Shenzhen New Labor Law Judgment Guideline

In early this week, Shenzhen Intermediate Court published a New Guideline on labor law judgment. It is known to all that there are many guidelines by local court or labor arbitration judgment in different cities and provinces in Chinese labor law practice, because of incompletion of the labor law. Shenzhen as the window of Chinese reform and opening, its labor law practice is leading whole country. In the past, the Chinese Supreme Court had many communications and investigations in Shenzhen when a New Labor Dispute Judicial Interpretation was made. Therefore, this Shenzhen Guideline shall has great influence to Chinese Labor Law’s perfection and innovation.

This Guideline has the following characteristics: 1. The Guideline is very rich in content and has 117 clauses with more than 29 thousands characters including 15 thousands of explanation so that it will be easier to be understood. 2. The Guideline is a combination of past guidelines of the Shenzhen Intermediate Court or meeting minutes of Shenzhen Labor Arbitration committee. 3. The Guideline is also a written confirmation of many practice in judgment, for example, employment shall be transferred into service contract once employee is over retirement age.

The followings are some comments on the Guideline.

1. Regulations on foreign employee and foreign company’s representative office. As per the Guideline, it is an invalid employment the relationship between a employer and an expat who has no work permit. Besides, when an expat transfer to a new employer and his work permit is still with his former employer, his employment with the new employer shall be invalid either. The legal consequence of invalid employment is that employee shall has no right of labor law such as work related injury claim, severance claim, etc.

2. Special circumstances of double salary liability exemption. 2008 Labor Contract law set up a new regulation that an employer may need to pay a double salary due to not signing a labor contract with its staff and this caused many dispute in recent years’ labor case. However, the Guideline provide the following circumstances that an employer shall not need to pay the double salary: unqualified employer hires employee; employee sign a labor contract that covers the past period which is so called “inverted contract”; not signing a labor contract lasts for more than 1 year; lawful extension period such as female staff get automatic employment extension during 3 period (pregnancy period, maternity period and lactation period); new company is during its preparatory period, and employee is not able to sign labor contract due to objective reason such as force majeure, labor case pending or Loss of consciousness or personal freedom. Especially employer need to know that if an employee refuse to sign labor contract, you need to terminate immediately otherwise a double salary liability shall arise.

3. Guideline provides a new regulation that it is valid to provide a penalty of non-competition in a labor contract. This regulation substantially changes the implied regulation that except for penalty on non-competition after termination and penalty on training agreement, no penalty clause is lawful. As we know, this practice has already implemented in Shenzhen Intermediate Court and for sure this clause shall has great help for employer to restrict its staff’s competition activity during the employment.

4. The Guideline also provides that it is considered as a labor dispute when an employer pursues an employee’s liability of violation of confidentiality obligation or a former employee’s obligation of non-competition after employment termination. However, it is considered as an infringement civil case if an employer purses an employee’s tort liability which means an employer is able to bypass the procedure of labor arbitration and go directly to court. This is also a practice that has been conducting for long time.

5. There is also a confirmation of open-ended labor contract rule. As per 2008 labor contract law, if there are 2 times fixed term labor contract signed after January 1st, 2008, the employee shall has the right to request a open-ended labor contract. However, many companies are confused whether they have the right to terminate employment before the second time fixed term contract expires. In practice, Guangdong and most of cities (except Shanghai) provide that before the contract expiration, employer has no right to termination by contract expiration if the employee requests an open-ended labor contract. While after the expiration, when the employee informs open-ended contract and the employer informs termination, the earlier notification shall take effect.