Labor Dispute In China: What Foreign Companies Must Know

Under Chinese law, employment conflicts include disagreements with employees over issues such as termination or dismissal, wage and benefits, and adherence to working hours, leave, and other worker safeguards.

Labor disputes in China are becoming reasons for employers to terminate contracts with employees, but this can only cause more problems with the Chinese law because this one protects more the employees than the employers.

Avoiding the risks of having a labor dispute is now becoming increasingly important for foreign companies having a business in China.


What is a labor dispute in China?

A labor dispute is when a disagreement arises between two parties in an organization, usually the employer and the employee.

The labor dispute in China can involve different things but usually, it is related to salary, benefits, taxes, leaves, conditions of employment, hours worked.

Companies’ underestimating or ignorance of China’s labor rules frequently leads to labor disputes.

Employers may save a lot of time and money by staying up to date on China’s labor laws and taking the necessary procedures to avoid labor disputes.

When businesses arrive in China, they are anxious to hire employees and get up and running.

Unfortunately, companies’ enthusiasm to hire people might lead to them failing to take the necessary precautions when creating employment contracts.

Including all essential information in the contract will go a long way toward avoiding misunderstandings and perhaps costly labor disputes.

It’s vital to note that in China, the burden of proof is always placed on the employer in the event of a dispute.

Types and causes of labor dispute in China

The majority of labor disputes fall into one of two categories:

  • Interest disputes: These are conflicts that result from differences in interests, like as pay, bonuses, and vacation time.
  • Workplace disputes: These are conflicts that develop as a result of workplace expectations such as fair compensation, working conditions, and opportunity.

In order to resolve a labor dispute in China, it’s critical to determine what’s causing it. The following are some of the most typical reasons for labor conflicts:

  • Economic causes: these are mainly related to the salary, bonuses, and working conditions in general.
  • Psychological causes: these causes can also bring difficult situations to handle for the employer. Differences in motivation, lack of appreciation, and feelings of not being treated in a fair way are all examples of these causes. 
  • Management causes: communication problems with the management, concerns about job security, differences in leadership styles are reasons why labor disputes are started.

Disagreements about salary expectations are one of the most common reasons of labor disputes.

Compensation is the monetary value assigned to an employee’s work. Different remuneration expectations or appraisals between the employer and the employee can lead to labor conflicts.

How to avoid labor disputes

A labor dispute is the last thing any business owner wants, especially when things are going well and sales are up.

You must realize that most labor conflicts are caused by a breakdown in communication, and that a positive two-way dialogue will almost certainly assist you in reaching an acceptable resolution.

I want to give you some tips that will help you to avoid a labor dispute in China:

1) Provide your employees with the resources they require to complete their tasks

Who is to blame if your personnel are unable to complete the task because they lack the necessary tools (or training)? Before assigning the next task, double-check that the necessary equipment is on hand.

2) Evaluate wages and salaries

Ensure that they are in accordance with current market trends and that inflation patterns are followed.

3) Provide a clear employment contract

Employment contracts are mandatory in China since 2008 and not having them can result in problems with the law and the employees. You have to make sure that employment contracts are also correctly filed and stored.

4) Provide the employee handbook

The employee handbook is a document that the firm provides to new employees before they begin work. It contains information on the company’s culture, rules, regulations, and processes, as well as employee rights and responsibilities.

5) Deal properly with overtime and leaves

Leaves and overtime work are often cause of labor dispute. Be clear in the contract and handbook about these regulations and put in place actions to request approval for leaves and overtime.

Mediation is the first step of a labor dispute

If a labor dispute arises within a company, either the employer or the employee may seek mediation assistance.

The article 10 of the chapter 2 of the Labor Dispute Mediation and Arbitration Law states that when a labor dispute arises,  the parties may apply for mediation to the following mediation institutions:

  1. labor-dispute mediation commissions of enterprises;
  2. people’s mediation institutions at the grass-roots level established in accordance with law;
  3. organizations with the function of labor-dispute mediation established in towns, townships or neighborhoods.

The labor-dispute mediation commission of an enterprise shall be composed of representatives of employees and of the enterprise. The representatives of employees shall be trade union members or be chosen by all employees, and the representatives of the enterprise shall be designated by the leading person of the enterprise.

Any mediation agreement(s) must be documented in writing and signed (or stamped with an official seal) by the employer, the relevant employee, and the mediator, and this will be legally binding upon the parties.

Arbitration in China

Under the labor dispute law in China,  the parties to a labor dispute can choose to go straight to arbitration instead of going through the mediation process. 

Alternatively, a labor dispute may be resolved first through mediation and then through arbitration if the following conditions are met:

  1. The parties failed to reach a mediation agreement within 15 days of the corresponding mediation committee’s acceptance of their application for mediation assistance.
  2. Any parties fail to carry out their obligations under a Mediation Resolution

The New Labor Dispute Law makes the outcome of arbitration for two types of labor disputes (the “Expedited Type,” as defined below) immediately effective and enforceable upon the issuance of the related arbitration ruling.

The Expedited Types of disputes are:

  1. Labor disputes involving the failure to pay an employee earned work compensation or other incurred economic loss, or to pay for any damage corresponding to an employee’s work-related bodily injury or any related loss if the amount of the dispute is less than or equal to the local annual minimum wage.
  2. Labor disputes over the implementation of national work time, break time, vacation, or social insurance rules.

The role of trade unions in China

In China, every worker has the right to create or join a trade union. However, that right is severely limited because all enterprise unions must be linked with the All-China Federation of Trade Unions, which is a legally mandated organisation (ACFTU).

The All-China Federation of Trade Unions (ACFTU) is the People’s Republic of China’s national trade union center. With 302 million members in 1,713,000 primary trade union groups, it is the world’s largest trade union. There are 31 regional federations and ten national industrial unions that make up the ACFTU.

The ACFTU is organized into a hierarchy of local and regional union federations that follows the Party’s and government’s organization.

Source: CLB

Local trade union officials, in conjunction with management, usually form enterprise unions (the grassroots enterprise unions at the bottom of the above chart), rather than the employees.

Enterprise unions are more like social welfare groups than true trade unions that serve the interests of their members.

In recent years, the Chinese government has noticed inequality in the treatment of workers and it has called for reforms also in the ACFTU to try to improve the organization and how the officials carry out their work.

Specifically, the reform initiative had two main goals:

  1. remove four barriers to the ACFTU’s work: regimentation, bureaucratization, elitism, and frivolity;
  2. strengthen the organization’s three good attributes: political awareness, progressiveness, and public legitimacy.

Conclusion

To minimize labor disputes when doing business in China, it is critical for a firm to foresee and build up a comprehensive personnel management system, which includes entering into official labor contracts with employees and getting certificates for international employees operating in China, creating a clear employee handbook and pay social security and housing fund for employees.

I hope this article helped you to understand more about the risks of a labor dispute in China and how to avoid them. 

Contact us if you need help to hire and manage HR for your employees in China!

Scroll to Top