China’s Labor Disputes Mediation and Arbitration Law

Jia SHEN, Charles WANG

Abstract: The PRC Labor Disputes Mediation and Arbitration Law came into force on May 1, 2008. It covers many issues that strengthen the protection for the employee.
Key Words: Labor dispute, Arbitration, Mediation

In the context of increasing number of labor disputes as well as its increasing complexity, the current Chinese regulations have been considered unsuitable. In endeavoring to redress the situation, The PRC Labor Disputes Mediation and Arbitration Law (the "New Law") was adopted by the Standing Committee of the National People's Congress (NPC) on December 29, 2007 and it came into force on May 1, 2008.

According to the NPC, the primary purpose of the New law is to achieve labor settlements fairly and in a timely manner, to lighten the burden on employees when defending their legal rights, and to simplify the settlement process regarding the labor disputes. Furthermore, the New Law has increased the costs and the potential burdens for the enterprises.

1. Extended Arbitration Application Period
According to the former regulations, the statutory period to file an arbitration application in labor dispute was 60 days commencing from the date the applicant actually knew, or should have known the infringement of their rights.  The legislative intent of this provision is to safeguard the legitimate rights and interests of the infringed employee as soon as possible. However, after the enactment of this law, many employers try every means to stall the employee off filing an arbitration application. For example, the employer may tell the employee that the person in charge is on business abroad and the issue could only be handled when the manager got back. Once the period of 60 days expires, the employers will immediately refuse to assume the responsibility.

Therefore, the New Law has extended this period to 1 year from the same date. (1)

2. Final Arbitral Awards
In case of any party disagrees with an arbitral award, the litigation may be commenced within 15 days of the arbitral decision, after which time the arbitral award will become binding.

The New Law introduces an exception to this rule, which ensures that any arbitral awards arising from disputes over the (i) payment of salaries, compensation or damages which do not exceed the local monthly wage standard for an amount of 12 months; and/or (ii) performance of statutory obligations regarding working time, rest and holidays or social insurance are final at the time when they are made (subject to certain conditions being satisfied) (2).

The purpose of this exception is to prevent employers from commencing litigation as a means of delaying or avoiding the performance of their arbitral obligations in these limited circumstances.

3.   Heavier Burden on Employers
Taking into account the fact that most of the evidentiary documents required in litigation involving employers and employees are under the control of employers, the New Law provides that: Where a labor dispute arises, the parties have the responsibility to give evidence for their own claim. Where the evidence relevant to the dispute matter is handled and managed by the employing unit, the employing unit shall give such evidence. Where the employing unit does not give evidence, it shall assume any unfavorable consequences (3) . 

It means that if an employer refuses to provide such documents, the related fact(s) should be determined in favor of employees.

This provision is formulated in consideration of the practice of dealing with the labor dispute as follows: a large number of employers may refuse to provide the proof to his disadvantage for the purpose of evading the legal liability.

In contrast, generally speaking the employee is often in a disadvantageous situation because of having no evidence regarding the labor dispute. The New Law aims at solving this problem.

4. Payment Warrant
The New Law says: Where the mediation agreement is reached in respect of the payment of labor remunerations, work injury medical expenses, economic compensation or damages in arrears and the employing unit fails to perform the agreement within the time limit prescribed in the agreement, the laborer may apply to the people's court for a Payment Warrant in accordance with the law on the strength of the mediation agreement. The people's court shall issue the payment Warrant in accordance with the law (4).

The payment Warrant issued from the people’s court is a procedure of supervision and urge. It compels the party who refuse to perform the legal obligations to pay the other party. The procedure of payment Warrant is provided for in the Civil Procedure Law of PRC. In the process of handling the labor dispute, in view of the payment of labor remunerations, work injury medical expenses, economic compensation or damages in arrears are the matters which are closely related to the living of employee, if the latter can not receive the foregoing payment, his life will be affected hugely and may cause certain social problems and instabilities.

When the employer and employee reach a mediation agreement, it means that the employer has made the related commitments and is willing to assume the legal liabilities. If the employer does not execute the mediation agreement, the employee can directly apply for a payment warrant. However, the effectiveness of a Payment Warrant remains questionable in China. According to the Civil Procedure Law, a Payment Warrant is a minor remedy, because once the other party objects, the Payment Warrant automatically terminates.

5. No guarantees for prior execution
The New Law stipulates: where an employee applies for prior execution, no guarantees may be provided. In the civil litigation, if a party applies for prior execution, the People's Court may enjoin the applicant to provide guarantees; if the applicant fails to do so, his application shall be rejected. This is exactly the reverse of the New Law. (5)

The provision is enacted by assuming that the employee is the weak party in labor relation and when applying for arbitration. He is usually in a difficult situation because he may not have received the labor remunerations, work injury medical expenses, economic compensation or damages for a long time. Thus, it is difficult to ask the employee to provide guarantees at that time. The abrogation of the rights to apply for the prior execution, due to the inability of employee to provide such guarantee, will make the employee’s life even worse.  

In brief, since the New Law represents a shift towards the protection of employees, both domestic and foreign enterprises in China should be wise to pay more attention to the statutory labor-related obligations in order to avoid unnecessary labor disputes with their employees.

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Note: Mr. Charles WANG and Mr. Yuan SHEN are both Attorneys at Law at WZW & Partners.

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(1) See article 27 of the New Law

(2) See article 47 of the New Law

(3) See article 6 of the New Law

(4) See article 16 of the New Law

(5) See article 44 of the New Law