By Luo Ai, Tang Xiaojing King & Wood Mallesons’ Commercial & Regulatory group

On 1 August 2017, Guangdong High Court published the Explanation about Difficult Issues in Adjudicating Labor Disputes (“Explanation”). This is Guangdong High Court’s third judicial opinion on labor disputes since the Employment Contract Law’s entry into force in 2008. This Explanation consists of 23 sections, which can be divided into five groups:

Group I (sections 1 to 4): Determination of employment relationship. The keynote is “employment relationship shall not be generalized”. Diversification and liberalization of employment models are recognized. The characteristics and constituent elements of employment relationship are reiterated. The courts put emphasis on substance and respect the agreement of the parties.

Group II (sections 5, 6 and 21): Claims and liabilities in connection with the performance of employment contract. The employers’ joint liability for dispatched workers’ wages and employees’ entitlement to both economic compensation and liquidated damages are more controversial.

Group III (sections 7 to 9): Grounds for termination of employment contract. The employers’ rule that violation of the family planning policy is a condition for termination and awarding economic compensation to employees who resign by reason of significant changes in objective circumstances are supported, which seem to have gone beyond the Employment Contract Law.

Group IV (sections 11, 14, 16 to 20, 22, and 23): Judicial procedures. These sections uphold the authority of administrative decisions, and tend to consolidate actions and to reduce the burden of litigation.

Group V (sections 1 and 10 to 15): Work-related injuries and non-work-related death. Sections 1 and 13 address the liability for work-related injuries, and sections 12, 14 and 15 address the compensation for work-related injuries, which are further explained as follows:

Determination of employment relationship in work-related injuries: “identified as work-related injuries” means the “existence of employment relationship”?

Section 1 of the Explanation provides that: “Where individuals engage in contracting, or operate business in affiliation with others or by borrowing others’ business licenses, the workers hired by such individuals are not managed or controlled, or paid by the outsourcing, affiliated or lending entities, and the relationships between them do not share the characteristics of employment relationships, therefore, the hired workers’ allegation of employment relationship with the outsourcers, affiliated entities or lenders who are qualified as employers should generally be rejected. Where the outsourcers, affiliated entities or lenders shall bear related liability, considering specific facts of the cases, section 13 of the Guangdong High Court and Guangdong Labor and Personnel Disputes Arbitration Commission’s Meeting Minutes on Several Issues in Adjudicating Labor Disputes (hereinafter “Minutes”) can be referred to.”

The first sentence of section 1, concluding that there exist no employment relationships between workers and outsourcers, affiliated entities or lenders, repeats the opinion expressed in the Supreme Court General Office’s Minutes Summary of the National Meeting on Civil Case Adjudication in 2011. Yet the second sentence brings back section 13 of the Minutes, which provides that “unless the administrative authority of social insurance has determined that the worker suffers work-related injury”.

As to the relevance between “identified as work-related injuries” and “the existence of employment relationship”, in April Beijing courts have changed to hold that “the entity that is liable for work-related injury insurance” is not necessarily the employer, and that “determined as work-related injuries” does not mean the “existence of employment relationship”. However, Guangdong does not change previous judicial practice on this point.

Despite this, section 13 of the Explanation, which also concerns determination of work-related injury and employment relationship, provides that: “Where workers at or above the statutory retirement age are injured for work-related reasons or suffer from occupational diseases during their engagement with entities, and are held as suffering work-related injuries by administrative authority of labor, the Regulations on Work-related Injury Insurance can be referred to. If such sufferings are not held as work-related injuries, the court should inform such workers of the availability of personal injury damages, and if they insist, reject their claims for work-related injury insurance benefits.”

For retirees who are held as injured at work, this section only stipulates that “the Regulations on Work-related Injury Insurance can be referred to”. This implies that the relationship between the retirees and the hiring entities remains service relationship, and being “identified as work-related injuries” does not mean the “existence of employment relationship”. A comparison between section 1 and section 13 shows that Guangdong courts apply double standards to whether work-related injury insurance responsibility infers an employment relationship.

New trends in work-related injury compensation

1. “Prior-year’s average wage” clarified

Section 12 of the Explanation, clarifying the “average wage of the prior year” which is referred to in the calculation of work-related injury insurance benefits, provides that: “When calculating work-related injury insurance benefits, if the ‘local average wage of the prior year’ should be referred to, the prior-year’s average wage that had already been released when the accident at work occurred should be adopted.”

The prior-year’s average wage is usually not released till the middle of the next year. When the prior-year’s average wage of a “critical date” is not yet released, courts will refer to the average wage of the year before. The “critical date” for the prior year varies in judicial practice from the day when the accident at work occurs, to the day when the judgment is made. The “prior-year’s average wage” in Guangdong is unified as the “prior-year’s average wage that had already been released when the work-related injury occurs”.

2. Certain Injured Workers’ claims for emotional distress and personal injury damages addressed

Section 14 of the Explanation provides that: “To reduce the parties’ burden of litigation, where workers suffering work-related injuries due to work safety accidents or occupational diseases, or their close relatives, claim for emotional distress damages in labor dispute cases, courts can consolidate the cases, and determine the amount of emotional distress damages in consideration of the severity of the injuries or diseases.”

In light of the Work Safety Law and the Occupational Disease Prevention and Treatment Law, workers injured in work safety accidents or suffering from occupational diseases (hereafter referred to as “Certain Injured Workers”) are still entitled to civil damages in addition to work-related injury benefits. However, as related tort suits are categorized as “disputes over rights to life, health and body”, differing from labor disputes in terms of the cause of action, with a labor dispute initiated, Certain Injured Workers need to separately file another lawsuit for tort claims. Relevant civil damages include personal injury and emotional distress damages. Guangdong courts have long been granting emotional distress damages to Certain Injured Workers, and now consolidate relevant tort actions with existing labor disputes. On the one hand, this saves Certain Injured Workers from the trouble of instituting two related proceedings; on the other hand, as the court fees for disputes over rights to life, health and body are much higher than those for labor disputes, consolidation thereof means lower litigation costs for Certain Injured Workers.

Concerning the personal injury damages available to Certain Injured Workers, whether the items identical or similar to those of work-related injury insurance benefits can be obtained in parallel, or are supplementary when applying the higher standards, and what items are identical or similar in nature, are questionable and highly diverse in judicial practice across the country. There was no consensus among Guangdong courts.

Section 15 of the Explanation, addressing the issue “double recovery” from employers for the first time, provides that “If workers injured in work safety accidents or suffering occupational diseases, with the work-related injury insurance benefits received, claim for personal injury damages against their employers, for items of personal injury damages that are the same in nature as those of the work-related injury insurance benefits, the amount already received from the work-related injury insurance fund should be deducted; and if the amount paid by the work-related injury insurance fund is larger than that of personal injury damages, such items of personal injury damages are no longer payable”. Items of personal injury damages held as identical in nature to, and unpayable in parallel with work-related injury insurance benefits are in-patient meal allowances, lost wages, funeral fees, dependants’ living expenses, death compensation, disability compensation and disability assistive device fees.

It is noteworthy that “death compensation” in personal injury damages and “lump-sum work-related death allowance” offset each other, and the “lump-sum work-related disability allowance” and monthly “disability pension” offset “disability compensation”. In light of these sections, Certain Injured Workers should assess litigation costs and risks before bringing tort actions against employers in Guangdong. In turn, following the new trends signified by this Explanation, employers should reassess and be prepared for the compensation payable to Certain Injured Workers.