The Democratic Procedures Partial Interpretation

Discussing the “Right and Wrong” of the Democratic Procedures of Employers’ Rules and Regulations——From the Perspective of Judicial Practice Interpretation of Article 4, Paragraph 2 of the PRC Labor Contract Law

INTRODUCTIONDemocratic procedures refer to the ways or steps which should be taken in advance for the implementation of democratic system. Democratic procedures are widely used in modern society, and one example is the requirement in the Labor Law of the People’s Republic of China (hereinafter referred to as the “Labor Law”) for employers to fulfill democratic procedures in their rules and regulations. Article 4, paragraph 2, of the Labor Contract Law of the People’s Republic of China (hereinafter referred to as the “Labor Contract Law”) promulgated in 2008 stipulates that: “The formulations, amendments and decisions made by Employers with respect to rules on labor compensation, working hours, leave and rest, occupational safety and hygiene, insurance and welfare, training, work discipline or work quota management, etc., which have a direct impact on employees’ immediate rights and interests, or other material matters, shall be presented to the employee representative congress or all the employees for discussion, and the proposal and advice thereof shall be determined after consultation with the labor union or employee representative on the basis of equality.” The provision clearly stipulates that the employer should go through democratic procedures when formulating rules and regulations, and also clarifies the scope, specific ways and steps of the democratic procedures. However, in the actual practice, this provision reveals many problems that are very doubtful for employers. In particular: “Can the rules and regulations which have not gone through democratic procedures be used as an effective institutional basis for punishing employees?”

In fact, in terms of this issue, the diversity of opinions from judgments of the courts in different regions brings tremendous challenges and legal risks to human resources management which means the misinterpretation may lead to legal risks including but not limited to illegal termination of labor contracts. In the light of this situation, this article selects the typical labor dispute cases in Beijing, Shanghai and Shenzhen in the past three years for analysis and interpretation, discussing the legal risks that employers should pay attention to in the democratic procedures and providing solutions pursuant to the enacted rules and regulations.

CASE 1

Company A has terminated the labor contract with its former employee Tong on the grounds of serious violations of the rules and regulations. The rules and regulations for dismissal were Integrating Virtue and Talent to Create a Good Bauhinia Culture and its annex Declaration Form of Employee Relatives and Associated Business Relations. Afterwards, Tong refused and brought up labor arbitration and litigation.

According to the Company A’s rules and regulations: “...2. The employee per se or his/her relatives are prohibited from establishing business relationship with Bauhinia or other subgroups or subsidiaries of Ye’s, including but not limited to distributing, servicing, supplying, leasing, etc., even if the prices are cheaper than the market. For this reason, the abovementioned business relationship which has been established reasonably before 2012 must be declared before March 31, 2012. After being approved by the general manager of the correspondent entity, it shall be provided to the Group for review and shall be terminated as soon as possible within a reasonable time. If the business relationship is not declared within the time limit, it will be considered prohibited. All such business relationship arising after 2012 will be prohibited. 3. The abovementioned declarations (including those which should be declared but not yet), if any employee is found to have violated the regulations in the future, it will be regarded as a serious violation of the employer’s rules and regulations and will be strictly handled...”

After hearing the case, the court of second instance determined that the Integrating Virtue and Talent to Create a Good Bauhinia Culture stipulates the rules and regulations directly related to the vital interests of employees, but the employer did not submit corresponding evidence to the court to prove that the relevant provisions in the document have gone through democratic procedures. Therefore, the court held that there was no institutional basis for the termination of the labor contract between the Company A and Tong, which constituted an illegal termination. As a result, Company A should pay Tong the compensation for the illegal termination of the labor contract.

The authors’ analysis: If the provisions, which directly related to the vital interests of the employees, are included in the operational and/or managing rules and regulations of the employer, the provisions should also go through democratic procedures.

In the above case, the employer did not accurately interpret the scope of democratic procedures in the Labor Contract Law. Article 4, paragraph 2, of the Labor Contract Law, specifically lists the scope of the rules and regulations that should go through democratic procedures. Although the rules and regulations in the case do not list in the specific provisions “labor compensation, working hours, leave and rest, occupational safety and hygiene, insurance and welfare, training, work discipline or work quota management”, the provision that “employees’ violation of ‘conflict of interest’ will constitute ‘serious violation of the company’s rules and regulations’, and the employee should be dismissed” is deemed to be “other rules and regulations which have a direct impact on employees’ immediate rights and interests, or other material matters”, and should go through democratic procedures according to law. Employers may easily neglect the content in this non-exhausted list which has been pointed out by “other rules and regulations which have a direct impact on employees’ immediate rights and interests, or other material matters” as stipulated in article 4, paragraph 2, of the Labor Contract Law. However, due to the uncertainty of such legal provision, misunderstandings or inconsistent judicial opinions are prone to occur, resulting in frequent legal risks, where employers shall stay on high alert on the human resource management.

The rules and regulations of employers can generally be divided into two categories: one is the rules and regulations directly related to the management of employees’ employment relations, such as the employee handbook, performance appraisal regulations, attendance system, disciplinary punishment regulations, etc.; the second is the rules and regulations related to the general operation and management of the company, such as chopping policy, travel reimbursement policies, and company culture, etc. The first category should adopt democratic procedures, which is generally recognized in judicial decisions.

But should the second category go through democratic procedures? We believe a case-by-case analysis is necessary for specific situation in second category, which cannot be generalized. If there are provisions directly related to the vital interests of the employees (including but not limited to termination of labor contracts, deduction of wages or performance bonuses, cancellation of statutory annual leave), the relevant provisions shall go through democratic procedures in accordance with the law. Otherwise, in the event of labor disputes, the employer will face the legal risks that these relevant provisions will not be deemed as the system basis by court for punishing employees, and thus bear the relevant legal consequences. The rules and regulations in the above case are clearly general operational and managing policies of the company. There is only one provision involves punishment for employees while the policy did not implement democratic procedures. However, the termination of labor relations between the employer and the employee applied precisely this provision which failed to perform the democratic procedures, which led to the loss of the entire case.

We recommend employers to comprehensively and rigorously review the rules and regulations formulated and implemented whether the provisions directly related to the “vital interests” of employees are contained. If there are such provisions, employers shall carry out democratic procedures for the relevant rules and regulations; or incorporate the relevant provisions concerning the “vital interests” of employees into the rules and regulations regarding employee management and implement the democratic procedures uniformly according to law. 

CASE 2

Zhang had worked in a company until May 30, 2016, and then did not go to the company to provide labor any more. The company send a notice of returning to work to Zhang on June 8, 2016, while he refused returning after receiving the notice. The company decided to terminate the labor relation with Zhang on June 13, 2016 according to the Employee Attendance Management Policy and Employee Leave Management Policy. Afterwards, Zhang refused to terminate, and then brought up labor arbitration and litigation.

The court of first instance held: Zhang claimed that the employer’s executive had let him bring up lawsuit or seek another job, so that Zhang did not provide labor to the employer since May 31, 2016. But Zhang did not submit evidence to prove it. After the employer send a notice to Zhang, Zhang did not return in time as required in the notice. The employer legally terminated the labor relation with Zhang in accordance with the company’s rules and regulations. Zhang argued that the training records of the rules and regulations were blank when they were signed, but he failed to submit evidence, so the court will not approve the claim. Because Zhang seriously violated the employer’s rules and regulations, the court overruled Zhang’s claim that the establishment of the employer’s rules and regulations had not been carried out in democratic procedures, so the employer was illegal to terminate the labor relations.

The court of second instance held: According to the facts ascertained, Zhang did not work from May 31, 2016 to June 8, 2016, and did not return to work after the employer send the notice of returning to work. Zhang claimed that he could not work due to injury, but did not submit evidence to prove it. Although Zhang claimed that the rules and regulations of the employer had not been undergone democratic procedures, there was no evidence to prove the employer’s rules and regulations violate laws and related regulations. In addition, Zhang has signed and confirmed in the training part of employer’s rules and regulations, so Zhang’s claim is not accepted by the court. Therefore, the court overruled Zhang’s claim which the employer should pay compensation for its illegal termination of labor contract.

The authors’ analysis: Rules and regulations which have not gone through democratic procedures may still be an effective institutional basis for punishing employees in specific situations or areas.

In this case, although the rules and regulations which the termination based on had not been formulated through democratic procedures, the court still considered that the rules and regulations were binding on the employee, and the termination of the labor contracts was legal. The employee had been absent for work formore than 10 days without justified reasons. This behavior violated the rules and regulations that were clearly stipulated by the employer and had been notified to the employee, as well as violated the labor discipline and professional ethics that the employee should abide by. Under this circumstance, even if the employer did not provide evidence to prove that the relevant rules and regulations had gone through democratic procedures, the court still determined that the employer’s act of terminating the labor contract was legal.

In fact, if the rules and regulations of the employer do not violate laws and regulations and have been duly notified the employees, they are not necessarily deemed as invalid even if they have not gone through democratic procedures. First of all, from the legal perspective of the application of legal rules, the provisions that violate the mandatory laws/regulation are invalid, and the provisions that violate the guiding laws/regulations are not necessarily deemed to be invalid. But there is no conclusion yet whether Article 4, Paragraph 2 of the Labor Contract Law is mandatory or guiding norm. In judicial practice, the lack of democratic procedures is just one of the reasons for negating rules and regulations. Lack of rationality of rules and regulations and insufficient evidence of violations are also important reasons for negation. Secondly, from the perspective of legislative purposes of labor laws and regulations, although labor laws and regulations are based on the protection of employees who are typically in a weak position, it should be noted that labor laws and regulations only protect the legitimate and reasonable rights and interests of employees. In specific cases, the courts still need to make judgments according to specific circumstances, in order to balance employees’ legitimate rights and interests and employers’ right of employment management, to achieve the goal of promoting and guiding harmonious labor relations. As for the relevant contents of the rules and regulations such as basic obligations under labor relations, labor discipline and professional ethics based on the principle of good faith, or reasonable workplace rules that are widely recognized by the society or have been understood and accepted by most people, if they are negated on the grounds that they have not gone through democratic procedures, it will be contrary to the principles of labor legislation.

Based on the analysis of court judgments in Beijing and Shanghai, it can be seen that many cases also adopted this judicial practice, such as Shanghai First Intermediate People’s Court (2017) Shanghai 01 Civil Final 4883 Civil Judgment. In many cases, the court examined the legal effectiveness of rules and regulations that had not undergone democratic procedures mainly from the following three aspects:

1. Whether the rules and regulations had fulfilled the publicity procedure and whether the employees had been duly notified;

2. The legality of the contents of rules and regulations, that is, whether the contents of rules and regulations violated laws and regulations;

3. The reasonable justification of the contents in the rules and regulations, the court mainly judged whether the rules and regulations of the employer conformed to the basic labor discipline and professional ethics requirements. Further analysis will be carried out in conjunction with the characteristics of the post, such as on-the-job patrols for security posts or integrity rules for financial posts.

Other than Beijing and Shanghai regions, there are clearer and more flexible judicial practice in the Guangzhou and Shenzhen areas. Pursuant to Article 20, paragraph 2, of the Guiding Opinions of the Guangdong Higher People’s Court and the Guangdong Provincial Labor Dispute and Arbitration Commission on the Application of the Labor Dispute Mediation and Arbitration Law and the Labor Contract Law: “After the implementation of the Labor Contract Law, when formulating or amending rules and regulations or significant policies directly related to the vital interests of employees, the employer has not go through the democratic procedures stipulated in Article 4, paragraph 2, of the Labor Contract Law, so the rules and regulations cannot, in principle, serve as the basis for employment management of the employer. However, if the contents of rules and regulations or significant policies do not violate laws, administrative regulations and policies, there is no obvious unreasonable situation, and employees have been publicized or notified and have no objection, they can be used as the basis for labor arbitration and people’s court decisions.” Article 72, paragraph 2, of the Guidelines for the Judgment of the Shenzhen Intermediate People’s Court on the Trial of Labor Dispute Cases stipulates that: “After the implementation of the Labor Contract Law, when formulating or amending rules and regulations or significant matters directly related to the vital interests of employees, the employer have not go through the democratic procedures stipulated in Article 4, paragraph 2, of the Labor Contract Law, so the rules and regulations cannot, in principle, serve as the basis for employment management of the employer. However, if the contents of rules and regulations or significant matters do not violate laws, administrative regulations and policies, there is no obvious unreasonable situation, and employees have been publicized or informed and have no objection, they can be used as the basis for employment management.”

CASE 3

An employer has terminated labor contract with its former employee on the grounds of serious violation of rules and regulations by absenteeism. The rules and regulations for dismissal were the Attendance Management Regulations. Afterwards, the employee refused to terminate, and then brought up the labor arbitration and litigation.

The Attendance Management Regulations stipulates that: “Employees must fill in the Leave Form one day in advance; the leave shall not be taken if employees failing to complete the application process, , otherwise they will be considered as absenteeism; if there are urgent matters that employees cannot apply for leave in advance, they may ask for leave by phone call alternatively and can take leave after supervisor’s approval, and the leave application process shall be complete as soon as employees returning to work, and those who fail to complete the leave process shall be regarded as absenteeism; If employees are absent from work for two consecutive days, they will be regarded as resigning voluntarily, and the employer has the right to unilaterally terminate the labor contract.

The employee claimed that this provision was invalid since it had not gone through democratic procedures; in response, the employer provided Labor Union Resolutions and the Rules and Regulations Training Check-in Form.

The court of second instance held that: the existing evidence shows that the rules and regulations on attendance management of the employer have gone through democratic procedures and informed Wang, but Wang has not provided evidence to prove that Wang has asked for the leave orally or made up for it afterwards, and should bear the corresponding adverse consequences. According to the rules and regulations, the employer terminated the labor relations on the grounds of Wang’s absenteeism, and does not need to pay Wang economic compensation for the termination of labor contracts.

The authors’ analysis: In judicial practice, the steps of democratic procedures of rules and regulations has been reduced.

In this case, the main controversy between the two parties is whether the Attendance Management Regulations had gone through democratic procedures and were binding on the employees. According to the provision of Article 4, paragraph 2, of the Labor Contract Law, democratic procedures are in two steps:

1. The employer shall put forward plans and suggestions after discussion by the labor union or all employees;

2. The employer shall negotiate and determine on an equal basis with labor union or representatives of employees.

In the case, the Labor Union Resolutions provided by the employer can only prove that the first step of the democratic procedures had been fulfilled, and cannot prove that the employer had conducted equal negotiation. However, the court determined that the Labor Union Resolutions provided by the employer proved that the Attendance Management Regulations had gone through democratic procedures, and the Training Check-in Form also proved that the employees have been duly notified, so the provisions were binding on employees.

The similar judicial opinions have been widely applied in the first-instance and second-instance judgments of the courts in Beijing, Shanghai, and Shenzhen, especially the courts in Tianjin clearly holds this view. Article 23 of the Guidelines for the Trial of Labor Dispute Cases in Tianjin Court stipulates that: “As for the rules and regulations stipulated in Article 4, paragraph 2, of the Labor Contract Law, if the employer formulates them through one of the following procedures, it may be deemed to have gone through the democratic agreement procedures: (1) after discussion and consultation by the labor union or all the employees; (2) equally negotiated with the employer’s labor union; (3) equally negotiated with the employees’ representatives.

The focus of the “democratic procedures” still lies in the word “procedures”, and the courts are more concerned about the rights of employees to participate in the formulation of rules and regulations of employers. In the case that there are no obvious defects in the contents of the rules and regulations or significant policies, and they have been publicized or duly notified the employees, if the employer can provide evidence to prove that it has taken corresponding actions and safeguards on the democratic participation rights of the employees according to law when formulating the rules and regulations, the courts generally do not strictly require the employer to complete and strictly perform all the steps in the democratic procedures.

CONCLUSION

Limited to the space limitations, this article only analyses and discusses the controversy of “right and wrong” in the democratic procedures of the employer’s rules and regulations from the above three points. In fact, the controversy and legal risks of the democratic procedures of the rules and regulations are far more than that. Under the macro background of the current state emphasizing the rule of law, the micro-operation of legislation and justice will be more and more comprehensive and rigorous.

We recommend that employers focus on regulatory compliance risks in human resource management. When formulating, amending or abolishing rules and regulations or significant matters, the employers shall strictly review whether the contents directly related to the vital interests of employees are contained. It is necessary that the employers shall take appropriate steps and methods to carry out democratic procedures in accordance with the requirements of the law and actual situation if the “vital interests” clauses are contained. Employers should avoid the situation in which the democratic procedures are not conducted or illegally conducted. Otherwise, the rules and regulations may not be used as the institutional basis for adjudication, because without duly conducted democratic procedures, the matters that could be legally dismissed or dealt with could be highly risky or deemed to be illegal.

 作者介绍
 

   喻 鑫    合伙人
010-5809 [e-mail]

喻鑫律师具有10年以上法律从业经验，一直专注于中高端人力资源法律业务，尤其在TMT和金融行业有丰富的经验。

喻律师在灵活用工、人力资源合规、商业秘密与人才争夺、员工安置、高管解雇、突发事件处理及企业控制权争夺等项目业务上拥有很多成功案例。喻律师曾在威科、律商联讯、《劳动法苑》、《现代工商》等公开发表多篇劳动法实务文章，并是威科专栏作者。喻律师受LEGAL500邀请撰写了《全球员工股权激励2019）的中国篇。

喻律师提供过人力资源法律服务的客户超过100家，相当一部分为跨国企业、TMT和金融机构。代表性客户包括：阿里巴巴、蚂蚁金服、小米集团、爱奇艺、红杉资本、中通速递、猎豹移动、联想、携程、海底捞、 CIC、创蓝、首汽约车、老虎证券、华腾、施耐德电气、松下能源、Technicolor、罗格朗、杜尔涂装、法国兴业银行、中信集团、招商证券国际、安永、中国财政科学院、长安汽车。

喻鑫律师文章回顾

李强强

律师助理

010-5809 1368

[e-mail]

李强强毕业于北京大学法学院，获得硕士学位，主要业务领域为劳动法、公司法。

李强强在为企业与高管提供高质量的人力资源法律服务过程中积累了较为丰富的法律服务经验，包括但不限于企业法律顾问咨询，起草和审订企业的商事合同、规章制度、劳动合同、竞业限制协议、保密协议等法律文件，代理劳动争议等民、商事诉讼争议案件。另外李强强尤其擅长为企业提供定制化的专项法律服务，包括但不限于人力资源合规法律服务、员工安置、公司商业秘密保护、灵活用工、股权激励、港股上市合规等。

李强强曾在威科、公司法务联盟公开发表多篇劳动和雇佣法律实务文章。李强强提供过法律服务的客户包括但不限于爱奇艺、小米、中信集团、精密机械进出口、长安汽车、中通快递、瑞星、安永、毕马威、猎户星空、海底捞、鲁能集团、盒马鲜生、Technicolor、Live Me等。

李强强的工作语言是中文（母语）和英文（熟练）。

李强强文章回顾

 王彤 

律师助理

010-5809 1436

[e-mail]

王彤本科就读于西北政法大学法学院，并从英国格拉斯哥大学获得了法学硕士学位，主要业务领域为人力资源法律和争议解决。

王彤为多家大中型企业提供过法律服务，包括代理劳动争议案件，处理竞业限制与商业秘密争议，参与员工安置项目，协助处理危机公关项目，处理外国人、港澳台人员在华就业的相关事宜，协助进行员工违规调查，参与特殊员工的解聘与谈判，法律咨询，审查、起草和修改规章制度、法律文件等。王彤的工作语言是中文和英文。

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