China, Labor / Employment

China Employment Disputes: Settle, Settle, Settle.

Attorney Dan Harris says there's only one way to deal with labor disputes in China.

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US china flagsEvery few weeks, one of our China lawyers gets an email from a foreign company (virtually always a WFOE) that is in a dispute with one or more of its China-based employees. These foreign companies are usually surprised to find themselves in such a dispute because they are of the view that they did nothing wrong. They too often believe that hiring my law firm will consist of us spending an hour or two reviewing the facts and the law and then telling them that they did nothing wrong and then making the case go away.

It most emphatically does not work that way.

In fact, our advice to foreign companies involved in China employee disputes is virtually always to seek to settle with the employee and then memorialize that agreement with a Chinese language settlement agreement that makes sure that employee can never sue. Our advice is based on the simple fact that employers rarely win against employees in China (this is true both in court and in arbitration), and foreign employers even less often.

I was recently copied on the following email from our China labor lawyer that describes how difficult and expensive these cases can be (I have modified this email somewhat to protect client confidentialities and to make for easier reading):

I think it important I be upfront on how we view China employment arbitration cases. We view them as typically unwinnable and nearly always not worth the money to fight.

Take your Beijing matter. For us to sort through all of the factual and legal issues could end up costing you $10,000. And once we sort through all of them, the odds are good that the best we can tell you is that you have some of a chance to prevail on a few of them, virtually no chance to prevail on most of them, and absolutely no chance to prevail on some of them. Employers very seldom win against their China employees, foreign employers even less often. And with the recent downturn in China’s economy, employer odds have gotten even worse. And if you did anything wrong in shutting down your office (and the odds are good that you did), your chances will be even lower.

And then there is the cost of preparing for the arbitration and arbitrating.

So what we suggest you do is try to reach a settlement with all of your terminated employees. Despite the bad odds for you if you go to arbitration/trial, settling this case should not be terribly difficult. These cases typically settle for about half of what the employee is originally seeking. Generally, Chinese employees want quick money and want to get on with their lives, believing that they can (and often already have) get another job. Expats generally settle because they are worried about what a drawn out lawsuit will do to their careers. The down economy may impact this thinking somewhat, but interestingly enough, past downturns have not, and we have not noticed any change in willingness to settle during this one either.

If you were to retain us, the first thing we would do is some quick research on the issues. Not anything approaching the $10,000 worth of research necessary to make arguments to an arbitration panel, but just enough have a good idea of the employees’ weak points so that we can highlight those weaknesses in the settlement talks. We then work to settle and once we settle, we document the settlement so as to ensure that the employees do not sue you.

We would also want to look into the issues with your other employees at your other locations to try to nip potential problems in those places in the bud. The earlier you resolve these sorts of issues with employees the better. We like to settle with the employees before the closing even happens, when the employees have a few more months to work and are feeling confident that they will get new jobs without any employment interruption. I assume we are too late to do that here with your Beijing office, but the sooner we deal with your other employees at your other offices to be closed, the less this all is going to cost you.

If you agree with the above approach, we should talk some more. If you do not, well then you should not retain us. Either way, I wish you the best with this difficult situation.

Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Portland, San Francisco, Barcelona, and Beijing. He is also a co-editor of the China Law Blog. You can reach him by email at [email protected].

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