I. Case Playback

Mr. Wei was a process engineer in a software company. Last April, he was sent to Shenzhen to take charge of providing technical support to another company that signed a support management contract with Mr. Wei’s unit. During his stay in Shenzhen, Mr. Wei took advantage of his status as a technician and entered the client's system to browse other software programs in the system. He even copied some programs for which the client had copyrights. After his actions had been detected, the software company paid around RMB 100,000 in liquidated damages to the client after negotiation.
In October of the same year, Mr. Wei submitted his resignation letter and his self-criticism letter about his violation. In November, Mr. Wei returned to Shanghai from Shenzhen. The following day, the unit delivered a letter saying that because Mr. Wei had infringed upon the client's intellectual property rights and violated the company's regulations while working in Shenzhen, the company had dissolved the labor contract with him. The company also claimed damages of RMB 91,771 that was later increased to RMB 101,371 plus the training costs of RMB 9,600.
According to Article 62 of the company’s Employment Regulations, “When employees violate any item below, punitive dismissal will be given but alternatives could be taken according to the severity of the circumstance”: Item 6 says, “A person who leaks business secrets or other violations of professional duty”; Item 11 says, “A person who harms the company's reputation, hurts the company's credit or does damage to the company on purpose or by fault”; Item 12 says, “A person who disobeys the rules or violates the regulations.” The Employment Regulations were included as a supplement in the labor contract between Mr. Wei and the company.
Before long, Mr. Wei and the company both submitted petitions to the District Labor Dispute Arbitration Committee separately. Mr. Wei claimed that the punishment of contract dissolution was too harsh and the company had not informed the trade union in advance. He requested a reversal of the unit's decision to dissolve the labor contract and an order that the unit pay the back wages. The unit claimed that Mr. Wei's violation was clear and caused economic loss to the unit which was proven by the client's complaints and the laborer’s self-criticism. According to the contract and the relevant Labor Law regulations, the company was allowed to dissolve the contract. The company did not have a trade union. The decisions about dismissal and damage compensation were made in a formal conference which was legal and valid. The company requested Mr. Wei to pay the training costs and the unit’s economic loss indemnity.
In January of the following year, the District Labor Dispute Arbitration Committee combined the two cases and made the judgment that Mr. Wei should pay the unit training costs of RMB 9,600 and the unit should pay Mr. Wei the relevant wages and wedding vacation wage compensation of RMB 4,045. Mr. Wei's request to reverse the contract dissolution and the unit's request for economic loss indemnity of RMB 109,726, as well as the other requests, were denied.
But both parties were unsatisfied with the arbitration result, and proceeded to the Court. Who do you think will win the case? Which side will the Court’s support?

II. Legal Background

Article 30 of the Labor Law provides that “the trade union of the unit shall have the right to air its opinions if it believes the dissolution of a labor contract by the unit is inappropriate.” If the Unit violates laws, rules, regulations or labor contracts, the trade union shall have the right to require the unit to reconsider. Where the laborer applies for arbitration or files a lawsuit against the Unit, the trade union shall offer support and assistance in accordance with the law.” This article makes it clear that the trade union of the unit has the right to intervene in matters involving the dissolution of labor contracts. The union has the right to intervene, but there is no statutory requirement that it do so in the case of a dispute.
The amended 2001 Trade Union Law adds the unit's obligation to inform and notify. Article 21 states that, “The trade union has the right to air its opinion when it regards the enterprises' and institutions' punishment as inappropriate. The enterprise should inform the trade union of the reason when it dissolves an employee's contract unilaterally. If the trade union thinks the enterprise has violated the laws, regulations and relevant contract terms and asks for reconsideration, the enterprise should consider the trade union's opinion and then inform the trade union of the result in written form.”
The Labor Contract Law enhances the authority of trade unions to a great extent. Regarding the dissolution of a labor contract, the Labor Contract Law follows the legislative concepts of Trade Union Law. Article 43 regulates, “When a Unit is to dissolve a labor contract unilaterally, it shall give the trade union notice of the reasons in advance. If the Unit violates laws, administrative regulations or the labor contract, the trade union has the right to demand that the Unit rectify the matter. The Unit shall study the trade union’s opinions and notify the trade union in writing as to the outcome of its handling of the matter.” But the Labor Contract Law still fails to provide a solution for handling the case when the unit has no trade union and dissolves the labor contract against due procedure.

III. Lawyer Debate

Party for Mr. Wei: The illegal procedure led to an invalid action.

Mr. Wei should win the case. According to Article 21 of the Trade Union Law, "When a unit dissolves a labor contract unilaterally, it shall give the trade union notice of the reasons in advance." This is a direct regulation in the law. From this provision, we know that when a unit is to dissolve a labor relationship, it should inform the trade union and get the union's approval. If the company dissolved the labor relationship with Mr. Wei for his disobedience, it should first inform the trade union in advance and acquire the trade union's approval. The software company did not do so, and this was obviously against legal procedure. The Court should support Mr. Wei's request to reverse the dissolution of his contract.
Second, it is incorrect that the software company does not have a trade union. According to Article 10 of the Labor Law, “enterprises and institutions that have more than 25 members shall establish a grassroots trade union. Even if the company has no trade union, the company should inform the general trade union in each district or county when it is impossible to inform the trade union in the Unit.”
To sum up, I would say the enterprise should acquire the trade union's approval before it unilaterally dissolves the labor contract, either according to the legislative intention of the Trade Union Law, the Labor Law or specific provisions of other relevant laws.

Party for the software company: Violation of the rules led to a legitimate dissolution.
 
The software company had the right to dissolve the labor contract with Mr. Wei. Mr. Wei's violation was clear, and the evidence was strong. Not only did he violate the regulations, but also the contract, and even the law. He ought to take legal responsibility for his actions. The software company had the right to dissolve the labor relationship.
First, a labor relationship is based on both parties' agreement on the terms of the labor contract. The terms for establishment, alteration and dissolution of the labor relationship should all be clearly stipulated in the labor contract. If the contract says that when there is violation of regulations, then the labor relationship shall be dissolved, then the company surely has the right to dissolve the labor relationship. In the supplement to the labor contract signed by the company and Mr. Wei, it clearly states the situations under which the contract can be dissolved. Mr. Wei's conduct conforms to the dissolution terms in the agreement above. Therefore, the company's decision of dissolution is legal and valid.
Secondly, trade union approval is not a statutory requirement for the dissolution of the labor relationship. According to Chapter 10 on Labor Disputes in the Labor Law, the settlement of a labor dispute in our country follows the "one arbitration before two trials" pattern, which refers to one labor dispute arbitration and two hearings in Court. This does not mention the trade union, which means the trade union in not a necessary element in the settlement of a labor dispute.
Third, the functions of the trade union include right of supervision, right of suggestion and the right of negotiation. The trade union can supervise the unit, air suggestions to handle inappropriate actions and negotiate with the company. Article 21 of the Trade union Law states clearly that, "the trade union has the right to bring forward advice if it thinks the enterprise or institution has delivered punishment towards employees that is inappropriate". The trade union does not have the right of final decision. In other words, the trade union has no right of decision, no right of denial and no right of revocation. Nor is it a party of the labor contract.
I would say Mr. Wei seriously violated the regulations. It was legal and necessary for the company to dissolve the labor relationship. Mr. Wei's argument that the labor relation cannot be dissolved without the approval of the trade union will not be valid and will not be supported by the Court.

IV. Final Judgment

Both parties were against the arbitration judgment and appeal to the Court. The Court considered that in order to secure social equity and justice, the law not only regulates the laborers' democratic rights in the unit and the rights and duties of the trade union as a representative of laborers, but also requires that managerial behavior should comply with strict procedures to avoid management’s abuse of power.
Although Mr. Wei's conduct during his business trip violated the provisions of the labor contract and the supplementary company rules, whether his violation was severe enough for the unit to dissolve the labor contract legally should not be determined until the unit lawfully informs the trade union and receives the opinions of both the trade union and the employee representatives. This is not only a procedural step required when the unit dissolves a labor contract, but also serves to protect the employees' rights to work and rights to live. Even if the unit had not yet established a grassroots trade union, it could have proceeded by informing and receiving advice from the employee representatives or local federation trade union representative.
The unit's decision dissolved the labor contract with Mr. Wei because of his errors without following due procedure. Therefore, according to the law, the unit’s decision should be reversed. The Court stated that, when working for a unit, laborers should be honest and trustworthy otherwise they will bear liability for damages to the unit caused by their errors. These damages and losses are predictable and real, but should not be considered part of the natural risks which the unit should expect to bear.
The unit did not provide convincing evidence to persuade the Court that the potential profits the software company could have earned from business with the Shenzhen company were lost due to the harmful actions of Mr. Wei. Even if the evidence was convincing, there was an agreement between the unit and its client that only applied to the parties of the contract, certainly not to Mr. Wei.
Furthermore, if Mr. Wei was no longer suitable to implement the contract between the unit and its client, the unit could arrange other staff to take over the project and avoid further damages. Therefore, the Court did not support the unit's request to make Mr. Wei compensate the unit for any lost potential profits from business with the company in Shenzhen. Accordingly, the Court ruled that the unit must reverse the dissolution of the labor contract between the unit and Mr. Wei citing stipulations from the Labor Law, the Trade Union Law and the Shanghai Labor Contract Regulations.

V. Expert Evaluation

Procedures are important and should not be overlooked.
Professor Dong Baohua from East China University of Political Science and Law

The focus of dispute in this case is whether the dissolution of the labor contract should go through the trade union. It is, in fact, necessary according to current law. According to the Trade Union Law, the Shanghai Labor Contract Regulation and the Letter Answering Problems in Hearings of Labor Disputes issued by the Shanghai High Court, the unit should inform the trade union if it unilaterally dissolves a labor contract. So in this case, Mr. Wei's claim that the unit dissolved the labor relationship illegally without the approval of the trade union is valid. The Court also supported his claim.
Here, I would like to make it clear that our people often have a habit of not paying attention to process. They think that as long as the facts are correct the procedures do not matter. It is just like the saying, “All roads lead to Rome.” Actually, the process is so important that if the process is incorrect, even with clear facts, your claim will still not be supported. In Western parlance they say that there is no legal justice without due process. The judgment of this case expresses this emphasis on process.
Meanwhile, I think the current legal system is sort of irrational. In this case, the software company has no trade union. There was, however, no evidence showing that the company had impeded the establishment of a trade union. Establishment of a trade union is the free right of employees. We cannot blame the company for the lack of trade union.
Current laws have no provisions stipulating the procedures of dismissal in enterprises without trade unions. We certainly cannot say that these units are not allowed to dismiss employees. The idea that units without a trade union can inform the district federated trade union is not viable. The district trade union has no way of knowing the situation inside every unit. If they are going to make suggestions, they have to send a special team to investigate. But trade unions have no such organizational capacity at this point. For the same reason, if they inform the district trade union when there are no legal guidelines for action, are they allowed to inform the city trade union or the national trade union? Isn't this getting further from reality?
In current judicial practice, judges have the right of discretion when it involves the validity of dismissal actions in units without a trade union. However, the dismissal still involves broad legal issues. I think it inappropriate if such power to judge the validity of a dismissal action is entirely up to the judge’s discretion. Future legislation should set up specific solutions to this problem.
In addition, according to the Labor Law, contract dissolution due to a rule violation is categorized as grounds for "instant dissolution" meaning the unit can dismiss the employee immediately if such a violation occurs. It does not conform to the spirit of the Labor Law that the unit must inform the trade union before an instant dissolution. For the moment, there are similar situations in Trade Union Law. Lack of operability makes it hard to gain compliance and monitor implementation amongst the enterprises, courts and trade unions. Therefore, while improving the execution of the law, we should also improve the written legislation. The function of the trade union is extended in the Labor Contract Law, but the Labor Contract Law simply copies provisions from the Trade Union Law concerned with labor contract dissolution procedures. This does not solve the practical problems in current judicial practice.

VI. Editor’s Final Comments

 The key point in this case is the labor contract dissolution procedures when the unit has no labor union. The Labor Contract Law bestows upon the labor union great authority, including but not limited to the right to know when the unit dissolves the labor relationship with employees (as in this case), the right of consultation on an equal basis with the unit when making labor rules and regulations and so on. Frightened by this great authority, many employing units simply refuse to build a labor union. Thus, cases like this one occur one after another. Due to the lack of a labor union, the power to approve the procedures of the unit falls within the discretionary judicial authority of the judge. However, by respecting the principle of “legislation in the laborer’s favor,” the judge would always rule the actions of the unit to be illegal.
  In fact, many employing units, especially foreign-funded units, do not have a comprehensive understanding of the Chinese labor union system. Assuming they are functionally similar to foreign labor unions, they think the labor union would do nothing except protect the interests of laborers by opposing the unit. Actually, the Labor Union Law specifies four functions of the labor union in China: maintenance, participation, construction and education. It is easy to discover that labor unions in China deal with a much broader range of affairs than do foreign labor unions. Furthermore, Chinese law does not bestow upon the labor union the right to organize strikes. Also, a part of the operation funds of the labor union come directly from the unit. So I think there is greater cooperation between Chinese employing units and labor unions. Instead of rejecting the establishment of labor unions due to fear of their power, Chinese units should take the initiative to cooperate with labor unions so as to better exert their rights.