With the economic downturn and so many companies looking to reduce HR costs, our China employment lawyers have been seeing a fairly large increase in China employment litigation matters. Most of these cases involve foreign companies doing business in China and most arise from one (or more of the following):
- Terminating an employee for a reason not explicitly mentioned in the employee’s employment contract or the employer’s Rules and Regulations or otherwise permitted under Chinese law.
- Implementing a demotion or pay cut against an employee without complying with all applicable law.
- Not paying overtime.
- Terminating an employee who did not have a written contract.
- Discontinuing a relationship with someone whom the employer never considered to be an employee.
- Terminating an employee for whom the employer did not make required social insurance payments.
As bad as all this sounds, our law firm’s experience with threatened and real employee lawsuits has, almost without exception, revealed the following:
- Oftentimes, those foreign companies being sued or threatened with legal action did actually fail to comply with the national or local employment laws. This is a good thing in that it implicitly means companies that fully comply with China’s employment laws are far less likely to get sued.
- With the above said, we have seen many instances where China employees will bring a labor arbitration claim no matter how weak their claims because they view arbitration as a bargaining tactic, as they know the arbitrator will likely ask the parties to settle before formal arbitration begins. Normally if the foreign employer has done nothing wrong, it should not give in to the employee’s demands or even settle with the employee just because it got sued. In our experience, the employer that is not at fault and has good evidence (such as having a well-written, signed contract that supports the company’s position) usually can prevail even if the employee does follow through with legal action.
- Nonetheless, if the foreign company was in the wrong, it makes sense to try to settle these lawsuits fast. The last thing you want to do is to drag the employee through the courts in a case where the company was clearly at fault, leaving a bunch of public records showing all sorts of wrongdoing on the company’s part. It will hurt the company’s reputation and result in low workplace morale, in addition to the time and money cost by the lawsuits and an eventual bad verdict.
The takeaways from all this are that even in these hard economic times it still pays to comply with all applicable employment laws and, if you are sued, it pays to act quickly to settle. Settling quickly usually not only makes economic sense for the lawsuit before you, but it usually also makes sense to help keep your company in good graces with the Chinese government. See China’s New Company Tracking System: Comply, Comply, Comply.
We predict that employment cases in China will continue to rise as foreign companies that are hurting due to the pandemic continue to adopt HR measures that could be considered to be adverse to their employees. Your best “defense” is to take China’s national and local employment laws very seriously.