By King & Wood Mallesons Healthcare Group

On February 1, 2013, the Interpretation of Several Issues on the Application of Laws of Employment Disputes IV (the “Interpretation “) was promufgulated by the Supreme Court and implemented on the same day pursuant to Labor Law of People’s Republic of China, Employment Contract Law of People’s Republic of China, and Employment Dispute Mediation and Arbitration Law of People’s Republic of China and other relevant laws, regulations and civil practices. We hereby illustrate and analyze the Interpretation as follows for pharmaceutical companies’ information when dealing with employment issues, especially for the employment dispute, non-competitions, etc.

 Stipulate the Power of Judicial Review

The Interpretation stipulates that where a party files a lawsuit of employment dispute as a result of rejection by Labor and Personnel Arbitration Committee on the ground of no jurisdiction, the court shall make its own decision on whether this Committee has subject matter jurisdiction over this case upon examination and shall inform the party in accordance with different situations noted in the Interpretation.

The Interpretation clarifies that the type of effectiveness of arbitration is determined by its decision in the award. If not clearly stated, the case filed by the employer to the lowest level of court should be dealt in accordance with the different situations set out in the Interpretation.

 Express the Judicial Power of Confirmation of Mediation Committee

The Interpretation stipulates that when parties make a conciliation statement on the payment obligation at a Mediation Committee, if necessary, they may jointly apply for a judicial confirmation at the lowest level of court where that mediation committee sits.

  • KWM Note: The Mediation Committee is a governmental agency for Judicial Administration. Whether this article could be interpreted broadly to the extent of non-governmental mediation committees is not clear. Literally, the scope of this judicial power of confirmation is limited.

Confirm Seniority at the Former Company

The worker’s request to combine the former employment term to the new one for a final account of severance shall be granted by the court, if the worker, due to non-personal reasons (listed in the Interpretation), is transferred to the new company from the former one who has not paid the severance for his/her leave, and the new employment contract terminates or is terminated by the employer.

  • KWM Note: In a circumstance that the counterparty of the employment contract is changed from the former company to a new one whilst the worker maintains the same position at the same place of work, the old format as signing up a new employment contract after rescinding the first one may not be applicable. The acquiring company should request the merged unit to pay the severance to avoid potential legal risks in terms of the prescribed compensation.

Clarify the Roles of Compensation of NCC and Default Penalty

The Interpretation clarifies that when parties have a mutual agreed Non-Competition Covenant (“NCC”) without a specific amount of compensation, a worker’s demand on that compensation paid monthly by the employer shall be granted, up to 30 percent of monthly average salary of previous twelve months before his termination.

When parties have both NCC and a fixed amount of compensation, the worker’s claim requesting the revocation of this covenant shall be granted if his compensation has not been paid for three months at employer’s fault.

Furthermore, the Interpretation states that the employer’s request to revoke NCC shall be granted by the court during the performing period; a worker’s petition to receive three-extra-month compensations shall be granted as well if the covenant is revoked.

  • KWM Note: The requirement of 30 percent of monthly average salary prescribed in the Interpretation is not applicable to certain areas, such as Shenzhen, where its local protection to employees is higher than the standard set out here, up to 50 percent of monthly average salary.

Stipulate the Effectiveness of Factual Change

The Interpretation stipulates that if a verbal modification of an existing employment contract is generated and has been performed as a matter of fact for more than one month, and it is not against any laws, administrative regulations, state policies or public moral standards, neither party’s petition shall be granted as claiming the modification is void as a result of failure to it put in writing.

  • KWM Note: The Interpretation confirms the effectiveness of factual change to a verbal modification of an employment contract, which set a higher requirement of the preservation of non-written evidences.