(Translated from the Chinese version by Wang Feng)         

First of all, let’s review the dispute thoroughly.

On 5th March 2014, a Walmart outlet in Changde, Hunan (consisting of around 140 employees, as indicated by an employee of that outlet, or 135 employees, as reported by some media) announced that it would close on 19th March 2014 and notified all the employees of a layoff plan: employees may chose to work at another Walmart outlet or department (some positions may require interviews), or accept Walmart’s severance pay and terminate the labor contract. Walmart’s decision raised an outcry from many employees of the outlet. They believed that it is not realistic for them to work for Walmart in another city and that Walmart had breached statutory layoff procedures by failing to inform its employees and the labor union of its decision before closing the outlet. The employees want higher severance pay.  On 5th March 2014, the day of the announcement, Walmart dispatched a large number of staff and security guards to protect and transfer its assets. This act further angered its employees. Thereafter, the two sides entered into several rounds of negotiations but failed to reach an agreement. Many employees continued to protest outside the outlet, prohibiting Walmart from transferring its assets. Walmart only completed its asset transfer in mid-June. According to the media, approximately 69 employees filed for labor arbitration, demanding double financial compensation for their illegal employment termination. (There are reports that labor union also filed for labor arbitration, but I failed to find any information regarding the final outcome of such arbitration.) During the arbitration, 51 employees reached a settlement with Walmart. In late June 2014, the local labor arbitration committee rejected the request for arbitration of 18 other employees. 6 of the 18 employees appealed the arbitration decision and on 23rd July 2014, the court dismissed their claim for the reason that the Changde outlet had been deregistered. Some employees are still seeking further legal relief*please see footnote. As of the completion date of this article, no follow-up report has been released.

This is a typical labor dispute case that occurred this year and attracted a lot of attention from all over the world. This dispute will allow foreign investors in China like Walmart, scholars and observers of Chinese labor law acquire a better understanding of the Chinese labor law. The following questions might be of interest to you:

1. What do Chinese workers of the current generation want? What promises does the current Labor Law of P.R.China give them?

In the present dispute, Walmart’s employees first demanded higher severance pay. In addition, they felt unsatisfied with Walmart’s breach of the layoff procedure and its failure to leave sufficient time (generally 30 days) for them to prepare for the layoff and to allow relevant employees or the store’s labor union to negotiate or play a role in deciding the issues with respect to the store closure, the exact closure date, compensation plans and standards. In addition to financial benefits, the employees in this case repeatedly claimed that their ‘dignity’ was damaged. ‘Dignity’ has been an increasingly more important concern of the new-generation of Chinese employees.

Unfortunately, the current laws are undesirable.

According to Chinese Law, employers and employees may establish on agreement severance pay and employment contract termination conditions that are higher than the statutory standards – on the premise that the employees have the power to negotiate. However, the law stipulates that employers can unilaterally dismiss their employees in some cases and pay a statutorily fixed severance unless the employer is willing to pay a higher compensation (according to article 47 of the Labor Contract Law, the general rule is based on the number of years worked, for every year of employment, the employer must pay one month of salary and the salary amount is based on the average monthly wage for the past 12 months). In various legal practice, employers like Walmart, who unilaterally layoff their employees in order to reorganize and dissolve its coporate structure , are recognized as legitimate situations of terminating labor contracts. These employers do not need to negotiate with their employees, they only need to pay the standard financial compensation stated in the statutes. Whether these practices are supported by legal basis are debatable, however, they have become a prevalent standard in the current legal practice.

Should employers discuss with labor unions in these types of layoffs?  If it is a state-owned corporation, then important issues such as corporate dissolution and reorganization require the approval of the workers’ congress. However, for foreign invested enterprises like Walmart, there are no clear legal provisions in this regard. In the Walmart case, the employees cited article 4 of the Labor Contract Law claiming that store closure is a major issue that requires discussion with the labor union. However, like many other provisions in Labor Law, this article is not clear. It is an inexplicit clause, stipulating that employers ‘should’ consult major issues concerning employees’ interest with labor unions or workers’ congress without clearly defining the term ‘major issues’ or the outcomes of the failure to consult such issues with the interested parties. Even if such provision is interpreted in the best interest of employees, employers have the right to make the final decision on such major issues after consultation with employees and they have no right to reverse the final decision.

When employees realize that they have no other legal recourses for negotiation, they usually resort to ‘strike’ to assert their rights. However, the right to ‘strike’ is not explicitly defined and  is avoided in labor law. In reality, local government can tolerate these types of protest to a certain degree. However, if the protest reaches beyond the tolerable limit (equally no clearly defined standard), then the protest may be deemed as illegal.

This is where the problem lies: that there are loopholes in the law with respect to the rights employees want to enjoy, especially the labor union’s rights to negotiate, the right to make decision with employers and the right to strike. This injustice may seem favorable to the employers, but is actually a dangerous two-edged sword that can also hurt employers. Due to a lack of legal remedy and institutional negotiation platform, as well because suppression of one side’s inherent desire for pursuit of rights and fairness, lack of legal solutions and nonexistence of an institutional negotiation platform make it difficult to effectively communicate between employers and employees, possibly leading to various misunderstandings, making issues even more complicated, arousing severe conflict, with costs for dispute settlement going up instead of down, as we can learn from the Walmart dispute.

2. Which did Walmart do right and what did it wrong?

It is not a simple task to dismiss and displace more than 140 employees. One thing that Walmart did right was to ask relevant government departments for advice on which action was legally acceptable, as any responsible lawyer in China would advise.

Walmart’s financial compensation generally complied with the law and was slightly beyond the statutory standards. Despite possible loopholes in law with respect to statutory procedures, Walmart’s action generally respected legal practice standards.

However, Walmart neglected to talk with employees, at least before they began protesting. Ironically, after their protest, Walmart initiated a few rounds of negotiation with the outlet’s employees, while before the protest, Walmart had only visited relevant government authorities while neglecting to consult with its employees or neglecting to negotiate with the labor union, according to some employees. This is the main reason the employees were not satisfied and the case became legally debatable.

Why did Walmart fail to communicate with its employees beforehand? Whatever the reason and excuses Walmart may have, its resolute and unyielding attitude towards handling such dispute hurt employees’ dignity, an unwise way of solving the problem. This provoked intense reactions from the employees, causing economic damages to Walmart and harming its reputation. It even put Walmart at the risk of disorder and eventually it was confronted with legal proceedings.

As mentioned above, the existing labor law is not perfect and contains unclear provisions, even loopholes. In fact, there are imbalances between rights and duties of employers and those of employees. Therefore, it is unfair to blame employees for unreasonable claims. Employers should understand this reality: That even if it seems the law favors employers, there are XXX in XXX, as such, one must consider what is the most reasonable and sensible solution.

3. What role do Chinese labor unions play?

In this case, the actions taken by Walmart’s employees were impressive. They made concerted effort with extraordinary bravery to fight for their rights. They made full use of internet information resources, creating a blog and a microblog(a Chinese social media similar to twitter) from the start of their protest to inform the public, attracting international attention, sending requests to several international non-profit organizations for support and they received positive responses. As a result, many media, both in and outside of China covered this dispute. To our surprise, the labor union, which we normally believe to be think is controlled by the employer,  under the direction of the president, stood up for the workers.

It must be explained that Chinese labor unions have a hierarchy (Walmart employees explained this matter to foreign journalists on their blog). Generally, every administrative region has a labor union. Such labor union work closely with the government and may seem to be a government labor department to the public. In addition, each enterprise has its own labor controlled, in practice, by the enterprise. However, there are exceptions. For example, the chairman of the Walmart Changde outlet’s labor union is an executive official, who, when the dispute arose, decided to lead the employees in protest.

With social development, Walmart employees’ protest was supported by people from all walks of life, including university professors, students, etc. And a special academic seminar was held to study the Walmart case. Interestingly, one of the lawyers representing Walmart in the labor arbitration was a legal counsel of the All China Federation of Labor Union.

4. Some thoughts

Labor issues in China are complex. Since 2008, employers have complained that the Labor Law is imposing increasingly more restriction and costs on them. However, in reality, except for mandatory legal rules, the provisions of the labor law with respect to collective negotiation and the labor union’s rights have never been renewed. Is such the trend of labor law system wise and good? It’s hard to say and personally I don’t think so. It seems that neither of the two sides is satisfied. As can be learned from the Walmart downsizing dispute case, without the labor consultation system, Walmart, though having the right to unilaterally decide on important issues, was beset with outcries from employees and legal challenges, incurring additional costs to the whole society. Eventually, it seems doubtful that Walmart benefited from such labor system.

As the existing labor system is imperfect and not that reasonable, both employers and employees should independently analyze the facts and take actions more wisely. The ultimate solution, I believe, is to have more reasonable labor law legislation to balance the legal rights of both employers and employees.

(This article was originally written in Chinese in August, 2014. The author appreciates Ms. Yang Xiaojing’s help with the English translation.)

Footnote:

The facts described at the first paragraph of this article were quoted from the following texts.

1, Blog of Walmart workers

http://blog.sina.com.cn/strikeunion 

2, Reports from Chinese media:

http://news.youth.cn/jsxw/201404/t20140423_5073978.htm

http://news.xinhuanet.com/fortune/2014-06/26/c_1111334991.htm

http://news.163.com/14/0711/03/A0RH3LRG00014Q4P.html

http://www.hn.xinhuanet.com/2014-07/23/c_1111754087.htm

http://hunan.ifeng.com/news/rdgz/detail_2014_05/30/2358927_0.shtml

http://www.xiangshengbao.com/bencandy.php?fid-145-id-10332-page-1.htm

3, Reports from foreign media:

http://www.reuters.com/article/2014/04/07/china-labour-walmart-idUSL3N0MY05M20140407

http://www.cnbc.com/id/101760326#.