Labour disputes: Connecting arbitration and litigation

As a procedural requirement under the Chinese legal framework for labour dispute resolution, a labour dispute must be referred to the labour dispute arbitration commission before it can be submitted to a court of competent jurisdiction. The arbitral award for a labour dispute is not final, which is in sharp contrast to the awards for ordinary commercial disputes. The major purpose of this procedural requirement is to divert the large number of labour disputes to multiple channels, especially to mediators who are expected to play a dominant role in settlement of these cases.

Labour arbitration commissions and courts are different. A court is a judicial body, whereas the commission is established by the government to deal with labour disputes. In other words, the commission is an integral part of an administrative body, and the commission’s power to adjudicate disputes originates from special authorization under laws. Since labour arbitration and litigation involve distinctively different proceedings, it is necessary to provide for, as part of the pertinent legal framework, the connection between arbitration and litigation. According to current regulations, arbitration is a pre-trial procedure that must be undergone; a party to a dispute may initiate a lawsuit only if he or she disagrees with the arbitral award. Given the variations of cases, these provisions are oversimplified. This article analyzes some typical circumstances.

One or more awarded items are not challenged by either party concerned. Pursuant to the judicial interpretation of the Supreme People’s Court (SPC), the arbitral award for a labour dispute case issued by the labour arbitration commission will not take effect if a party to the dispute files a lawsuit with the court in respect of any contents of the award. That is to say, once a party challenges the award in court, it will become null and void generally, and the court should hear the dispute all over again. However, does the court have the discretion to affirm any awarded item simply because one or both parties concerned show no objection to it? Or can the main body of the court’s judgment affirm any awarded item to which neither parties disagree but which does not form part of the plaintiff’s cause of action?

According to the Intermediate People’s Court of Nanjing, if only one party initiates a lawsuit with the court after the arbitral award is issued, the party that does not bring the dispute to the court will not be deemed to have accepted the award. As required by the principle of complete review, the court should also hear the defence from the respondent.

According to the Higher People’s Court of Beijing, if neither party brings the dispute to the court within a statutorily prescribed period after the arbitral award is issued, or if the court receives a complaint in respect of only part of the award, the court will conduct a hearing only in respect of the claim(s) received during the statutorily prescribed period, in order to ensure consistency between claims and hearings. Any part of the arbitral award against which neither party appeals can be affirmed in the “Court’s Opinion” section and incorporated into the main body of the judgment. For any awarded item that is not challenged by one or both parties, if it does not involve identification of employment relationship, or is not detrimental to the interest of the state, collectivity or any third party, the admission rule should be cited to confirm that the party or parties do not have any objection to that item. Meanwhile, the awarded items not challenged by, and acceptable to, both parties should be confirmed in the main body of the judgment given its res judicata.

Additional claims are made. If upon completion of the arbitration proceedings a party identifies any additional issue, or has an updated understanding about facts or application of laws, and he/she hopes to solve the new issues through litigation, he/she is likely to file a complaint that contains claims not covered in the arbitration application. But it is not always practicable to require that the parties undergo arbitration proceedings in respect of the additional claims.

Pursuant to the judicial interpretation of the SPC, where any additional claim is received from a party after the labour dispute case is accepted by the court, joinder of claims must apply if the additional claim is inseparable from the dispute being heard, or the party must be told to refer the additional claim to the labour dispute arbitration commission if it involves a separate labour dispute. Inseparability is established if the additional claim and the issue for which arbitration proceedings have been completed are based on the same legal relationship or the same fact.

For example, if an employee only requests the arbitrator to invalidate and terminate his/her employment contract on the basis of any fraud committed by the employer, his/her claim for financial loss against the employer, as filed with the court, can be deemed inseparable from the dispute taken to arbitration, and joinder of claims will therefore apply.

Change to claims. There are cases where the amount claimed is adjusted at the time when litigation is initiated. In the authors’ opinion, since the adjustment of amount does not affect the fact that arbitration proceedings have been conducted for the original claim, the adjustment must be permitted, and hearing of the case must be conducted based on the updated amount. But let’s imagine there is a scenario where the employee claims for compensation in the arbitration proceedings on the ground of illegally termination, but requests continued performance of the employment contract in the litigation proceedings. Should this change be permitted? Although the laws provide the employee with the right to select remedies upon cancellation or termination of employment due to the employer’s violation, the choice should be made at the time when arbitration application is submitted.

Besides, since continued performance of the employment contract is believed to be of greater value than any damages, a change of claim from damages to continued performance must not be permitted. On the contrary, if the employee requests continued performance of the employment contract in the arbitration proceedings, but subsequently replaces it with damages when bringing the case to the court, the change should be permitted.

Currently, practices vary in different regions of China due to lack of detailed provisions concerning connection of arbitration and litigation for labour disputes. The labour arbitration system should be improved, based on a review of practices, to identify differences between arbitration and litigation, and top-down design should be completed to enable the connection, and to protect the parties’ rights.

Xia Liqun is a senior partner at Wintell & Co. He can be contacted on +86 21 6854 4599 or by email at xialiqun@wintell.cn

Chen Qixin is an associate at Wintell & Co. He can be contacted on +86 21 6854 4599 or by email at chenqixin@wintell.cn

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