Introduction

Article 4 of the Labor Contract Law[1] stipulates that when an employer formulates, revises or decides on rules or major matters which directly involve the vital interests of employees, such matters shall be discussed by the employee representatives congress or all staff. This article is deemed as “Democratic Procedures” in the field of labor law.

Through the research of labor dispute cases relating to the article, it shows that practitioners have paid more and more attention to the Democratic Procedures in labor disputes since 2012. Therefore, the number of cases concerning Democratic Procedures has continued to increase in recent years. This article aims to analyze several common issues with regards to Democratic Procedures in Shanghai from a practical perspective, which is expected to be helpful to the fellows in the legal industry.

Picture 1: Number of Labor Dispute Cases Concerning Democratic Procedures from 2012 to 2019

1. Constitutive Requirements of Democratic Procedures

1.1 Matters Involved

In accordance with Article 4 of the Labor Contract Law, the employer shall go through the Democratic Procedures discussed in this paper when formulating rules or major matters which directly involve the vital interests of employees.  These rules and major matters shall pertain to labor remuneration, working hours, rest periods and vocations, labor safety and health, insurance and welfare, staff training, labor discipline and labor quota administration etc., and shall be directly related to the vital interests of employees.

Moreover, pursuant to the Article, the employer shall go through the Democratic Procedures not only in the process of formulating new rules and matters but also in subsequent revisions of such rules or matters.

In the case of (2014) Hu 01 Zhong Min III (Min) Zhong No. 329, the employer claimed that it had notified the employee of the decision to modify the sales commission management rules. Therefore, the sales commission shall be calculated on the basis of the modified commission management rules.  The Shanghai No. 1 Intermediate People’s Court held that “in accordance with the second paragraph of Article 4 of the Labor Contract Law, when an employer formulates, revises or decides on rules or major matters pertaining to labor remuneration, etc., which directly involve the vital interests of employees, such matters shall be discussed by the employee representatives congress or all staff who shall make proposal and give their opinion and the employer shall carry out equal negotiation with the labor union or employee representatives before making a decision.” In this case, the employer claimed that the sales commission shall be calculated according to the modified sales commission management rules. However, since the e-mail address was not displayed on the e-mail or the notarial certificate provided by the employer, the evidence was insufficient to prove that the employee knew the employer had changed the way the sales commission was calculated. Since such rules involved the vital interests of the employee, the employer shall provide evidence to prove that modification of the rules had gone through an equal negotiation procedure. For the employer failed to provide such evidence, as a result, the revised commission management rules shall not apply, even if the employer delivered such rules to the employee. Therefore, Shanghai No. 1 Intermediate People’s Court rejected the employer’s claim.

1.2 Procedural Requirements

According to Article 4 of the Labor Contract Law, the employer shall go through three procedures when the above-mentioned major matters are involved. The first procedure is discussion, which means labor rules and major matters shall be submitted to the employee representatives congress or all staffs for discussion, and the employer shall carry out equal negotiation with the labor union or employee representatives before making a decision. The second procedure is revision, meaning that during the implementation of the rules and major matters, the labor union or staff may raise their suggestions on revision, which shall be negotiated between the employer and the staff. The third procedure is publicity, meaning that the employer shall announce decisions on rules and major matters or notify the employees.

From the perspective of judicial practice, submission to the employee representatives congress or all staff for discussion and the final announcement and notification are both indispensable. The judgment of (2014) Hu 01 Zhong Min III (Min) Zhong No. 329 case demonstrates courts in Shanghai hold the view that if the Democratic Procedures lacks employee representatives congress or all staff discussion, it will still be deemed as uncompleted, no matter the employer notifies the employees or not.

The method and view of (2016) Hu 02 (Min) Zhong No.10482 case on the review method of Democratic Procedures made by Shanghai No. 2 Intermediate People’s Court is worthy to note. In the case, the employer held a staff meeting on March 26, 2013 on the Regulation on Reward and Punishment of Employees, Regulation on Attendance Management and other relevant issues. With the number of participants exceeding two-thirds of the total number of employees, the above-mentioned regulations were passed after discussion and announced on the 29th of the same month. Furthermore, the content of the announcement with the labor union committee’s stamp on such announcement indicated that the above rules were approved after employees’ discussion, which reflects the procedural requirements of the law emphasizing democratic participation of the employees in the formulation of the employer’s rules. In addition, the employees signed the “Confirmation Form” to promise to abide by the rules and raised no objection to the signature on the “Confirmation Form”, indicating that the employees acknowledged that the employer’s rules were valid, and such rules had been announced.  Hence, Shanghai No. 2 Intermediate People’s Court recognized the validity of the rules formulated by the company for the following reasons: 1) the rule-marker was legal; 2) the rules were made with the democratic participation of the employees; 3) the employees were also informed after the formulation of the rules; and 4) they did not object to the legality of the content of the rules.

2. The Validity of the Rules Formulated Without Democratic Procedures

According to the above analysis, the rules involved may not be adopted by the court if they were determined as being passed without Democratic Procedures. In the case of (2017) Hu 01 (Min) Zhong No. 9599 tried by Shanghai No. 1 Intermediate People’s Court, the employer failed to provide evidence that the employee manual had gone through Democratic Procedures.  Therefore, the Court ruled that the employer did not produce evidence to prove that the employee manual involving labor remuneration had gone through legal procedures or it had been delivered to the employees.  As a result, the employer’s claim of paying wages according to the employee manual was not upheld by the Court.

Moreover, the employer still bears some risks even if it submits evidence to prove an employee representatives conference or staff meeting. The reason is that the court will not presume that the employer has completed the Democratic Procedures, meanwhile it will review the substantive content of the evidence. In the case of (2017) Hu 01 (Min) Zhong No. 11631 tried by Shanghai No. 1 Intermediate People’s Court, the employer provided the “Notice on Convening the First Employee Representatives Conference and the Second Staff Meeting” and the “Consent to the Results of the Election of the First Labor Union Committee of Hemei (Shanghai) Real Estate Development Co., Ltd.” to prove that the employer’s “Performance Appraisal Management Rules” had been announced and accepted. However, the employees did not recognize the authenticity of the evidence. The Court held that assuming the evidence was authentic, it was still insufficient to prove that the rules had gone through legal Democratic Procedures and been delivered to the employees based on the content of the evidence. Finally, the evidence was not admitted and the “Performance Appraisal Management Rules” provided by the employer was not adopted by the Court. Compared with the repeatedly discussed (2016) Hu 02 (Min) Zhong No. 10482 case, the employee submitted the announcement made by the employer with the official seal of the labor union committee and the confirmation form demonstrating that the employee had received the announcement, and the Court ultimately recognized the validity of the rules formulated by the employer. Since we are unable to access the specific case data, we cannot conclude the differences between the contents of the announcements in these two cases. The difference is that in the (2016) Hu 02 (Min) Zhong No.10482 case, the announcement and confirmation form were provided by the employee, the validity of the announcement was not denied. The employees raised objections to the content of announcement. However, in this case, the authenticity of the notice of holding a staff meeting submitted by the employer is not acknowledged by the employee. In addition, the employer only submits the notice of a staff meeting, instead of the final resolution according to the file name, which cannot reflect that the employer’s rules have been discussed by the staff meeting. Meanwhile, the employer has not provided any evidence that can prove the employee has signed and accepted the rules. Therefore, the court did not admit the evidence after reviewing the substantive content of the evidence.

From the above analysis, it is known that rules and decisions formulated without Democratic Procedures will not be adopted by the court. Another question is whether the rules will be invalid as long as they do not go through the Democratic Procedures?

We have conducted research on this issue, and find that Article 18 of the Guiding Opinions on the Trial of Labor Dispute Cases promulgated by the High People’s Court of Jiangsu Province and the Labor Dispute Arbitration Commission of Jiangsu Province in 2009 stipulates that with regard to the rules formulated by the employer before the implementation of the Labor Contract Law (January 1, 2008), although such rules do not go through the Democratic Procedures stipulated in Article 4 of the Labor Contract Law, the rules can be applied as the basis for handling labor disputes under the circumstances where 1) the content of such rule does not violate laws, administrative regulations and policies; 2) such rule is without obviously unreasonable circumstances; and 3) such rule has been announced or informed to the employees,.  The Article 36 of the Minutes of the Beijing High People’s Court and the Beijing Labor Dispute Arbitration Commission on the Laws Applicable to the Labor Dispute Cases issued by the Beijing High People’s Court and the Beijing Labor Dispute Arbitration Commission shares the same opinion.

3. The Democratic Procedures of the Employer Terminating the Labor Contract

In addition to the Democratic Procedures in Article 4 of the Labor Contract Law, the Democratic Procedure for the unilateral termination of the labor contract are also stipulated in Article 43[2] of the Labor Contract Law and the Interpretations of Supreme People’s Court on Several Issues Relating to Laws Applicable for Trial of Labor Dispute Cases (IV) (“Interpretations IV”). Article 12 of Interpretations IV stipulates that where the rescission of a labor contract by an employer which has established a labor union complies with the provisions of Article 39[3] and Article 40[4] of the Labor Contract Law, but failed to notify the labor union beforehand pursuant to the provisions of Article 43 of the Labor Contract Law, the employee requests the employer to pay monetary compensation citing that the rescission of the labor contract by the employer is illegal. The People’s Court shall support the request, except where the employer has corrected the relevant procedures prior to the lawsuit.

That is to say, in the cases of compliance with Articles 39 and 40 of the Labor Contract Law, the employer shall notify the labor union when exercising the right to terminate the labor contract unilaterally. According to Article 43 of the Labor Contract Law, the employer’s notification to the union is a prerequisite procedure. If the employer fails to notify, the labor union has right to correct such misconduct. However, according to Article 12 of Interpretations IV, the employer may correct the procedure before the prosecution. At this time, the employer obviously has exercised the unilateral right of termination. Therefore, notification to the labor union does not mean the prior permission from the union is required.

In the case of (2018) Hu 01 (Min) Zhong No. 720, the employer terminated the labor contract on May 16th, 2017, and notified the union on July 4th, 2017. In addition, the time for the labor arbitration tribunal was July 5th, 2017. Ultimately, Shanghai No. 1 Intermediate People’s Court did not deny the effectiveness of this complementary procedure. Furthermore, in the case of (2014) Hu II Zhong Min III (Min) Zhong No. 356, the employer notified the union before the employee applied for labor arbitration, and the union also agreed with the decision of the employer. The effectiveness of the correction was also recognized by Shanghai No. 2 Intermediate People’s Court.

If the employer correct the procedure after the prosecution, this correction cannot be acknowledged by the court according to Interpretations IV. In the case of (2013) Hu 02 Zhong Min III (Min) Zhong No. 900, the employer notified the union on February 22nd, 2013, and the prosecution was filed on February 8th, 2013. Shanghai No. 2 Intermediate People’s Court did not admit the correction of the employer because the time of correction was later than that of prosecution.

In addition, when we conducted a case research on the Democratic Procedures for the employer to terminate the labor contract unilaterally in Shanghai, we found that different courts have different opinions on whether the employer still needs to notify the labor union when there is no union.

3.1 The Employer Has a Labor Union

If the employer itself has a labor union, or the employer has joined the regional labor union, the judgments of Shanghai courts agree that it shall be notified to the union when the employer exercises the unilateral right of rescission. There are many such cases[5], and no further description is given here.

3.2 The Employer Has No Labor Union

Under the circumstances that the employer has no labor union, we have found two types of viewpoints in Shanghai. One believes that even if the employer does not have a labor union, it shall listen to the opinions of the employee representatives or seek for suggestions from the local general labor union to perform the Democratic Procedures. The other holds that in the absence of a union, the employer does not have to inform the union.

Shanghai No. 2 Intermediate People’s Court held in the case of (2013) Hu 02 Zhong Min III (Min) Zhong No. 1015 that the purpose of the Labor Contract Law and Interpretations IV is to prevent the employer from terminating the labor contract at will. If the employer unilaterally terminates the labor contract, it shall inform the labor union and listen to the opinions of the union or the employee representative according to the law. This is not only the statutory procedure that the employer should carry out when the labor contract is terminated, but also to ensure the employees’ rights to work and survive. It means that, even though the employer has not established a basic labor union, it shall also inform the employee representatives and listen to their opinions or seek for suggestions from the local general labor union to meet the requirement of statutory procedure.

Similarly, Shanghai No. 2 Intermediate People’s Court held in case (2014) Hu II Zhong Min III (Min) Zhong No. 462 that even though the employer claimed that it had not established a labor union, as a professional labor-dispatching company managing a large number of employees, it should pay more attention to protect relevant rights and interests of employees. Therefore, it shall notify the same level or higher-level labor unions to fulfill the notification obligation to prevent the employer from taking advantage of its privileged position and abusing its right of termination.

However, we also found many cases with opposite views at the same time.

In the case of (2016) Hu 02 (Min) Zhong No. 2234, Shanghai No. 2 Intermediate People’s Court held that a labor union is the organization of the working class formed by the voluntary gathering of employees. The Interpretations IV stipulates that where the termination of a labor contract by an employer which has established a labor union complies with the provisions of Article 39 and Article 40 of the Labor Contract Law, but failed to notify the labor union beforehand pursuant to the provisions of Article 43 of the Labor Contract Law, the employee requests the employer to pay compensation twice as much as the monetary compensation stipulated in Article 47 of the Labor Contract Law, citing that the rescission of the labor contract by the employer is illegal, the People’s Court shall support the request. According to the statement of the two parties, the employer has not yet established a union. Therefore, the Court couldn’t agree with the employee’s claim that the dismissal procedure was illegal because the employer did not notify the union.

Similarly, in the case of (2017) Hu 01 (Min) Zhong No. 6419, Shanghai No. 1 Intermediate People’s Court held that since the employer did not form a union, it was not improper for the employer not notifying the union when it terminated the labor contract with the employee. Shanghai No. 2 Intermediate People’s Court also held in the case of (2013) Hu 02 Zhong Min III (Min) Zhong No. 416 that the employee’s claim that when terminating labor relations, the employer shall report to the relevant labor union lacked legal basis for the employer did not establish a union. It is nothing wrong for the employer to terminate the labor contract with the employee in accordance with the Employee Manual.

There are still many cases[6] where such views are held in practice. We will not enumerate them here. From a prudent point of view, we suggest that if the employer has a union, it must fulfill the obligation to notify the union in advance and retain relevant written evidence. If the employer has not yet established a labor union, it shall still report to a higher-level union, or the general union of registration district in avoidance of unnecessary losses due to procedural issues in the lawsuits.