(By You Yunting) In order to protect the legitimate rights and interests of laborers and to avoid enterprises failing to conclude a labor contract with laborers, China’s Labor Contract Law stipulates that, where an employing unit fails to conclude a written labor contract with a laborer that has provided labor services for more than one month but less than one year, it shall pay double wages payment to the laborer each month.

In practice, however, many enterprises found this stipulation being misused. To achieve double wages payment, some laborers intentionally failed to conclude the written labor contract with their employing units and then brought the employing units to labor arbitrations claiming for double wages payment. In our post, we would like to introduce a typical case where a laborer in charge of human resources who deliberately did not conclude a labor contract with its enterprise is supported by the courts to receive double wages payment after their departure. Foreign investors who do business in China should be aware of this potential labor risk.

Introduction to the Case:

Applicant of a retrial (Defendant in the first instance and Appellant in the second instance): Shenzhen Cannice Technology Co., ltd (“Cannice”)

Respondent (Plaintiff in the first instance and Appellee in the second instance): Mr. Wang

Court of Second Instance: Shenzhen Intermediate People’s Court No.: （2012）深中法劳终字第3897号

Court of Retrial: Guangdong Higher People’s Court No.: (2013）粤高法民申字第46号

The facts ascertained in court are the following: Mr. Wang established a labor relationship with Cannice in August 2010 and acted as a HR manager in charge of signing labor contracts with employees on behalf of Cannice, however, he did not conclude a written labor contract with Cannice. After his departure from Cannice, Mr. Wang filed a labor arbitration, alleging that Cannice should pay double wages each month to him due to the failure of Cannice to conclude a written labor contract with him in accordance with the Labor Contract Law. Both the labor arbitration outcome and the courts supported his claim. Dissatisfied with those judgments, Cannice applied a retrial to the Guangdong Higher People’s Court.

Guangdong Higher People’s Court heard the case and held that:

1. The controversy over the case was whether Cannice should pay Mr. Wang an overtime salary and double wages payment owing to the failure to conclude a written labor contract.
2. If Cannice failed to prove it had concluded a written labor contract with Mr. Wang, it should pay double wages each month.
3. His failure to sign a written labor contract with himself was the company’s internal matter, even though his major responsibility was to sign labor contracts with laborers on behalf of Cannice. Cannice cannot be exempt from liabilities.

Therefore, Guangdong Higher People’s Court dismissed Cannice’s Claim of a retrial.

Lawyers’ Comment:

I.  The original legislative purpose of the provision conferring double wages payment  

The 2007 version of the Labor Contract Law of People’s Republic of China dramatically increased the protection afforded to laborers. This law stipulates that an employing unit may not rescind a labor contract without legitimate cause. Moreover, for the purpose of eliminating the exploitative practice of employers deliberately not concluding labor contracts with laborers, this law also stipulates that, if an employing unit does not conclude a labor contract with laborers, it must pay double wages every month for a maximum period of eleven months, and where an employing unit has failed to conclude a labor contract with a laborer who has provided more than one year of labor services, an unfixed-term labor contract is deemed to have been established between the employing unit and the laborer.

II.   Laborers’ utilization of the provision conferring the right to double wages payment

Although the Labor Contract Law dramatically improves the protection for laborers by preventing enterprises from arbitrarily terminating a labor contract, it has some disadvantages. For example, in an enterprise with lax management, some laborers intend to maliciously use this provision by not entering into a contract with the employing unit from the start and then claiming for double wages payment after departure. We once encountered an extreme case where, for the purpose of claiming for double wages payment after departure, a group of laborers conspired to swap signatures with each other, i.e., the laborers helped each other conclude a labor contract with a counterfeit signature. If the employing unit raises a defense regarding these labor contracts, it may find out this labor contract were not concluded by the labor himself.

III.   This judgment applied this provision mechanically.

In this case, Mr. Wang’s actual responsibility is to sign labor contracts with laborers so that Mr. Wang was responsible for not entering into a labor contract with himself. It is pity that Guangdong Higher People’s Court mechanical applied this provision in deciding that Cannice should pay the double monthly wages. Actually, there are different attitudes towards the similar cases in different courts, such as some local judicial opinions. The Opinions of Shanghai Higher People’s Court on Several Issues on the Application of the Labor Contract Law regulates:

Where a laborer works for the employing unit in fact, but the employing unit fails to conclude a written labor contract with the laborer within one month, the following factors shall be taken into consideration when deciding whether a doubled salary is applicable: “(i) whether the employer performs the obligations of negotiation in good faith”; and “(ii) whether the employee rejects signing [the Labor contract]”. If the employing unit fulfills its obligations in good faith, but the labor contract fails to be signed for reasons that are not attributable to the employing unit, e.g., force majeure, accidents or the employee’s refusal to sign [the labor contract], such circumstances shall not be considered to fall under “the employing unit fails to enter into a written labor contract with an laborer” as set forth in Article 6 of the Implementing Regulations of the Labor Contract Law.

However, enterprises shall assume the burden of proof, especially in the event of a laborer’s failure to conclude a written labor contract. Enterprises must prove that at least:

1. The enterprise has already informed the laborers of the conclusion of the written labor contract;
2. The laborer fails to conclude the written labor contract in a reasonable time period as required;
3. The terms of the labor contract are fair and rational.

 Lawyer Contacts

You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

Disclaimer of Bridge IP Law Commentary

Short Link: