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LessProtectionofForeignEmployeesunderChineseLaborLaw?
April16,2009ByEunaConLaw,LLP

PublishedArticles

Shanghaicourtsapplythe"principleofautonomy"tolaborcontractswithforeignemployees.Inconsequence,theconditionsoftheemploymentrelationshipcanfallshortofthestandardssetbytheChineseLaborContractLaw.TheChineseLaborContractLawdoesnotdifferentiatebetweenforeignemployeesandChineseemployees.ItsArt.2sayslaconically:“Thislawshallgoverntheestablishmentofemploymentrelationshipsbetweenenterprises…(Employers,ontheonehand,andworkers,ontheotherhand.”Thereisnospecificationonthetypeofenterpriseorthenationalityofthe“worker”.ItthusseemsreasonabletoapplytheLaborContractLawtoalllaborrelationshipsbetweenChinesecompanies(i.e.Chinesedomesticcompaniesaswellasforeigninvestedenterprisesandemployees,nomattertheirrespectivenationality.
DespitethesignificantnumbersofforeignemployeesinChina’smetropolises,caselawontheapplicationoftheLaborContractLawtoforeignemployeesishardfind.Basedonthelaborcontractswegettoseeinourlegalpractice,mostforeigninvestedcompaniesinChinaprovidetheirforeignemployeeswithlaborcontractswhichintheirkeypointscopytheLaborContractLaw.However,thereasonsforterminatingthecontractasstipulatedinthelawareoftenseenasinsufficient.TheChineseLaborContractLawallowsterminationofemploymentrelationshipfromthesideoftheemployeronlyfor

-“Personalreasons”,i.e.reasonsoriginatingfrompersonalcharacteristicsoftheemployee,notrelatedtohisbehavior.Forinstance,long-termillnessorincompetence;-“Operationalreasons”,i.e.personnelcutbacksnecessaryduetotheeconomicsituationofthecompany.Sincethecutbackhastoinvolveacertainminimumamountofemployees,itisalsocalled“masslayoff”;
-“BehavioralReasons”,i.e.theemployeecommittedsomeseriousmisconduct.

Fromtheirhomecountries,foreignemployersareoftenusedto“regular”terminationclauses,allowingtheemployertoterminatethelaborcontractwithoutspecialreason,butwithacertain
priornoticeperiod,e.g.3months.TheChineseLawdoesnotknowthiskindofclauses.ThereasonsforterminationasprovidedbytheLaborContractLawaredeemedexhaustive.However,foreignemployersdonotwanttoforgothisoptionandincludeitinlaborcontractsbetweentheirChinesesubsidiarycompanyandforeignemployees.
ThevalidityofsuchaclausewastheissueinarecentlabordisputebeforetheShanghaiMunicipalLaborArbitrationCommittee.ACanadiancitizenemployedbyaCompanylocatedinShanghaiwasbeinglaidoffbyuseofaclauseinhislaborcontractallowingtheemployertoterminatethecontractwithonemonthpriornoticeperiod.
TheemployeefiledforwrongfuldismissaltotheShanghaiMunicipalLaborArbitrationCommittee,butwithnosuccess.ThecasewasthenreferredtotheShanghaiNanhuiDistrictPeople’sCourt.Inthehearings,theemployeearguedthattheterminationclauseinthelaborcontract,onwhichhisdismissalwasbasedon,doesnotcomplywiththeLaborContractLaw.However,thecourtdidnotapplytheLaborContractLaw,butlocalShanghailaborregulations,the“NumberofViewsonthemanagementoftheemploymentofForeignersinChina”,issuedbytheShanghaiMunicipalLaborBureauonApril14,1998(inthefollowing“ShanghaiRegulations”.Apparently,thecourtconsideredtheseregulationsas“lexspecialis”totheLaborContractLawwhenitcomestotheemploymentofforeignersinShanghai.
AccordingtoArt.16oftheShanghaiRegulations,“therightsandobligationsaboutdate,position,salary,insurance,workingtime,conditionsforterminatingtheemploymentrelationship,etc.betweenemployersandforeignemployeescanbenegotiatedthroughlaborcontract”.

Thecourtconstruedthisprovisionasestablishingthe“principleofautonomy”todeterminetherightsandobligationsbetweenemployerandforeignemployee.Thus,theLaborContractLawappliesonlyintheabsenceofanagreementontheemploymentconditionsmentionedinArt.16oftheShanghaiRegulations.Accordingtoourinformation,thisdecisionofaShanghaicourtseemstorepresentthecurrentlyprevailingviewintheShanghaijudiciary.
ShanghailawyersandjudgesfromcourtsoutsideofShanghai,especiallyfromBeijing,criticizethisinterpretationbyarguingthattheLaborContractLawappliesthroughoutChina,toallChineseenterprisesandtoChineseandforeignemployeeswithoutdifference.Theremayberoomfortheprincipleofautonomytodeterminetheemploymentconditions,buttheseagreedconditionscannotbelowerthanthestandardsprovidedbythelaborcontractlaw.Otherwise,thepurposeof

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