Case Study: Labor Contract Compliance in China

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By Allan Xu  Manager, Business Advisory Services
Editor: Alexander Chipman Koty
Dezan Shira & Associates, Shanghai

As part of our mission to provide business intelligence on the legal, tax, and operational issues of doing business in China, China Briefing presents a series of case studies based on the practical experience of professionals at Dezan Shira & Associates. 

Scenario

A company hired Ms. Wong to be its new human resource manager after its previous one abruptly departed. Part of Ms. Wong’s duties as human resource manager is to ensure that all employees hold formal labor contracts. A company’s failure to have a written labor contract with an employee within the period of more than one month but less than one year from the start of employment will result in paying the employee double wages each month, in accordance with the PRC Labor Contract Law. Consequently, monitoring the status of employees’ labor contracts is an essential component of Ms. Wong’s duties to prevent the company from costly labor disputes.

Meanwhile, as an employee of the company, Ms. Wong herself also requires a labor contract in writing. However, Ms. Wong did not communicate this need to her company and worked without a written labor contract. For this reason, Ms. Wong petitioned the courts to receive double wages for the work she did for the company.

The company argued against this claim on the grounds that Ms. Wong leads human resources and is familiar with the consequences of a failure to conclude a written labor contract. As such, the company claimed that Ms. Wong withheld her knowledge of the law and did not perform her duty to ensure she had a labor contract in order to receive the compensation of double salary. From the company’s perspective, Ms. Wong is at subjective fault for the labor contract failure and must bear the liability of such subjective fault because she did not disclose the requirement in accordance with her role as human resource manager.

Professional Service_CB icons_2015RELATED: Payroll and Human Resource Services

Ms. Wong contended, on the other hand, that there is no positional distinction for the legal liability of an employer to conclude a labor contract in writing with an employee. There is no law or regulation stipulating exemption, reduction, or remittance of the double wage liability of the employer when an employee is at subjective fault for the failure to conclude a labor contract. Ms. Wong’s reasoning supports her right to claim double wages because the company failed to conclude a written labor contract, regardless of her position.

Conclusion

The case went through the first and second trials, and was then appealed for a retrial in the provincial High People’s Court. The company claimed that Ms. Wong is in charge of concluding labor contracts with all employees in the company, and therefore the failure to conclude a contract with herself is her own fault and the company shall not take the liability to pay double wages. However, the judgement ruled in favor of Ms. Wong, asserting that it is the company’s responsibility to conclude a signed written labor contract with all employees. As a result, the company was required to pay double wages to Ms. Wong. 

Even though human resource managers are responsible for signing labor contracts with all employees, it is an internal matter of dereliction of his/her duty not to sign a labor contract with him/herself, which does not exempt the employer’s liability to sign a labor contract in writing with the employee. In accordance with Article 10 and Article 82 of the PRC Labor Contract Law, the employer must pay the employee double wages within the period of more than one month but less than one year from the beginning of employment for the failure to conclude a labor contract in writing with the employee.


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Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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2 thoughts on “Case Study: Labor Contract Compliance in China

    Atiq Khan says:

    I think Ms.Wong should have asked the company management to issue her a contract with her. She claimed the damages in the shape of double wages but I personally think that she on the moral grounds should have asked the company to issue her a job contract.

    Harland says:

    Was this a foreign company? If so, I think that’s why the court ruled that way.

Comments are closed.