Haworth & Lexon Law Newsletter
No.7 2012 (Total:No.125) Sep. 12, 2012
Edited by Haworth & Lexon

Haworth & Lexon Law Newsletter is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, E-commerce, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.

 

Guidelines:

Latest Laws and Regulations:

    CIETAC¡¯s Latest Administration Announcement and Public Response of Shanghai Sub-commission and South China Sub-commission

    Certain Provisions of the Supreme People¡¯s Court on the Jurisdiction of Railway Transport Courts over Cases

    Measures for the Pilot Program for Asset Management Operation of Futures Companies

    Notice of China Insurance Regulatory Commission on Issuing the Interim Measures for Insurance Fund Investment in Bonds

    Administrative Measures for the Green Food Logo

    Implementing Measures on the Institutional Reform of Editorial Departments of Newspapers and Periodicals

    Notice on Further Strengthening the Administration on Medical Beauty Care and Notice on Strengthening the Examination, Approval and Inspection of the Establishment of Medical Institutions

Legal Practices:

    The Free-Rider¡¯s Shareholders are Jointly Liable for the Infringement

    Legal Practices of Application for Invalidation of Arbitration Agreement (II)

    Comparisons among Judicial Practices of Labor Disputes (III)

Latest Laws and Regulations

CIETAC¡¯s Latest Administration Announcement and Public Response of Shanghai Sub-commission and South China Sub-commission

On August 1, 2012, China International Economic and Trade Arbitration Commission (hereinafter referred to as ¡°CIETAC¡±) promulgated the Administration Announcement (hereinafter referred to as ¡°Announcement¡±) with regard to the cases to be arbitrated by CIETAC Shanghai Sub-commission and CIETAC South China Sub-commission.

According to the Announcement, the Arbitration Rules of the China International Economic and Trade Arbitration Commission (2012 Edition) (hereinafter referred to as ¡°2012 Arbitration Rules¡±) have come into force on May 1, 2012. As branches of CIETAC, Shanghai Sub-commission and South China Sub-commission refused to carry out the 2012 Arbitration Rules and to accept CIETAC¡¯s integrated business management, which reflects the breach by these two branches of the fundamental rules of CIETAC¡¯s Articles of Association and the 2012 Arbitration Rules.

In response to the Announcement of CIETAC, Shanghai Sub-commission and South China Sub-commission promulgated on August 4, 2012 the Joint Statement of Shanghai Sub-commission and South China Submission: Shanghai Sub-commission and South China Sub-commission are independent arbitration institutions which are approved to be established by Shanghai Municipal People¡¯s Government and Shenzhen Municipal People¡¯s Government respectively; the jurisdiction of arbitration of Shanghai Sub-commission and South China Sub-commission comes from the agreement between parties concerned rather than the ¡°authorization¡± from any other institution, let alone ¡°suspension of authority¡±; as independent arbitration institutions, Shanghai Sub-commission and South China Sub-commission will continue to accept and administer cases submitted by parties who agree to have the two branches arbitrate such cases, pursuant to relevant provisions of the Arbitration Law and excluding inappropriate interference from CIETAC.

Besides, according to media report, as approved by Department of Justice Guangdong, CIETAC South China Sub-commission started to formally use the new name ¡°Shenzhen Court of International Arbitration¡± as of June 16, 2012.

Certain Provisions of the Supreme People¡¯s Court on the Jurisdiction of Railway Transport Courts over Cases

On July 17, 2012, the Supreme People¡¯s Court promulgated the Certain Provisions on the Jurisdiction of Railway Transport Courts over Cases (effective as of August 1, 2012, hereinafter referred to as ¡°Certain Provisions¡±), specifying the jurisdiction of railway transport courts over cases.

According to the Certain Provisions, the following criminal cases of public prosecution shall fall under the jurisdiction of the railway transport courts located at the places where the crimes are committed: (1) Crimes committed in railway stations, freight terminals, transport command offices and other railway work areas; (2) Crimes targeting railway equipment or facilities, such as railway lines, locomotives and rolling stocks, and equipment or facilities for communications, electricity and others; and (3) Crimes committed by employees of railway transport enterprises in performing duties.

A crime committed on a train shall fall under the jurisdiction of the railway transport court at the locus of the first station docked by the train after the crime is committed or the railway transport court at the locus of the destination of the train, provided that a crime committed on an international train shall be governed by the relevant jurisdiction treaty signed between China and the foreign country concerned, or in the absence thereof, by the railway transport court at the locus of the first Chinese station docked by the international train after the crime is committed or by the railway transport court at the locus of the destination of the international train.

In the meantime, the Certain Provisions specify eleven classes of civil cases relating to railway transport, railway safety and railway property that shall fall under the jurisdiction of railway transport courts.

Measures for the Pilot Program for Asset Management Operation of Futures Companies

On July 31, 2012, China Securities Regulatory Commission promulgated the Measures for the Pilot Program for Asset Management Operation of Futures Companies (effective as of September 1, 2012, hereinafter referred to as ¡°Pilot Measures¡±).

According to the Pilot Measures, a futures company that satisfies the following conditions may apply for the qualification of the pilot program for asset management operation: its net capital shall be no less than RMB 500 million; its risk regulatory indicators are consistently in compliance with regulatory requirements during the six-month period prior to the application date; its classified regulatory ratings in the past two rounds are not below B level under category B; it has never been subject to any administrative and criminal punishment due to illegal or irregular business operations in the past three years, and it is not under investigation by competent organs for alleged illegal or irregular business operations; it has not been subject to any regulatory measure taken by regulatory authorities pursuant to Paragraph 2 of Article 59 and Article 60 of the Regulations for the Administration of Futures Trading in the past year.

In the meantime, the Pilot Measures also require that a client to the asset management operation shall have a strong financial strength and risk tolerance. The value of the initial assets entrusted by a single client shall not be lower than RMB 1 million. The directors, supervisors, senior management personnel and practitioners of a futures company and their spouses may not be clients to the company¡¯s asset management operation. Where the shareholders or actual controller of the futures company and the affiliated parties thereof, or the parents or children of the directors, supervisors, senior management personnel and practitioners of the futures company become clients to the company¡¯s asset management operation, they shall, within five working days from the conclusion of the asset management contracts, report to the local office of the CSRC at their domicile for record-filing, and disclose their affiliation or kinship on the company¡¯s website.

 

Notice of China Insurance Regulatory Commission on Issuing the Interim Measures for Insurance Fund Investment in Bonds

On July 16, 2012, China Insurance Regulatory Commission promulgated the Interim Measures for Insurance Fund Investment in Bonds (hereinafter referred to as ¡°Interim Measures¡±), specifying the conditions for and scope of insurance fund investment in bonds, etc

The Interim Measures stipulate, the Interim Measures are applicable to bond investment by insurance groups (holding) companies and insurance companies (hereinafter collectively referred to as the ¡°insurance companies¡±) legally established in China, and to bond investment by insurance funds commissioned to professional investment management institutions that conform to the provisions of the China Insurance Regulatory Commission. In the meantime, the Interim Measures specify the scope of bonds invested in by insurance funds, i.e. RMB bonds and foreign currency bonds, including government bonds, quasi-government bonds, enterprise (corporate) bonds and other bonds that conform to relevant provisions.

Based on different categories of bonds, the Interim Measures set relevant conditions and restrictions for insurance fund investment in bonds. At the same time, insurance companies shall maintain risk control. For example, the balance of bond investment by several professional investment management institutions commissioned by an insurance company shall be computed in a combined way and shall not exceed the investment proportion prescribed by the CIRC; insurance companies whose solvency margin ratio in the previous quarter is lower than 120% shall not invest in unsecured non-financial enterprise (corporate) bonds; insurance companies that have held the above-mentioned bonds shall not continue to increase their stakes and shall duly decrease their stakes. Where the solvency margin ratio is between 120% and 150%, insurance companies shall duly adjust their investment strategies to strictly control the varieties and proportion of unsecured non-financial enterprise (corporate) bonds, to name but a few.

Administrative Measures for the Green Food Logo

On July 30, 2012, the Ministry of Agriculture promulgated the Administrative Measures for the Green Food Logo (effective as of October 1, 2012, hereinafter referred to as the ¡°Administrative Measures¡±), specifying the definition, use, management, etc. of the green food logo.

For the purpose of the Administrative Measures, green food products shall refer to the safe and high-quality edible agricultural products and related products that meet the following requirements: they are produced in an excellent ecological environment; they have been subject to production and whole-process quality control in accordance with the standards on green food; and they have been granted the right to use the green food logo.

For administrative work of the green food logo, the Administrative Measures further stipulate that, the China Green Food Development Center (¡°CGFDC¡±) shall be responsible for the review of applications for use of the green food logo, the issuance of the said logo and the follow-up inspection subsequent to the issuance of the said logo on a national level. Green food authorities under competent agricultural administrative departments of people¡¯s governments at the provincial level shall be responsible for the acceptance and preliminary review of applications for use of the green food logo, as well as the follow-up inspection subsequent to the issuance of the said logo within their respective administrative regions.

A product for which an application for use of the green food logo is submitted and a manufacturer which applies for using the green food logo shall satisfy the relevant conditions, e.g. the environment of the origin(s) of the product or product raw materials is in line with the environmental quality standards on the origin of green food; pesticides, fertilizers, feed, veterinary drugs, etc. are used in accordance with the guidelines on the use of inputs for green food; a manufacturer that applies for use of the green food logo shall be capable of independently assuming civil liabilities; shall have the environmental conditions and production technologies for green food production; shall have a sound quality management and quality assurance system.

In the meantime, the Administrative Measures also enumerate the rights and obligations of a user of the green food logo during the validity term of its certificate for use of the green food logo.

Implementing Measures on the Institutional Reform of Editorial Departments of Newspapers and Periodicals

On July 30, 2012, the General Administration of Press and Publication promulgated the Implementing Measures on the Institutional Reform of Editorial Departments of Newspapers and Periodicals (hereinafter referred to as the ¡°Implementing Measures¡±), requiring all editorial departments of newspapers and periodicals that have been approved by the General Administration of Press and Publication to engage in newspapers publishing activities and have obtained a unified number for serial publication domestically but do not have independent legal person status to carry out relevant institutional reform.

In principle, the system of editorial departments of newspapers and periodicals will no longer be retained. Different reform measures shall be implemented by differentiating the different situations in the existing editorial departments of newspapers and periodicals. The editorial departments of newspapers and periodicals subordinate to newspapers and periodicals publishing entities that shall undergo transformation and restructuring shall all undergo transformation and restructuring together with the entities to which they belong. The editorial departments of newspapers and periodicals managed or sponsored by the Party and the government departments, democratic parties, people¡¯s groups, industry associations, social groups, public institutions and State-owned enterprises shall be merged into the news publication and media enterprises under their own departments or their own entities. Where there are no news publication and media enterprises under their own departments or entities, and there are three or more editorial departments of newspapers and periodicals managed or sponsored by them, these may be merged into a newspapers and periodicals publishing enterprise upon the approval from General Administration of Press and Publication. Where the editorial departments of newspapers and periodicals managed or sponsored are less than three, they shall be merged with other news publication and media enterprises. In respect of newspapers and periodicals managed or sponsored by the Party and the government departments, democratic parties, people¡¯s groups, industry associations, social groups, public institutions and State-owned enterprises, which are used for guidance work and for distribution catered to their own systems, these shall all be changed to publications for internal distribution and shall be restricted for internal communication within their own departments and their own systems. Distribution through solicitation of subscription, placement of advertisement, or securing sponsorship and carrying out business activities shall not be allowed. Editorial departments of newspapers and periodicals, in which the abovementioned reform measures are not applicable, shall be closed down. Editorial departments of newspapers and periodicals that carry out publication in violation of laws and regulations shall be revoked if the situation is serious. The licenses for publication of newspapers and periodicals for the editorial departments of newspapers and periodicals to be closed down and revoked shall be canceled by the General Administration of Press and Publication.

With regard to the scientific and academic journals in the charge of and sponsored by scientific research departments and colleges & universities, the Administrative Measures, in principle, no longer retain the editor department system for scientific and academic journals but reform the editor departments by merger & acquisition, transformation to enterprises or internal material publications or temporary preservation, etc.

Notice on Further Strengthening the Administration on Medical Beauty Care and Notice on Strengthening the Examination, Approval and Inspection of the Establishment of Medical Institutions

On August 2, 2012, the Ministry of Health promulgated the Notice on Further Strengthening the Administration on Medical Beauty Care (Wei Ban Yi Zheng Han [2012] No.701, hereinafter referred to as the No.701 Document), requiring to strengthen the administration on medical beauty care institutions, their staff, services and advertisements.

On August 8, 2012, the General Office of the Ministry of Health promulgated the Circular on Strengthening the Examination, Approval and Inspection of the Establishment of Medical Institutions (Wei Ban Yi Zheng Han (2012) No.713, hereinafter referred to as ¡°No.713 Document¡±). According to the Circular, local public health administrative authorities at all levels shall tighten the rein on the examination, approval and inspection of the establishment of medical institutions. During examination of the establishment of medical institutions, the relevant government authorities shall carefully review the associated materials and verify the levels, categories, clinical departments, names, etc. of these medical institutions according to the orientation of their functions and roles, and shall reject those that fail to meet up with the Basic Standards for Medical Institutions and other relevant conditions. Further, the relevant government authorities shall strictly implement the approval publication system, record-filing management system and on-site review system, etc. to ensure the legitimacy of the examination and approval procedure for the establishment of medical institutions. When verifying the medical institutions, the authorities shall place their focus on examining and approving the fundamental conditions and practicing status of medical institutions to effectuate effective re-entry management system on medical institutions, and shall clear off those that are not satisfactory as per relevant regulations. In the meantime, supervision and inspection as well as information sharing and communication between different departments shall be reinforced.

 

Legal Practices

The Free-Rider¡¯s Shareholders are Jointly Liable for the Infringement

[Case Summary]

The Plaintiff, Societe Jas Hennessy & CO. (hereinafter referred to as ¡°France Hennessy¡±), is the owner of a set of trademarks of Hennessy, ÐùÄáÊ« and ¡°axe in hand¡± logo, etc., which are registered in respect of alcoholic beverages (excluding beer) in Class No. 33, France brandy, wine, alcohol and liqueur. France Hennessy alleged that Lichang Jinhai Wine Co., Ltd. (hereinafter referred to as ¡°Jinhai Company¡±), Shenfeng International Co., Ltd. (hereinafter referred to as ¡°Shenfeng¡±, originally Hong Kong Hennessy Company), Mr. Guo, Mr. Li, Shanghai Guangli Trading Development Co., Ltd. (hereinafter referred to as ¡°Guangli Company¡±) have been producing and selling wine products with similar trademark, name of business and domain name to its registered trademarks, and thereby infringed the right to use of the registered trademarks, which constitutes unfair competition. France Hennessy filed the lawsuit against the aforesaid parties before Shanghai Pudong New Area People¡¯s Court, requesting that the Defendants cease the acts of infringement of registered trademarks and unfair competition and be jointly and severally liable for the damages of RMB 1000, 000.

The court of first instance held after the trial that, (1) it was an infringement of the right to use of the registered trademarks in issue that the Defendant Jinhai Company, Shenfeng Company, Guangli Company used ¡°axe in hand¡± logo, ¡°Hennessypt¡± and the bottle of flat gourd shape on their wine products and in the advertisement without the Plaintiff¡¯s authorization; (2) it was an infringement of the right to use of the registered trademarks in issue that Shenfeng Company used ¡°ÐùÄáÊ«¡± on its website; (3) it constitutes unfair competition that Jinhai Company and Shenfeng Company used the business name of ¡°·¨¹úÐùÄáÊ«¼¯ÍÅ£¨Ïã¸Û£©ÓÐÏÞ¹«Ë¾¡±£¬ ¡°·¨¹úÜŽÄáÔŠ¼¯ÍÅ£¨Ïã¸Û£©ÓÐÏÞ¹«Ë¾¡± and ¡°France Hennessy Group(HK) Co. Limited¡± on the website in issue; (4) since Mr. Guo and Mr. Li were the sole shareholder and director and general manager of Hong Kong Hennessy Company, and sold the wine products in issue in the name of Hong Kong Hennessy Company, Mr. Guo and Mr. Li¡¯s acts shall be deemed to be the company¡¯s acts rather than the individual acts, hence Mr. Guo and Mr. Li shall not assume the liability of infringement. The court of first instance decided on December 22, 2011 that the Defendant Jinhai Company, Shenfeng Company and Guangli Company cease the acts of infringement of registered trademarks and unfair competition, publish a statement on the newspapers in respect of the acts of infringement and eliminate ill effects; Guangli Company compensate the Plaintiff for losses of RMB40,000; and Jinhai Company and Shenfeng Company compensate the Plaintiff for losses of RMB460,000, and be jointly and severally liable for the Guangli Company¡¯s compensation.

The Plaintiff refused to accept the judgment of the court of first instance and filed an appeal with Shanghai No.1 Intermediate People¡¯s Court. Shanghai No.1 Intermediate People¡¯s Court made no dissent in respect of (1) - (2) decisions of the court of first instance after the trial, but held that it constituted acts of unfair competition against France Hennessy that Mr. Guo and Mr. Li used ¡°·¨¹úÐùÄáÊ«¼¯ÍÅ£¨Ïã¸Û£©ÓÐÏÞ¹«Ë¾¡±, ¡°·¨¹úÜŽÄáÔŠ¼¯ÍÅ£¨Ïã¸Û£©ÓÐÏÞ¹«Ë¾¡± and ¡°France Hennessy Group (HK) Co. Limited¡± on the website in issue which was registered in the name of Shenfeng Company. As to whether Mr. Guo and Mr. Li shall take the liability of joint infringement, the court held that Mr. Guo and Mr. Li had the common intention communication with Jinhai Company in respect of the manufacturing and selling of the wine products in issue, and arranged the division of work, while Hong Kong Hennessy Company was incorporated by Jinhai Company, Mr. Guo and Mr. Li for the purpose of conducting the acts of infringement of the registered trademark; after it was incorporated, it did not conduct any business activities other than selling wine products in issue in China in the name of Hong Kong Hennessy Company. In conclusion, the court of second instance held that there was common infringement deliberation between Mr. Guo, Mr. Li and Jinhai Company, Shenfeng Company, and all of them be liable for the civil liability of joint infringement. The court decided on August 7, 2012 that, the Defendant Jinhai Company and Guangli Company cease the acts of infringement of the registered trademarks of France Hennessy and unfair competition immediately; publish on the newspapers in respect of the acts of infringement and eliminate ill effects; Guangli Company compensate the Plaintiff for losses of RMB40,000; and Jinhai Company, Mr. Guo and Mr. Li compensate the Plaintiff for losses of RMB460,000 jointly and severally, and be jointly and severally liable for the Guangli Company¡¯s compensation.

[Lawyer¡¯s Analysis]

This is not a complex case of infringement of registered trademark and unfair competition, and is a typical case of infringement of registered trademark as a result of free-ride, where the primary issue is whether the shareholder or investor of the infringing company shall be liable for the joint infringement.

Pursuant to General Principles of the Civil Law and Company Law, a company with limited liability is of the nature of an independent legal person, which is independent from its shareholders who assume liability towards the company to the extent of capital contributions. This reflects the value of the ¡°limited liability¡±, whereas some free-riding companies take the advantage of it. Although the company¡¯s acts of infringement are conducted through the authorization by its shareholders or investors or on their own, the owner of the trademark can pursue the legal liability against the company only, while the shareholders or investors are safe from the legal liability. It makes great difficulties for the owner of the trademarks to protect its right.

The special point of this case is that the shareholder and the officer of the company are decided to assume the joint and several liabilities for trademark infringement. According to the subjective intent and the nature of the acts of Mr. Guo and Mr. Li during the process of the domain registration and overseas company incorporation, they have constituted joint infringement with the company and should be liable jointly and severally. It is the breakthrough of the principle of limited liability of the company.

What should brought into attention of the owner of the trademark is that, in the cases of similar kind, in order to prove that the company and its shareholders or investors conduct joint infringement, it should prove the following points: (1) the subjective intent communication of joint infringement, (2) the objective acts of cooperation, and (3) the causal relationship between the acts and the results, thereby deciding whether it constitute joint infringement and joint and several liability.

(The author¡¯s contact information: baileyxu@hllawyers.com, celinechen@hllawyers.com)

 

Legal Practices of Application for Invalidation of Arbitration Agreement (II)

Following the passage in the previous issue of newsletter that is intended to analyze and discuss laws applicable to reviewing effectiveness of arbitration clauses and several circumstances where arbitration clauses are nullified, this passage continues with relevant issues regarding the institution reviewing the effectiveness of the arbitration agreement and justiciability of the review results.

III. Which institution shall have the right to make a ruling on whether an arbitration agreement is effective or not

1. Arbitration Commission or Court

Article 20 of the Arbitration Law stipulates, if a party challenges the validity of the arbitration agreement, he may request the arbitration commission to make a decision or apply to the people's court for a ruling. If one party requests the arbitration commission to make a decision and the other party applies to the people¡¯s court for a ruling, the people¡¯s court shall give a ruling.

Therefore, any arbitration institution and people¡¯s court prescribed or presumed by arbitration clauses shall have the right to give a ruling on effectiveness of an arbitration agreement. Moreover, if one party turns to the arbitration institution while the other party turns to the people¡¯s court, the people¡¯s court shall prevail in making the final ruling.

What if an arbitration institution or court accepts the application at the same time? According to the Reply of the Higher People¡¯s Court to Several Questions regarding Confirmation of Effectiveness of the Arbitration Agreement (Fa Shi [1998] No.27, hereinafter referred to as ¡°Reply¡±), where a party applies to an arbitration institution for confirming effectiveness of an arbitration agreement, there is no use the other party applying to a people¡¯s court for confirming effectiveness of an arbitration agreement. If an arbitration institution accepts the application and makes relevant decision before the court does, the people¡¯s court will not accept the application; if the arbitration institution accepts the application but does not make a decision, the people¡¯s court shall accept the application and at the same time notifies the arbitration institution of terminating the arbitration.

In addition, pursuant to Article 4 of the Reply, if a party has applied for arbitration of a substantial issue but the other party objects to the effectiveness of an arbitration agreement and therefore applies to the people¡¯s court for confirming ineffectiveness of the arbitration agreement and further files a lawsuit for this substantial dispute, the people¡¯s court, after accepting the application, shall notify the arbitration institution of suspending the arbitration.

2. Which court shall have the jurisdiction?

With regard to the court¡¯s jurisdiction, the Judicial Interpretation of the Arbitration Law further stipulates, a party may appeal to the intermediate people¡¯s court in the place where the arbitration institution prescribed by the arbitration agreement is located for confirmation of the effectiveness of the arbitration agreement. Where the arbitration institution prescribed by the arbitration agreement is not made clear, the intermediate people¡¯s court in the place where the arbitration agreement is executed or the appellant is domiciled shall have the competent jurisdiction.

For cases relating to application for confirmation of the effectiveness of a foreign-related arbitration agreement, the above judicial interpretations stipulate that it can be governed by the intermediate people¡¯s court of the arbitration institution location, arbitration agreement execution place, the claimant¡¯s or the respondent¡¯s domicile as prescribed by the arbitration agreement. Cases involving effectiveness of an arbitration agreement of maritime disputes can be governed by the maritime court of the arbitration institution location, arbitration agreement execution place, the claimant¡¯s or the respondent¡¯s domicile as prescribed by the arbitration agreement; where such a maritime court is not available, the nearest maritime court shall govern.

IV. Whether the court judgment can be appealed

According to the provisions of Article 154.1, an appeal can be instituted against three kinds of rulings only: ¡°(1) refusal to accept a case; (2) objection to the jurisdiction of a court; (3) rejection of a complaint.¡± But for rulings concerning effectiveness of arbitration clauses that go beyond the above scope, an appeal cannot be instituted.

For example, Jiangsu Nanjing Intermediate People¡¯s court, in its Letter of Civil Judgment (No.18 [2007] Min Wu Chu Zi), determined ¡°other pending matters¡± depicted in Paragraph 11 of Clause 1 of Article 140 of the Civil Procedural Law as basis for judgment, and stated that such judgment cannot be appealed.

The above is a summary of analyses concerning whether an arbitration agreement is effective in legal practices and relevant procedural issues. As a matter of fact, there are all sorts of arbitration clauses in lawyer¡¯s practices and their effectiveness shall be analyzed in combination with the Arbitration Law and its judicial interpretations, reply or opinions from the Higher People¡¯s Court, etc.

(The author¡¯s contact information:baileyxu@hllawyers.com)

 

Comparisons among Judicial Practices of Labor Disputes (III)

Following the previous issue where an article was drafted with respect to the different judicial interpretations of different regions on ¡°whether an open-ended labor contract is a must for the second renewal of the labor contract¡±, this article will interpret and analyze the issues concerning ¡°double pay or not in the circumstance of failure to execute a written labor contract¡±, ¡°limitation for claim of double pay against the failure to execute a labor contract¡±, ¡°allocation of the burden of proof for claim of overtime remuneration¡±, etc.

I. Double pay or not in the circumstance of failure to execute a written labor contract

Comparison of clauses
Designation
 
Contents
Shanghai Opinions
 

II. The two parities to a labor relationship do not execute a written contract Whether a double pay should be paid to the employer shall take into account whether the employer has fulfilled its obligation of good faith negotiation and whether the employer refuses to execute labor contract with the employee, etc. If the employer has fulfilled the obligation of good faith but fails to execute labor contract with the employee due to force majeure, unexpected events or the employee¡¯s refusal, this is not governed by Article 6 of Regulations on Implementation of the Labor Contract Law of the People¡¯s Republic of China on ¡°where an employer fails to conclude a written labor contract with an employee¡­¡­¡±; where the failure to execute a labor contract is caused by the employer¡¯s fault, the employer shall make double pay to the employee; but the circumstance where the employee refuses to execute a labor contract and to continue to perform the labor contract shall be deemed as the employee¡¯s unilateral termination of labor contract.
Shanghai Explanations
 

4. If the employee resorts to illegal means to maliciously claim double pay difference and if there is solid evidence to prove that such employee sought for a substitute to execute labor contract for purposes of obtaining illegal profits, etc., so that the employer does not execute an authentic labor contract with the employee himself or herself, such act of the employee breaches the provisions of Article 3 of the Labor Contract Law relating to the principle of good faith and also the provisions of Clause 1 of Article 82 of the Labor Contract Law relating to one of the constitutive requirements for establishment of the double pay claim, i.e. the employer¡¯s failure to execute the labor contract with the employee shall be subjective. Therefore, the double pay claim by such employee against the employer shall not be supported.

5. How to deal with the circumstance where HR senior officials of enterprises take advantage of their own positions or job conveniences to deliberately create a false impression that these enterprises have not executed any written labor contract with their employees

For the managers, HR supervisors and other HR officials of some enterprises, if they conceal their written labor contracts, etc. so that their employers cannot provide the previously-executed labor contracts, on the basis of which they claim double pay, we believe that, although employers cannot provide original copies of written labor contracts, their employees¡¯ claim for double pay will not be supported if these employers have other evidences demonstrating the existence of labor contracts (not subject to Article 82.1 of the Labor Contract Law on the circumstance ¡°where an employing unit fails to conclude a written labor contract with a worker¡±).
Jiangsu Opinions II
 

Article 6 Where the employer does not execute a written labor contact with its senior manager but it is able to provide a decision to appointment or letter of appointment evidencing that the two parties have labor rights and obligations to each other and have actually performed the same, if the senior manager claims double pay for each month on the ground that there is not a factual labor contract, such claim will not be supported. The scope of senior manager is subject to the provisions of Paragraph 1 of Article 217 of the PRC Company Law.
Guangdong Opinions
 

Article 21 For over a month but less than one year after the employment, if the employer has sufficient evidence to prove it has not concluded a written labor contract with the employee for reasons fully attributable to the employee, the employer is not liable for double pay. However, if the employer requests to terminate labor relations with the employee, the employer shall pay economic compensations.

Lawyer¡¯s Interpretation

Where an employing unit fails to conclude a written labor contract with a worker for more than a month but less than a year from the date it starts employing him, it shall pay the worker two times his salary for each month. This stipulation initially aims at promoting execution of a written labor contract between the employing unit and its employees, but in real practices, many enterprises fail to execute the written labor contract with their employees not because of their reluctance to do so but due to the fault of their employees. Under the above circumstance, the judicial practices of a number of places provide that, if the fault does not lie in employing units, they do not have to bear the liability of compensation for the failure to execute a written labor contract.

In particular, Shanghai Higher People¡¯s Court stipulates that, if the employer has performed the obligation of good faith but fails to execute the labor contact for reasons such as force majeure or unexpected circumstances or due to the fact that the employee refuses to execute such labor contract, etc., the employer is exempted from payment of double salary to the employee. In addition, Shanghai Higher People¡¯s Court also makes explanations on how enterprise manager, HR directors and other senior officers who are responsible for enterprise human resources management shall apply the provisions of Article 82 of the Labor Contract Law in order to prevent HR senior officers from utilizing such provision to seek private gains. However, according to the relevant regulations of Jiangsu, the claim of enterprise senior officers for double pay generally will not be supported.

Besides, in respect of the amount of double pay, competent authorities of Beijing, Shanghai, Jiangsu, etc. have substantially different practices: 1) in Shanghai, the base of double pay shall be determined in accordance with the salary for normal working hours as agreed between the employer and employee; if there is no explicit agreement between the two parties, the base of double pay may be determined in accordance with the salary for normal working hours after overtime remuneration, unconventional bonus, items of welfare, risk, etc. are deducted from the monthly income actually received; 2) in Beijing and Jiangsu, the base of double pay shall be determined in accordance with the salary due for the corresponding month, including hourly wages or piece wages, overtime remuneration, bonus, subsidy, allowance and other monetary income.

Legal Advices

Although some guiding opinions have provided for the exception that the employer does not execute a written labor contract with the employee but does not have to pay double salary to the employee, we suggest the employer should make its best endeavors to avoid such circumstance and should regularly update the name roll of employees as well as the relevant labor contract. In particular, the employer shall establish an impeccable administrative system for renewal of labor contract upon expiration in order to avoid legal risks.

Where the employee cannot execute the written labor contract for the time being for some special reasons, the employer shall treat this seriously and request such employee to make written explanations on that and also follow up to make up for execution of the labor contract in order to avoid legal risks.

II. Limitation for claim of double pay against failure to execute a labor contract

Comparison among clauses:
Name
 
Contents of provisions
Shanghai Interpretations
 

Article 1 2. Limitation period of the double pay

We suppose, in light of the above nature of double pay, for the part of the double pay which belongs to the labor remuneration agreed upon between both parties, the limitation period for the arbitration application by the laborer shall refer to Paragraph 2 to 4 of Article 27 of the Law of the People¡¯s Republic of China on Labor-dispute Mediation and Arbitration; while for the part beyond the said remuneration, the limitation period for the arbitration application by the laborer shall refer to Paragraph 1 to 3 of Article 27 of the Law of the People¡¯s Republic of China on Labor-dispute Mediation and Arbitration, i.e. the limitation period shall be calculated respectively on the monthly basis from the month following the failure to execute a labor contract.
Jiangsu Opinions II
 

Article I Where a laborer claims double pay on a monthly basis against his or her employer on the basis that there is not a written labor contract between the laborer and the employer, the labor dispute arbitration committee and the people¡¯s court shall accept such dispute. For the part of the double pay which belongs to the statutory compensations payable by the employer, the limitation for the laborer to apply for arbitration shall refer to Paragraph 1 of Article 27 of the Law on Mediation and Arbitration, i.e. one year following the day when the employer fails to execute a written labor contract; if the laborer has worked at the employer for a full year, then the limitation period for application for arbitration shall be one year following the expiry of the one-year service term
Shandong Minutes II
 

Pursuant to Article 10 and Article 82 of the Labor Contract Law, for a labor relationship to be established, the employer shall sign a written labor contract with the employee. Where the employer fails to conclude a written labor contract with the employee after one month (less than one year) of the employment, the employee is entitled to a double pay from the employer. The double as mentioned above is a legal consequence arising out of the employer¡¯s failure to sign a written labor contract with the employee but not the consideration for the labor work of the employee. Therefore, double pay does not fall under the scope of labor remuneration and is stained with punitive damages.

With regard to the limitation period of double-pay arbitration. Since the double pay is somewhat punitive, the provisions of Clause 4 of Article 27 of the Law of the People's Republic of China on Labor-dispute Mediation and Arbitration on a dispute arising over limitation period of arbitration of the default in payment of labor remuneration during the existence of the labor relations shall not be applicable. The liability of the employer offering double pay can be deemed as a integrated and relevant regularly-paid debt under the same contract and the arbitration limitation period shall be calculated as of the date when the final performance term expires.

[Lawyer¡¯s Interpretation]

Article 27 of the Law of the People¡¯s Republic of China on Labor-dispute Mediation and Arbitration provides for the limitation period for application for arbitration of a labor dispute: 1) the limitation period for application for arbitration of a labor dispute is one year, which shall be calculated from the date a party comes to know or is expected to known the infringement of its rights; 2) where, during the existence of the labor relations, a dispute arises over the default in payment of labor remuneration, application for arbitration by the worker concerned shall not be restricted by the limitation period for arbitration prescribed in the first paragraph of this Article. However, where the labor relations are terminated, such application for arbitration shall be submitted within one year from the date the labor relations are terminated.

Therefore, determination of the nature of double pay will affect the limitation of claim for double pay. From all local guiding opinions which have been issued up to the current time, all documents that have determined the nature of double pay indiscriminately regard double pay as punitive compensation rather than labor remuneration. In such case, the preceding 2) limitation of action is not applicable to claim for double pay, the limitation of which, however, shall be calculated from the date when the employee knows or should know that his o her rights are infringed. Nevertheless, in real practices, competent authorities of Shanghai, Jiangsu and Shandong follow different principles: 1) in Shanghai, limitation of arbitration shall be calculated on a monthly basis from the second month of the failure to execute a written labor contract; 2) in Jiangsu, limitation of arbitration shall be calculated on a yearly basis from the second day of the end of the employer¡¯s illegal act to circumvent a written labor contract; if the employee has worked for a full year at the employer, the limitation of arbitration shall be calculated on a yearly basis from expiration of a year; 3) in Shandong, limitation of arbitration shall be calculated from the date when the final performance term expires.

[Lawyer¡¯s Advice]

A full understanding of the above limitation of action would probably get twofold results with half the effort in dispute over double pay between employer and employee.

III. Allocation of the burden of proof for claim of overtime remuneration

Comparison of different provisions:
Designation
 
Contents
Beijing Minutes
 

20. The attendance record confirmed by both the employee and the employer may serve as basis for whether an alleged overtime work is factual or not. Where the employee claim the alleged overtime work as factual only upon strength of the clock-in and clock-off records, such claim will not be supported.
Jiangsu Opinions II
 

Article 26 In case of any dispute between the employee and the employer with regard to the overtime remuneration, the people¡¯s court or the arbitration institution shall carefully review, comprehensively analyze and reasonably determine the evidence provided by the employee providing that his or her overtime work is factual and the evidence provided by the employer providing that the employee¡¯s overtime work does not exist.

Where the electronic attendance record, hand-made attendance record, salary payment schedule, etc. provided by the employer have not been confirmed by the employee, but the employer has evidence to provide that the attendance record, salary payment schedule, etc. have already been publicized to the employee in accordance with the relevant rules and regulations or labor contract provisions and the employee does not raise any objection during the reasonable period, the above evidence provided by the employer shall be deemed as evidence.

Where the employee claims overtime remuneration upon strength of the electronic attendance record but the employer has evidence to provide the nonexistence of such overtime alleged by the employee, the employee¡¯s claim as above shall not be supported.

Where the employer has a definite overtime examination and approval system but the employee claims the alleged overtime work as factual only upon strength of the electronic attendance record, such claim shall not be supported.
Zhejiang Opinions
 

Article 30 If the laborer claims overtime payment, he/she shall bear the burden of proving the overtime really occurs. Where the employer holds the relevant evidence for the laborer¡¯s factual overtime, the people¡¯s court shall order the employer to provide such evidence, or otherwise the employer shall be liable for all adverse legal consequences.

Article 31 In case of any dispute between the employee and the employer with regard to whether the employer has paid the employee for his or her overtime work or not, the employee shall bear the burden of proof for the alleged factual payment. Where the salary paid by the employee falls under the following circumstances, the people¡¯s court may deem such salary as exclusive of any overtime payment:

1) The converted salary for normal working time is below the local minimum salary standard;

2) The piece rate wage has labor quota but such quota is apparently unreasonable.
Guangdong Opinions
 

Article 27 If the employer does not enter into a written agreement with the laborer with regard to whether the salary agreed upon both parties in writing include overtime payment, but the employer has evidence to prove the salary already paid includes regular work payment and overtime payment, it shall be deemed that the salary already paid by the employer includes overtime payment, unless the converted regular time payment shall be lower than the local minimum salary standard.

Article 29 Where the employee claims overtime remuneration against the employer but the employer denies the employee¡¯s claimed overtime work, the employer shall bear the burden of proving the fact that the employee has not conducted any overtime work. If the employee uses the electronic attendance record confirmed by the employee to provide that employee has not conducted any overtime work, such electronic record can be deemed as evidence.

Where the employee claims remuneration for his or her overtime work two years ago, then the employee, fundamentally, shall bear the burden of proof. If, after two years, the overtime remuneration amount cannot be checked and verified, such overtime remuneration for two or more years ago shall not be protected.

[Lawyer¡¯s Interpretation]

With regard to the employee¡¯s burden of proof for his/her claim of overtime remuneration, the Interpretation of the Supreme People¡¯s Court on Certain Issues Concerning the Application of Law in Trying Cases Involving Labor Disputes (III) stipulates in Article 9 that an employee that makes claims for overtime compensation shall bear the burden of proof proving the fact of overtime work. Where the employee has evidence certifying that the employer has the evidence showing the facts of overtime by the employee, but the employer refuses to provide such evidence, the employer shall bear the undesirable consequences.

Despite the above, in judicial practices, the employee tends to claim that the company preserves records of clock-in and clock-off, therefore if the company does not provide such records, it shall bear all legal consequences for insufficient proof. As for this, requirements on allocation of the burden of proof differ in different regions. For example, Beijing, Shanghai, Zhejiang, etc. all require the employee to prove the fact of his/her actual overtime work before a potential transfer of the burden of proof. If the employee cannot meet up with such request, his/her claim will not be supported. However, Guangzhou attaches more importance to the burden of proof of employers. For example, a company shall bear the burden of proof for evidencing that its employees have not done any overtime work within two years, or else it shall be liable for any and all adverse consequences.

[Lawyer¡¯s Advice]

A company shall have an impeccable overtime work examination and approval system, which is possible to reduce somewhat legal risks that might befall the company. If a company stands to a solid overtime work examination and approval system but an employee fails to abide by it, the burden of proof shall then be surely transferred to the employee himself/herself. The labor arbitration commission or court can accept an employee¡¯s request only when he/she has sufficient evidence to prove his/her overtime actually incurred.

(The author¡¯s contact information:kevincheng@hllawyers.com)