of such mentioned person'.
In this case, it was not disputed that a sole director who is responsible for the employer company's policymaking and distribution of wages would fall within the definition of an 'employer'. However, the court did not exercise its discretion to order the director to personally bear the outstanding wages after taking into account that, inter alia, his role was similar to that of an employee, his low salary for his 'directorship', the fact that the employer company also owed him wages and his poor financial and health conditions.
Employers' implied duty of good faith
Apart from some long-recognized implied terms in employment contracts (such as an employer's implied duty to provide a safe working environment and that of mutual trust and confidence), there is judicial support for having an implied anti-avoidance term in the contract to the effect that employers cannot dismiss employees to avoid the obligation to make bonus payments and the power to terminate or demote an employee should be exercised in good faith.
'Standby duty' time cannot be counted as rest days
In Breton Jean v. HK Bellawings Jet Limited, the Court of Appeal affirmed the lower court's decision that the days on which the employee (a business jet pilot) was on standby duty cannot be considered 'rest days' and so the employee was entitled to payments for his unpaid rest days. The Employment Ordinance provides that an employee is entitled to not less than one rest day in every period of seven days. Furthermore, a rest day is defined as a continuous period of not less than 24 hours during which an employee is entitled to abstain from working.
Director in breach of fiduciary duties by passing resolutions to receive unjustified bonuses
In Li Jian Chao v. TC Orient Lighting Holdings Limited, a former director of a Hong Kong listed company claimed for his unpaid bonus and was met with a counterclaim by the company for repayment of previous bonuses paid to him, pursuant to various board resolutions.
The company challenged the validity of those resolutions, which were passed by the former director together with other directors. The company argued that those resolutions were invalid because the director was materially interested in such arrangements but failed to refrain from voting as required by the company's articles, and alternatively the director was in breach of his fiduciary duties by failing to act in the best interests of the company when he voted in favor to pay himself those extraordinary bonuses that were not justified.
The court agreed with the company that the resolutions were invalid because they were not passed in accordance with the company's articles. The court went on to express its views, albeit in obiter, that the director also failed to provide a satisfactory explanation of why he should be entitled to the extraordinary bonuses, taking into account the poor financial condition of the company at the time, the fact that the bonuses were all paid within a short period of time and the large size of the bonuses when compared to the director's monthly salary. In this regard, the court would have also found the director to be in breach of his fiduciary duties.
Non-director employees may still owe fiduciary duties
Depending on the nature of tasks and roles assigned to the employee, fiduciary duties may arise if, objectively speaking, there is a legitimate expectation by the employer that the employee will not use his or her personal position in a way that is averse to the employer's interest.
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