Annual Leave with Pay
Recently, more companies have inquired about issues on annual leave. This article will explore some problems regarding annual leave through following case.
Case Brief:
Company A recruits a new employee with two years’ working experience in other company. Six months later, this new employee asks for annual leave with pay. The company refuses to approve the application of annual leave and declares that with only less than 6 months of work history with the company, the employee has no right to enjoy the annual leave. Consequently, disputes arise and the employee inquires about the possibility of exceeding the legal number of days of annual leave at the company’s discretion.
This case mainly refers to two issues:
1. Whether this new employee could ask for paid annual leave.
2. Whether the days exceeding the legal number of days of annual leave could be arranged at the company’s discretion.
Whether this new employee could ask for the paid annual leave.
The Implementation Measures for the Paid Annual Leave for Employees of Enterprises were adopted at the sixth executive meeting of the Ministry of Human Resources and Social Security on July 17, 2008 and came into effect on September 18, 2008.
According to the new implementation measures, employees who have worked continuously for one year or more are entitled to paid annual leave; the employee’s work history will be defined as his cumulatively, including time with his current employer and his past employers.
In this specific case, although the new employee has only worked for company A for six months, his cumulative work time has been 2.5 years, which exceeds one year. Therefore, this employee is entitled to ask for the paid annual leave under the condition that the number of days that he could enjoy is needed to be determined further.
Article 5 of the Implementation Measures provides that the days of annual leave which may be taken by a new employee who satisfies the requirement in the current year shall be calculated according to the number of days from the time when he is employed by the current employer to the end of the calendar year, and if the result is less than one day, he shall not enjoy annual leave this year. The calculation formula is defined as the following: (the number of days from the time when he is employed by this employer to the end of the calendar year)/365 × (the days of annual leave he is entitled to if he works for this employer for 12 months in the current year.)
Thus, although this new employee meets the criteria for annual leave, whether he can actually claim it in practice, is in fact determined according by the above formula. For example, if the labor contract of this employee is from May 1, 2008 to April 30, 2009 and he submits the application of annual leave on Nov. 1, 2008, based on the above formula, the number of days he could collect in the year 2008 = (31+30+31+31+30+31+30+31)/365×5=3.4. Since 0.4 day is less than one day, the actual number of days of annual leave will be rounded down to three days.
Whether the days exceeding the legal days of annual leave could be arranged at the company’s discretion
Article 13 stipulates that if the number of days of annual leave provided by the company is more than the number of days provided by law, the company shall be bound by the agreement of the annual leave with employees, which means that for those excess days, the company can negotiate with employees to reach an agreement; otherwise, the company shall uphold the legal number of annual leave days, in accordance with legal provisions.
By: Ivy Hou
Attorney at Law
Allen & John Law Firm
Dec. 9, 2008
BRIEF REPORT ON THE ISSUE OF COMPENSATION OF LABOR CONTRACT
1. Basic Principle of Compensation of Labor Contract
1.1 An employee shall be paid severance pay based on the number of years worked with the employer at the rate of one month’s wage for each full year worked. Any period of not less than six months but less than one year shall be counted as one year. The severance pay payable to an employee for any period of less than six months shall be one-half of his monthly wages.
1.2 If the monthly wage of an Employee is greater than three times the average monthly wage of employees in the Employer’s area as published by the People’s Government at the level of municipality directly under the central government or municipality divided into districts of the area where the Employer is located, the rate for the severance pay paid to this highly paid person shall be applied to three times the average monthly wage of the location of Employer instead of this person’s monthly wage. For instance, Shanghai area’s average monthly wage now is around RMB:2892, and plus 3 times it shall be around RMB:8676.
1.3 The term “monthly wage” means the employee’s average monthly wage for the 12 months prior to the termination or ending of his employment contract.
Monthly wage includes:
1. hourly wage (计时工资)
2. piece rate wage（计件工资）
3. bonus（奖金）
4. allowance（补助和津贴）
5. payment for overtime work（加班加点工资）
6. others （特殊情况下支付的工资）
2. Answer of Questions
Q1: How to calculate labor contract compensation relating to old & new labor contract laws ?
1.1 If the employment contract spans years 2007 and 2008, the contract shall be treated as two parts. The turning-point is Jan. 1, 2008. Therefore, the contract period before Jan 1 2008 shall be treated according to the old labor law; the contract period after that date shall be treated in accordance with the new labor contract law.
1.2 Pursuant to the old labor law, if the employer dissolves the labor contract in advance, the employer still shall pay labor contract compensation, and the standard is the same as the new labor contract law. However, if the labor contract has matured automatically, the employer shall not pay any labor contract compensation under the old labor law.
1.3 Pursuant to the new labor law, if the labor contract has matured automatically, the employer still shall pay the employee each year one month wage as the compensation of termination; if the employer dissolves the labor contract in advance with right legal reasons, the employer shall pay the employee the same each year one month wage including the years before Jan. 1, 2008 as the compensation of termination in advance; If the employer dissolves the labor contract in advance with no reasons or not legal reasons, the employee can ask the employer to keep the labor contract till it has matured or the employer pay the damages to the employee at twice the rate of the severance pay.
1.4 To explain this issue clearly, we’ll use an example as follows:
The labor contract period between the employee and the company is from April 1, 2006 to March 31, 2008.
a. If no special circumstance happens and the labor contract matures naturally, the labor contract compensation shall be calculated from Jan 1, 2008 to March 31, 2008. Therefore, the severance pay payable to the employee shall be one-half of his monthly wages as the period is less than six months.
b. If the Company dissolves the labor contract on Feb. 1, 2008 in advance with right legal reasons, the labor contract compensation shall be calculated from April 1, 2006 to Feb. 1 2008. In this case the total labor contract compensation shall be 2006 one month wage, 2007 one month wage, plus 2008 one-half month wage.
c. If the Company dissolves the labor contract on Feb. 1, 2008 in advance with no reasons or not legal reasons, the employee can ask the employer to keep the labor contract till March 31, 2008, or the employer pay the damages to the employee at twice the rate of the severance pay.
Q2: How to calculate labor contract compensation of a sales person ?
2.1 The standard calculation is the labor contract compensation for a sales person= (Employee’s wage for the 12 months prior to the termination or ending of his employment contract + total allowance + total commission) divide 12, and multiply the number of years worked.
2.2 If the employer has a special agreement with the employee, the calculation shall go with the agreement.
Q3: Regulations of annual bonus
There is no government regulations of annual bonus. Whether to pay annual bonus is at company’s discretion. However, if the methods of calculating annual bonus have been provided in the labor contract, handbook or other company documents, and the employee shall be paid according to such company regulations.
Q4: Regulations of pregnant women during lactation period
If a female employee in her pregnancy, confinement or nursing period, the company must not terminate the employment contract or fire her by the excuse of workforce reduction plan even if the company is willing to pay enough compensation.
Q5: The position only has one employee and he/ she does a good job. But this employee is a new person in the company; shall he/she be fired firstly under workforce reduction ?
5.1 No relating regulations to govern this issue. In our opinions, to compare the old or new between two employees shall be on the condition that they are in the same position at the time of workforce reduction.
5.2 Even if there are two persons in the same position at the time of workforce reduction, one is new and the other is old person, but the new is better than the old, the company still can keep the new person who does good job. (Although there are no relating regulations of this question, we made a phone call to ask relating labor bureau and the officer said yes.)
Q6: Whether the company facing workforce reduction can keep the new division and relating exclusive employee ?
According to the explanation of Q5, the answer of this question is yes.
3. Lawyer’s Suggestions
Because the labor matters are the areas which have regulated by government heavily, we suggest before the company takes any workforce reduction, the company shall follow up the following steps:
1. The properly notification in advance to all employees.
2. Reporting the company’s action of workforce reduction in advance to relating local labor bureau.
3. After the company has developed a detailed plan, the company shall go to relating local labor bureau again and get its approval or understanding.
This brief report is written by:
Ivy Hou, legal assistant,
Sunny Chen, legal assistant,
Allen Jiang, attoney at law,
Allen & John Law Firm
Dissolving of Open-ended Employment Contract
The newly ratified “Open-ended employment contract” is undoubtedly a solemn concern for employers and raises serious implications for the culture of employment in China. Among the concerns of employers is the worry about whether or not they can dismiss an unsuitable employee, given the context of the open-ended employment contract. This article will explore this problem through study of an actual case.
Case Brief:
Mr. Miao signed an open-ended employment contract with a medical instruments company on July 1 1996. In January this year, Mr. Miao was put on trial for intentional injury. Finally, he was sentenced to 1 year in prison but reprieved by one year and a half years. After trial, the medical instruments company informed Mr. Miao of a rescinding open-ended employment contract. Mr. Miao had thought that his employment contract was open-ended and that he could still go to work everyday during the reprieved period even though he was sentenced because of intentional injury. Therefore, Mr. Miao disagreed to rescind the contract.
This Case Raises to Two Distinct Issues:
1. Whether an open-ended employment contract can be dissolved;
2. Whether or not an employment contract can be rescinded during the reprieved period.
Open-ended Employment Contract Can Be Dissolved.
Contrary to prevalent belief that open-ended employment contract guarantees an absolutely interminable lifelong secure job or position, thus creating a neo-“Iron Rice Bowl,” the new implementing regulation of employment contract law actually sets forth 14 circumstances under which the employer can dissolve the open-ended contract.
(1) The Employer can rescind the contract upon reaching a negotiated consensus with the employee;
(2) The employee is proved during the probation period not to satisfy the conditions for employment;
(3) The employee materially breaches the employer’s rules and regulations;
(4) The employee commits serious dereliction of duty or practices graft, causing substantial damage to the employer;
(5) The employee has additionally established an employment relationship with another employer, which materially affects the completion of his task with the initial employer, or he refuses to rectify the matter after the issue is brought his attention by the initial employer;
(6) The employee uses such means as deception or coercion, or takes advantage of the employer’s difficulties or handicaps to conclude an employment contract or to make an amendment thereto that is contrary to the employer’s true intent;
(7) The employee has his criminal liability pursued in accordance with the law.
(8) After the set period of medical care for an illness or non-work-related injury, the employee can engage neither in his original work nor in other work arranged for him by the employer;
(9) The employee is incompetent and remains incompetent after training or adjustment of his position;
(10) A major change in the objective circumstances relied upon at the time of conclusion of the employment contract renders it non-performable and, after consultations, the employer and employee are unable to reach agreement on amending the employment contract;
(11) The enterprise is restructuring pursuant to the Enterprise Bankruptcy Law;
(12) There are substantial difficulties in production and/or business operations;
(13) The enterprise switches production, introduces a major technological innovation or revises its business method, and, after amendment of employment contracts, still needs to reduce its workforce;
(14) Another major change occurs in the objective economic circumstances relied upon at the time of conclusion of the employment contracts, rendering them non-performable at the present.
In Mr. Miao’s case, he was pursued for criminal liabilities, which just falls into the 7th condition of the 14 circumstances. Thus, the employer can rescind the employment contract even without paying any economic compensation.
Reprieved Person Is also the Criminal.
According to Chinese Criminal Law, reprieve is a consequence of being charged for criminal liability; therefore, the person reprieved is still considered a criminal. Thus, the rescission of contract by the medical instruments company is legal and reasonable.
In Conclusion, the differences between fixed-term and open-ended employment contract is that the former has a definite ending date but the latter does not. Nevertheless, upon qualification for certain legal conditions aforementioned, open-ended employee contracts still can be rescinded. Additionally, if the employer wants to dismiss an employee under an open-ended employment contract even without any legal reasons, it may be possible as long as the employer pays enough economic compensation and fines in accordance with laws and regulations.
Allen & John Law Firm
By Ivy Hou
Legal Assistant
10 key points of the Law of the People’s Republic of China on Mediation and Arbitration of Labor Disputes
This new law was adopted at the 31st Session of the Standing Committee of the 10th National People’s Congress on December 29, 2007 and came into effect on 1 May 2008. I summarize ten key points of this new law as bellows:
I. The New Law Stands out the Function of “Mediation”
Firstly, it is the first time to put “Mediation” into the outstanding position of the labor disputes arbitration law. Secondly, Article 3 of the new law provides the principle of mediation that the resolution of labor disputes shall be based on facts and follow the principles of lawfulness, fairness, timeliness and mediation-oriented to protect the lawful rights and interests of the parties. Accordingly, this new law provides a separate chapter to establish rules of mediation.
II. The Scope of Labor Disputes Which Can Be Arbitrated Is Defined
Prior to this new law, the scope of arbitrated labor disputes was provided generally. However, this new law gives a detailed scope. Article 2 states that the Law shall apply to the following labor disputes between employing units and laborers within the territory of the People’s Republic of China: 1. disputes arising from the confirmation of labor relations; 2. disputes arising from the conclusion, performance, alteration and termination of labor contracts; 3. disputes arising from name removal, dismissal, resignation or vacation of office; 4. disputes arising from working hours, rest days and leave days, social insurance, fringe benefits, training and labor protection; 5. disputes arising from labor remunerations, work injury medical expenses, economic compensation or damages; or 6. other labor disputes prescribed by laws and regulations.
Therefore, the labor disputes can be arbitrated only when they fall into any of the six legal circumstances.
III. The Valid Arbitration Time Is Extended
Originally, the valid time for arbitration stipulated by the old labor arbitration law was 60 days; however, the valid time provided by the new arbitration law is one year which gives more protection to the laborers.
On the other hand, this new law also offers exception of the valid time for arbitration. Where a dispute arises within the subsistence of labor relations due to labor remunerations in arrears, the laborer that applies for arbitration shall not be restricted by the validity of arbitration of one year. However, where the labor relations are terminated, the application for arbitration shall be submitted within one year of the termination of the labor relations.
IV. The Arbitral Award Shall Be Final as to Some Labor Disputes
In respect of the following labor disputes, the arbitral award shall be the final award and the statement of award shall have legal effect from the date of making unless otherwise stated hereof:
1. disputes in relation to the claim of labor remunerations, work-related injury medical expenses, economic compensation or damages which do not exceed the local monthly wage standard for an amount of 12 months;
2. disputes arising from working hours, rest days and leave days and social insurance in the implementation of state labor standards.
V. The Whole Period of Arbitration Is Shortened
According to this new law, from the submission of arbitration application to the end of arbitration, the whole period of arbitration does not exceed 60 days excluding 5 days of deciding whether the disputes shall be arbitrated or not.
VI. The Systems of Advanced Arbitration & Advanced Enforcement Are Established
To protect laborer completely, the new law establish new systems of advanced arbitration and advanced enforcement.
For the advanced arbitration, the new law states that where the partial facts are clear in a labor dispute, the arbitral tribunal can make an award on such parts before whole case finished, which shall give the protection to the laborers in time.
As to the advanced enforcement, the new law says that in respect of cases for the claim of labor remunerations, work injury medical expenses, economic compensation or damages, the arbitral tribunal may, pursuant to the application of the parties, make an award on advanced enforcement and transfer to the people’s court for enforcement before whole case finished. However, where the arbitral tribunal makes an award on advanced enforcement, the following conditions shall be fulfilled:
1. there is a clear relation of rights and obligations between the parties; and
2. The advanced enforcement shall not seriously affect the living of the applicant.
Additionally, where a laborer applies for the advanced enforcement, no relating security may be provided.
VII. The Burden of Proof of Employer Is Increased
Pursuant to the new law, where a labor dispute arises, the parties have the responsibility to give evidence for their own claims. Where the evidence relevant to the dispute matter is handled and managed by the employing unit, the employing unit shall give such evidence. Where the employing unit does not give evidence, it shall assume any unfavorable consequences.
It is obvious that the responsibility to submit relating evidences by the employer has been increased.
VIII. The Place of Arbitration
This new law states that labor disputes shall be handled by the labor dispute arbitration commission at the place where the labor contract is performed or at the place where the employing unit locates. Where both parties apply for arbitration to the labor dispute arbitration commission at the place where the labor contract is performed or the place where the employing unit locates, the labor dispute shall fall within the jurisdiction of the labor dispute arbitration commission at the place where the labor contract is performed.
Such an article gives both parties rights to choose the place of arbitration, which is helpful to make the case clear as well as to arbitrate the case.
IX. The Parties Under the Condition of Labor Dispatch Have Been Defined
Focusing on the condition of labor dispatch, the new law stipulates clearly that the laborer and the employing unit in a labor dispute are the parties to labor dispute cases. Where there is a labor dispute between a labor deployment unit and a laborer, the labor deployment unit and the employing unit are the joint parties.
X. There Is No Fee for the Labor Arbitration
From 1 May 2008, the labor arbitration is free.
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Written by
Ivy Hou
Legal Assistant
Allen & John Law Firm
May 9, 2008
A Summary Concerning Foreign Employees in China
Some problems concerning the employment relationship of foreign employees put forward by many foreign invested companies in
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