Asia-Pacific Employee Relations Review

Contents

The impact of China’s new Employment Contract Law
Workplace relations battle at forefront of Australian election
Expatriate awarded controversial severance payment in Indonesia
Labour Code amendments for dispute settlement in Vietnam
Singapore’s new Fair Employment Guidelines
Non-regular worker reforms spark protests in Korea

The impact of China’s new Employment Contract Law

The introduction of the Employment Contract Law marks the latest phase of development in the reform of China's labour market. The new law was passed on 29 June 2007, and will take effect on 1 January 2008.

Background

With China's economy developing at a blistering pace over the past two decades, the country’s labour market has undergone a series of significant transformations.

China's first national employment law, the PRC Labour Law, took effect on 1 January 1995, some 15 years after China first opened its doors to foreign investment. The PRC Labour Law provided the fundamental legal framework for the establishment of employment relationships. It has since been supplemented by hundreds of rules and regulations.

New protections

Many employers in China violate their obligations under the PRC Labour Law by failing to conclude written contracts with their employees. These employers believe (erroneously) that by failing to conclude written contracts they may avoid contributing to mandatory social insurance schemes and paying severance for early termination of employment.

The new Employment Contract Law (law) overhauls the existing system by stipulating obligations which are triggered as soon as an employment relationship is established, regardless of whether a written employment contract has been entered into.

The key obligations are:

• A written employment contract must be executed when an employment relationship is formed. (Note: part-time employment contracts or employment contracts of less than one month’s duration may be verbal, however, a written contract must be executed at the employee’s request).
• If an employee has been hired without a written contract, then one must be concluded within one month of the employee’s first day of work.
• If no written contract has been signed as of one year after the date on which the employment relationship was formed, the parties will automatically be deemed as having concluded an open-ended contract.
• If a written employment contract has not been executed more than one month, but less than one year after the date of hiring, then the employer must pay the employee twice his or her usual remuneration for each month that the contract remains outstanding.
• If a written contract is still not signed within one year after the hiring date then, in addition to paying double wages, the employer must sign an open-ended employment contract with the employee. An open-ended employment contract has no expiry date and can only be terminated for demonstrable cause or in other circumstances stipulated by law.
• Where an employment relationship was established prior to the implementation of the law but no written employment contract was concluded, a contract must be concluded within one month after the law’s implementation (by 1 February 2008).

Other reforms

Other important reforms under the new law include:

Tighter restrictions on probationary periods

The law introduces a sliding scale of maximum probationary periods, ranging from one month (for fixed-term contracts of more than three months but less than one year) to six months (for fixed-term contracts of more than three years and for open-ended contracts). During the probationary period, the employee's salary may not be lower than the lowest wage level of the same position in the company, or 80 per cent of the salary provided in the employment contract. In no circumstances may the salary be lower the local minimum wage. Contracts that are less than three months’ duration or contracts with a term based on the completion of a specific project may not stipulate a probationary period.

Mandatory consultation

The law imposes new consultation obligations: employers must discuss proposals to implement or amend company policies and rules (employee handbooks) at an assembly of employee representatives, or with all employees. This extends to matters that directly involve the vital interests of employees, such as remuneration, working hours, rest and leave periods, labour safety and hygiene, insurance and benefits, employee training, labour discipline, and work quota management. These matters will then be determined via ‘mutual and equitable consultations’ with the trade union or employee representatives.

New severance pay

Many employers in China adopt fixed-term employment contracts with a short duration as a means of avoiding severance pay obligations. The law will promote the use of long-term contracts by requiring severance payments to be made upon termination of employment, including upon expiry of a fixed-term contract. However, if an employer proposes to renew the employment contract on the same or better terms but the employee refuses to renew it, the employer is not required to pay severance.

Under the new law, an employee will be entitled to one month’s wages for each year of service completed with the employer (periods in excess of six months will be counted as a full year). If the employee's monthly salary exceeds three times the local average monthly salary of the preceding year (the amount is announced by the local government), the standard used to calculate severance will be capped at that level. The maximum length of service that can be used in calculating severance is 12 years.

In addition, an employer will be required to enter into an open-ended contract after it has executed two consecutive fixed-term contracts with an employee, or where an employee has worked for the same employer continuously for 10 years or more.

Clearer limits on non-compete agreements

The law includes several amendments and clarifications to current legislation regarding non-compete agreements. Firstly, it reduces the maximum permitted term from three years to two years. Secondly, the use of non-compete clauses will now be limited to senior management personnel, senior technical personnel, and personnel with confidentiality obligations.

Regulation of secondment (labour hire) relationships

In recent years, there has been an increase in the number of employees hired by means of secondment (or labour hire), via a human resources service provider (HRSP), as a means of avoiding direct employment obligations in relation to wages, benefits and other entitlements. Under the law, HRSPs will be required to enter into fixed-term employment contracts of two or more years with seconded employees. HRSPs will also be required to remunerate employees on a monthly basis, at no lower than the local minimum wage, even where there is no work assignment.

The law clarifies that seconded employees should be used to fill temporary, supplementary or substitute positions, and that they are entitled to receive equal pay for equal work, in comparison with the direct employees of the hiring entity.

Broader conditions for immediate termination

Employees will be permitted under the law to terminate their employment immediately (without notice) if they are:

• forced to work by means of violence, threats or an illegal restriction of their personal liberty
• instructed to operate contrary to applicable work regulations
• required to undertake work in dangerous conditions that threaten their safety, or
• where the employer does not contribute to social security promptly or in full.

Tougher penalties for failure to pay wages, benefits or monetary compensation

These penalties include a new court payment order to enforce the payment of wages, overtime wages, and compensation ranging from 50–100 per cent of the unpaid amount (previously it was 25 per cent for wages and 50 per cent for severance pay).

Proof of termination

The law introduces specific requirements for employers to issue a written certificate for the termination or expiry of an employment contract.

Implications for employers

In recent times, Chinese employees have become increasingly aware of their employment rights and are more willing to assert them. In many localities, the application fee for labour dispute arbitration is only US$38, with an appeal fee of US$8. Shanghai recently lowered its litigation fee to a mere US$1.30. Approximately 94 per cent of labour disputes are initiated by employees, and they generally win five out of every six cases accepted for hearing—a success rate which has remained fairly constant over the past 11 years.

As the new law creates more explicit rights for employees, especially for those who would otherwise have fallen into the temporary labour market, it is likely that the number of labour disputes will continue to increase, particularly in the early stages of the law’s implementation.

With these new restrictions in mind, it is clear that employers will need to heed the warnings and review their existing employment arrangements and employment practices, including examining the contents of their existing employment contracts and employee handbook, in order to protect their interests and minimise the risks under the law.

This article was written by Isabelle Wan, Senior Partner, of TransAsia Lawyers in China.

Freehills Workplace Law & Advisory – Asia has worked with TransAsia on various workplace relations matters in China.

Workplace relations battle at forefront of Australian election

A federal election is due in Australia in the coming months and workplace relations has emerged as a key issue in the election campaign. The opposition, the Australian Labor Party (ALP), released much-anticipated further detail of its workplace relations policy in August 2007, fuelling the already heated debate in this area.

Background

In 2006, the governing Liberal-National Party coalition introduced its sweeping WorkChoices reforms, including:

• the introduction of a single national workplace relations system for most corporations, which overrides pre-existing state systems
• a new system of workplace agreements where individual agreements (Australian Workplace Agreements or AWAs) have an enhanced status over collective agreements
• the introduction of the Australian Fair Pay and Conditions Standard (standard), which provides a universal set of statutory minimum conditions covering minimum wages, maximum ordinary hours of work, annual leave, personal/carers’ leave and parental leave
• imposing significant limits on the conciliation and arbitration powers of the Australian Industrial Relations Commission
• a reduction in the relevance of industrial awards as part of the increased focus on workplace agreements
• further restrictions on industrial action, including compulsory secret ballots before industrial action can be legally taken
• exempting businesses with 100 or fewer employees from the unfair dismissal regime

Previously, workplace agreements had to meet a ‘no-disadvantage test’, as against a relevant award. Originally under WorkChoices, new agreements were only required to meet the standard, subject to provisions concerning certain ‘protected award conditions’. The government effected further amendments in 2007 to soften this impact and effectively reintroduce a no-disadvantage test, labelled a ‘Fairness Test’, for most agreements. However, this new test does not apply to AWAs where the employee’s base salary is A$75,000 or more.

The government has indicated that, if re-elected, it will not be effecting any further substantive reforms, although we may see further finetuning as the new system continues to take effect.

ALP policy

On the contrary, the ALP has vowed that, if elected, ‘the Howard Government’s unfair WorkChoices laws will be abolished’. The ALP will, however, retain the underlying framework of the new national system.

In August 2007, the ALP released its ‘Forward with Fairness’ Policy Implementation Plan, containing further details of its workplace relations policy. Key elements of the ALP policy include:

• return to a safety net based on awards, combined with an expanded set of 10 National Employment Standards
• the 10 National Employment Standards will cover hours of work, parental leave, flexible work for parents, annual leave, personal, carers’ and compassionate leave, community service leave, public holidays, information in the workplace, notice of termination and redundancy, and long service leave
• awards will be ‘modernised and simplified’ so that they cover just 10 matters: rostering and hours of work, overtime rates, penalty rates, minimum wages, employment types (permanent, casual etc), minimum annualised wage or salary arrangements, allowances, leave and leave loading, superannuation and consultation and dispute settling procedures. Awards can also include industry appropriate provisions covering the 10 National Employment Standards
• collective agreements will need to be more favourable overall than this combined safety net; that is, pass a ‘no-disadvantage test’
• the ALP will retain existing award coverage, but the new award system will not apply to employees earning more than 100,000 AUD per year, who commence employment after the system takes effect on 1 January 2010
• abolition of AWAs, with Individual Transitional Employment Agreements (ITEAs) being available to businesses currently using AWAs over a two-year transition period (subject to a ‘no-disadvantage’ test)
• an emphasis on collective bargaining, with new obligations to negotiate with a union if employees request it, and ‘good faith bargaining’ obligations. Employers will be required to negotiate with a union even if only a minority of employees require it. In such circumstances, if a collective agreement is made with a majority of the employees directly (and not the union), it appears that the union will still have an automatic right to be ‘bound by’ the agreement
• mandatory flexibility clauses in awards and new collective agreements, allowing individual flexibility arrangements (provided there is no disadvantage to the employee)
• replacement of existing regulatory bodies with a new industrial body to be called ‘Fair Work Australia’
• removing the general unfair dismissal exemption for businesses with 100 or fewer employees, and instead introducing a package of measures designed to alleviate the burdens of unfair dismissal for small business (fewer than 15 employees), including an extended qualifying period of 12 months before employees can access the system. Another proposed measure is a ‘Fair Dismissal Code’ which, if complied with, would guarantee an employer safety from an unfair dismissal claim. The policy material does not make it clear whether the proposed procedures are confined to small employers (ie, fewer than 15 employees) or whether they will apply to all employers.

In some respects, the August 2007 document represents a significant softening of the ALP’s previous anti-WorkChoices position, with indications that the status quo will be maintained in several areas where it was previously thought that changes may be made in favour of employees or their unions, for example:

• restrictions on union right of entry
• current secondary boycott laws in the Trade Practices Act 1974 (Cth), which restrict ‘sympathy strikes’
• secret ballot requirements for lawful industrial action, and
• prohibitions on industrial action in pursuit of pattern bargaining.

Implications for employers

The implications of the ALP’s workplace relations policy are still far-reaching and many employers are anxiously awaiting the outcome of the election.

If the ALP is elected to government, then its new workplace relations system will take effect from 1 January 2010, after a two year transition period.

In the meantime, many employers will have to continue with a ‘wait and see’ approach. Although the release of the ALP’s policy contains welcomed further detail, some key details are either uncertain or remain to be determined, and questions about how the reforms will impact on employers remain. It is expected that some of these questions will be answered as the federal election approaches.

This article was written by George Cooper, Practice Leader, Workplace Law & Advisory, Asia, and Duncan Fletcher, Senior Associate, Freehills.

Expatriate awarded controversial severance payment in Indonesia

In a recent highly-controversial decision of the Indonesian Industrial Relations Court (IRC) (which is part of the district court of central Jakarta), an Indonesian company was ordered to make a significant severance payout to an expatriate employee. The severance payment was calculated according to the formula fixed under Law No.13 of 2003 concerning Employment (employment law). Up to now, this entitlement has generally been understood as being applicable to Indonesian employees only.

Background

In this unusual case, No.174/G/2006/PHI.PN.JKT.PST, the employer terminated the expatriate a number of years after the expiry of two fixed-term employment agreements, which the employer had entered into with the employee. However, instead of bringing a civil claim in the district court for wrongful termination (as would normally have been the case), the expatriate brought the claim in the IRC seeking to rely on the protections given to Indonesian employees under the employment law.

Under the employment law, an expatriate may only be employed for a particular position and for a ’fixed term’. The procedure for employing expatriate employees is also subject to specific regulations including, for example, requirements to obtain foreign worker usage plan approval (Rencana Penggunaan Tenaga Kerja Asing, or RPTKA) and work permits for foreign workers (Izin Mempekerjakan Tenaga Kerja Asing, or IMTA – previously known as IKTA). As a matter of practice, this generally means the expatriate will enter into a fixed-term employment contract, commensurate with the term of the underlying work permit (subject to possible extensions).

In contrast, fixed-term employment agreements for Indonesian employees may only be made for certain types of work activities that can be completed within a fixed term, and are subject to the restrictions referred to in the employment law and relevant regulations, including maximum terms for fixed term contracts.

Controversial ruling

One of the main issues examined by the IRC was the fact that the employer continued to employ the expatriate without entering into a new fixed-term employment agreement. This led the IRC to conclude that the employer had changed the expatriate’s status from a fixed-term employee to a permanent employee (in much the same manner as would have happened if the expatriate had been Indonesian). The IRC then took a significant new step by allowing the expatriate the benefit of the generous severance payout provisions in the employment law upon termination.

According to the IRC’s reasoning, had it not found that the expatriate was a permanent employee entitled to severance under the employment law, then the expatriate may have been deprived of a remedy and become the victim of discrimination. In its reasoning, the IRC considered Indonesia’s responsibilities under ILO Convention No.111 concerning Discrimination in respect of Employment and Occupation (1958), which Indonesia ratified in 1999. It appears that the IRC may have also been influenced by arguments for equal rights under the Indonesian Constitution, and because there is a lack of clear differentiation between the rights of foreign and Indonesian employees in the employment law.

Implications for employers

Despite the IRC’s reasoning, the finding that the expatriate’s status had changed into that of a permanent employee is controversial and seemingly inconsistent with the provisions in the employment law and the associated regulations regarding the employment of foreign workers.

We are aware of some exceptional cases where the former Labour Tribunal has accepted claims by expatriate employees, contrary to the accepted practice that expatriates are not entitled to the same benefits offered to Indonesian employees under the employment law, including standing to bring a claim against an employer before the Labour Tribunal. However, until now, it has generally been assumed that the basis of these claims was more to do with vulnerabilities in the Indonesian legal system rather than the clear legal rights of expatriate employees.

The latest decision appears to indicate a move towards expanding the application of the employment law to foreign workers. Accordingly, employers should put in place a system to ensure foreign workers do not continue working past the expiry of a fixed-term contract. Interestingly, the decision of the IRC does not appear to have been appealed to the supreme court.

This article was written by Robert Reid, Foreign Counsel, and Syara Djumhana, Associate, of Soemadipradja & Taher, Freehills’ correspondent office in Indonesia. 

Labour Code amendments for dispute settlement in Vietnam

From 1 July 2007, amendments to the Vietnamese Labour Code in relation to the settlement of labour disputes, including the use of strikes (amendment), have come into force. With this amendment, the rules applicable to the settlement of labour disputes and the procedures for running strikes are now regulated more clearly.

Background

According to the old provisions of the Labour Code regarding the settlement of labour disputes, if employees were not satisfied with the decision of the Labour Arbitration Council in relation to the settlement of a collective labour dispute, they were entitled to strike or request the court to resolve the matter.

Under these provisions, the likelihood of strikes occurring in Vietnam was relatively high, particularly in connection with foreign invested enterprises. According to the Ministry of Labour, War Invalids and Social Affairs statistics, 1,290 strikes occurred in Vietnam from 1995 to 2006, with 75 per cent of those strikes occurring in connection with foreign invested enterprises.

In order to reduce the number of strikes, the amendment provides for new procedures whereby certain labour disputes must be taken to the court, instead of leading directly to a strike.

New provisions

The amendment classifies collective labour disputes into ’disputes on rights’ and ’disputes on interests’. It is expected that a number of disputes on rights will result in proceedings in the court for final settlement. With respect to a collective labour dispute on interests, after unsuccessful conciliation at the local labour reconciliation council and the provincial labour arbitration council, a strike may be conducted by the trade union in the enterprise in accordance with the strict procedures stipulated by the amendment. Strikes that are not held in conformity with these procedures may be considered unlawful.

Either the employer or its employees are entitled to apply to the appropriate court for consideration of the legality of a strike. In addition, employees participating in a strike shall not be paid salary or other benefits pursuant to law, unless the parties agree otherwise.

Implications for employers

In the event of a decision by the court that a strike is unlawful, employees must immediately cease striking and return to work no later than one day after the date of the court decision. If the employees remain on strike then, depending on the seriousness of the breach, the employees may risk exposure to a labour disciplinary penalty, in accordance with the labour law.

In the event that an unlawful strike causes loss or damage to the employer, the organisation and individuals participating in the strike who were at fault must pay compensation for the loss or damage. A person taking advantage of a strike in order to cause public disorder or to damage any machinery, equipment or assets of an enterprise, or any person who incites, embroils or forces employees to strike may, depending on the seriousness of the breach, risk exposure to an administrative penalty or criminal prosecution. If the offender causes loss and damage, he or she must pay compensation in accordance with law.

Currently, a decree is being drafted that provides guidelines on compensation to employers in the event that an unlawful strike cause loss or damage. The decree is expected to be issued by the end of this year.

This article was written by Mark Fraser, Managing Lawyer, and Phung Thi Thanh Thao, Lawyer, of Frasers Law Company, Freehills’ correspondent office in Vietnam.

Singapore’s new Fair Employment Guidelines

New Fair Employment Practices Guidelines (guidelines) were recently issued in Singapore by the Tripartite Alliance for Fair Employment Practices (TAFEP). The guidelines set out fair employment practices that should be adopted by employers to help prevent discrimination in the workplace.

Background

The TAFEP was formed in 2006. It is an alliance between the Ministry of Manpower (MoM), employer organisations (the Singapore National Employers Federation and Singapore Business Federation), and unions (the National Trades Union Congress).

The guidelines replace the Code of Responsible Employment Practices, which was jointly issued by SNEF/SBF and the NTUC in 2002.

Extensions

Like the former code, the new guidelines are designed to encourage employers to adopt fair employment practices, which promote equal opportunity in recruitment, appraisal, promotion, posting and training. However, the guidelines go further. In particular, they:

• are couched in more mandatory terms and have the express backing of the MoM, as part of the alliance behind them
• require grievance handling mechanisms to be set up to deal with complaints of discrimination. These contemplate a role for the MoM in settling grievances, rather than mere ‘self-regulation’ by employers
• include new references to pregnancy and family status as non-discrimination attributes, in addition to age, race, gender and religion
• add ‘remuneration’ as an area where discrimination should not occur
• include a new section requiring procedural fairness in dismissals and retrenchments. These provisions appear to go further than elimination of discrimination on particular grounds. They require record keeping in relation to employee performance and conduct, opportunities for employees to present their case before dismissal and reference of the final decision to ‘an independent panel for assessment’

Implications for employers

Employers in Singapore should familiarise themselves with the new guidelines. Whilst not legally binding, there is clearly a role for the MoM to become involved in cases. In fact, the guidelines expressly state that the MoM will make reference to the guidelines when addressing complaints of alleged unfair employment practices.

Singapore is growing as a hub for regional management of multinational operations and the numbers of managerial and executive employees are swelling. Importantly, it appears that the guidelines will have broad application, with no express exclusion of senior or foreign employees.

This article was written by George Cooper, Practice Leader, Freehills Workplace Law & Advisory, Asia.

Non-regular worker reforms spark protests in Korea

On 1 July 2007, the Non-Regular Workers Protection Act (Act) took effect in Korea. The Act aims to promote stability in the labour market, by prohibiting discrimination against non-regular employees.

Instead of producing the desired stability, several companies and, most notably, a large Korean supermarket chain, acted in anticipation of the new law by terminating the employment of many non-regular workers, leading to large scale protests and strikes across Korea.

Background

Korea has a large non-regular workforce. Non-regular workers include fixed term, part time and temporary workers. In 2006, it was estimated that non-regular workers comprised 35.5 per cent of the Korean working population.

The Act introduces new limits on the duration of fixed term contracts—if an employer employs a fixed-term employee for longer than two years, the Act automatically grants that employee regular worker status (the fixed-term worker shall be treated as an employee on an indefinite term contract).

The Act also contains provisions aimed at preventing discrimination against non-regular workers on the basis of wages and other working conditions. The standard of comparison is with regular workers who perform the same or comparable work in the same business or workplace.

The Act has immediate effect for employers with more than 300 employees. It will not be effective for some time in the case of smaller employers.

Strikes

In anticipation of the new laws, several large Korean companies took steps to dismiss a number of non-regular workers in an effort to avoid the increased wage costs associated with these employees converting to regular workers.

One company—a large Korean supermarket chain—received a lot of attention in the press when it announced the mass dismissal of over 1000 non-regular workers. The majority of these workers were replaced by outsourced labour, while some were offered regular worker status. The dismissal of these non-regular workers sparked large strikes and protests, with police being brought in to control the protesters.

Implications for employers

While the Act makes important inroads into the prevention of discrimination against non-regular workers, the unintended consequences of the new law has led some commentators to question their overall effectiveness. In this context, the outsourcing of labour may become a key strategy for Korean employers in the future.

Notwithstanding the above, it is clear that employers need to take note of the new laws. Breaches can be reported to the Labour Relations Commission and employers risk exposure to imprisonment of up to two years or a fine of up to K$10 million won.

This article was written by Lisa Croxford, Senior Associate, Freehills.

For more information please contact

Name : George Cooper
Title : Practice Leader, Workplace Law & Advisory – Asia
Office : Singapore
Phone : +65 6236 9941
Fax : +65 6538 2575
Email : george.cooper@freehills.com

Name : Russell Allen
Title : Partner
Office : Perth
Phone : +61 8 9211 7838
Fax : +61 8 9211 7878
Email : russell.allen@freehills.com