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Legal Update

Supreme People's Court's Judicial Interpretations re Labour Dispute Resolution in the Works

2 March 2009
Mayer Brown JSM Legal Update
With a series of new employment laws and regulations coming into force during the last year, the Supreme Court of the PRC is now drafting a set of judicial interpretations ("the Draft") for the resolution of labour disputes. The Draft is reported to cover the following issues, which should not however be taken as confirmed until the Draft is officially announced.

I. Indefinite Term Labour Contract Presumed
An indefinite term labour contract (i.e. open-ended contract not capable of termination simply by notice and without cause) would be deemed as having been concluded if no term of employment has been agreed in the labour contract between the parties.

II. Calculation of Continuous Service Period and Successive Contract
In case any of the following seven circumstances occurs, the employee's continuity of service is deemed continuous, and his/her fixed labour contract terms shall be deemed successive:
a) the employer has its employee resign and enter into a new labour contract;
b) the employer sets up an affiliated company and has its employee enter into a labour contract in turn with such affiliated company;
c) the employer dissolves the current enterprise employing the employee, and sets up a new enterprise and has its employee enter into employment with this new enterprise with no material changes to the employees' work location and responsibilities;
d) the employer hires an employee by means of labour secondment in breach of the law;
e) the employer conducts outsourcing in breach of the law;
f) the employer hires the employee by means of illegal full time employment; or
g) other actions of employer expressly in breach of the principle of honesty, credibility and fairness, which is used to get around the law.
The current terminology used in the above circumstances is by no means clear or precise, and what final terminology would be used in the final version issued remains to be seen.
III. Penalty of Double Pay
According to the Draft, the employer would not be held responsible for not having entered into a written labour contract with the employee before 1 January 2008 for any reason;  and also after 1 January 2008, if:
a) the employer fails to conclude a written contract with its employee within one month after commencement of his/her employment, and such non-written contract period does not exceed one year; or
b) the employer fails to enter into an indefinite term labour contract with the employee in accordance with the relevant law,
where held responsible, the employer shall pay double salary each month to the employee from the date when the employee's employment commenced (this appears to conflict with the current regulations, which requires the employer to pay double salary from the second month after the commencement of employment, but it appears the court's own interpretation will prevail), or when the indefinite term labour contract shall have been concluded. However, the maximum payment period shall not exceed 13 months.
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