China’s New Labor Contract Law (II)

After the promulgation of the Labor Contract Law of the P. R. China, the legal community interested in Chinese law is abuzz with excitement and curiosity. For those who have not been able to view the full text in English, get it here. If you can read it in Chinese, get it here. Further, I suggest that you read the Labor Contract Law in conjunction with the Labor Law of P. R. China, and for that in Chinese view it here. (English version, here.) If you are a labor and employment lawyer in need of a thorough understanding of Chinese labor law, you might also want to read the Ministry of Labor’s Several Opinions on the Implementation of the Labor Law of the P. R. China (Chinese only). For regulations on minimum wage in China, you may want to read the order issued by Ministry of Labor and Social Security in 2003. (Read it here.)

Sweeping the New Labor Contract Law is on paper, but I agree with the sentiment expressed by Dan Harris of China Law Blog where he stated “Enforcement is Key.” As the law aims to extend protection to multitudes of workers from China’s vast countryside, enforcement of this law would be more problematic since so many of those from the countryside sleep on their rights for many reasons. They might simply not know what their rights are; or, they might not care to have their rights protected for the sake of getting or keeping a job.

For another comment I wrote on China's Labor Law, please read:

What Foreign Companies Need to Know About Chinese Labor Law

China's New Anti-Bribery Measures & More

Zheng Xiaoyu’s execution yesterday, amid China’s perfect storm of food and drug safety concerns from inside the country and beyond, did not surprise me. He died not just for accepting more than $850,000 in bribes for giving approval to sub-standard drugs. His death serves multiple political purposes, one of which I discussed here.

Corruption in the Chinese FDA is but a small mirror reflecting deep-rooted problems on a ginormous (gigantic + enormous) scale in China. In fact, corruption has become so rampant that even the President knows and admits that it affects the ultimate fate of the Communist Party. Thus, the government has put forth efforts, utilizing conventional and unconventional means to combat corruption among governmental officials, such as Zheng Xiaoyu, the former FDA chief of China. One of the most recent measures taken by the government appears in the form of a joint opinion issued by the Supreme People’s Court and Supreme People’s Procuratorate of the P. R. China. Titled Several Opinions on the Relevant Laws in Dealing with Accepting Bribery (“Joint Opinions”), this document spells out the types of activities to be under watch. It lays out six categories of emerging bribing venues and how they would be combated.

Here, I will try to summarize the Joint Opinions.

The six categories of bribing activities are as follows:

1. Bribery in the form of transactions whereby governmental employees assist a bribing party gain interests by:
a. selling the governmental employees automobiles or houses at prices markedly lower than reasonable market rates;
b. buying the governmental employees’ automobiles or houses at prices markedly higher than reasonable market rates;
c. or other illegal transactions of properties.

2. Bribery in the form of acquiring corporate stocks without monetary payment or investment.

3. Bribery in the form of establishing joint ownership in companies or investments whereby governmental employees assist a bribing party gain interests.

4. Bribery in the form of receiving payback from stock market investments, stock options, or other types of investments entrusted to a bribing party who in return acquires interests due to the governmental employees’ position in the government.

5. Bribery in the form of income gathered from illegal gambling whereby the bribing party gains interests from governmental employees for providing interests in return.

6. Bribery in the form of obtaining employment for family members in return for furnishing the bribing party with conveniences or interests whereby the family members receive salary without actually working.

Government employees engaging in activities listed above would be, theoretically, prosecuted and bear criminal liability. I do not have a lot of sympathy for corrupt officials who abuse their offices of trust and responsibility, but I do share the concerns that Mr. Nicholas Zamiska raised in his WSJ article titled China Targets Bribe Takers, But What About Givers? (subscription may be required.)

Mr. Zamiska states:

But what is less certain is China's commitment to addressing the possibly more-widespread practice of offering bribes, not just the high-profile government officials who take them.

He then quotes a Hong Kong law professor who sheds a little culture light on the reasons behind the Chinese government’s apparent disinterest in going after bribe givers:

"As a policy, the Chinese prosecution -- they normally don't go after the people who bribe. It's been very consistent," says Fu Hualing, an associate professor on the faculty of law at the University of Hong Kong." It doesn't matter if it's the lawyers bribing the judges or the companies bribing the officials."

Dr. Fu says bribery is a part of Chinese society and that the public and the government look at those who bribe with more sympathy than the government officials who accept bribes." If you talk to people on the street, they will think that it's the government officials who should be prosecuted, not the people who bribe," Dr. Fu
says.

No matter how insightful and incisive Dr. Fu is in his observations and assessment of the bribery scene in China, there needs to be, in my humble opinion, a resolve on the part of the government to sew up this gaping hole in the country’s crusade against corruption.

With respect to “bribery is a part of Chinese society,” I keep wondering whether Dr. Fu meant it is something that cannot be changed easily. If people are sick and tired of bribery, as I am sure they are, they might welcome a fresh idea of prosecuting bribe givers. And in response to “If you talk to people on the street,” I’d argue that people on the street 1) do bribe every day; 2) are probably ill-informed of incidents where some people bribe regularly for government contracts or approvals. If provided with a new way to look at curing the country of this cancer, the people might just buy it.

Safe Motorola Cell Phone + Deadly Battery: Who Is Liable for Tort Damages?

I have been following a high profile consumer death incident in China involving a Motorola cell phone. Here is the gist of the story reported widely in China lately (in Chinese only). On, June 19, 2007, a welder named Xiao Jinpeng (肖金鹏) (“Xiao”) with a mining company out in Gansu Province suffered a fatal injury when his Motorola cell phone exploded while on the job. It turned out that the battery was the culprit. The battery of his phone exploded under high temperature, which broke Xiao’s ribs, and one of the broken ribs pierced his heart.

Soon after the incident, Motorola (China Division) sent its investigators and lawyers to figure out what exactly happened. A governmental report came out stating that this is a case of work place death caused by shoddy cell phone battery. Xiao’s family received 130,000 Yuan in compensation from his company, but according to the Law of the People's Republic of China on Protection of the Rights and Interests of the Consumers (“Consumer Rights Protection Law”) (Chinese) and the Product Quality Law of the P. R. China (“Product Quality Law”) (Chinese), Xiao’s family is also entitled to damages from the sell and manufacturer of the cell phone battery.

According to the Product Quality Law, a seller and manufacturer have comparative tort liability for injuries or death caused by products in question.

With respect to injury or damages to property caused by products with defects, the seller is personally liable when selling products with unknown manufacturers:

Article 42

A seller shall be liable for a personal injury or damage to the other's property caused by a product's defect resulted from the fault of the seller.

A seller shall be liable for damage if he can not give the producer or the supplier of the defective product.

An injured person may seek compensation from both the seller and manufacturer:

Article 43
If the defect of a product causes personal injury or damage to other's property, the injured or damaged person may claim compensation from the producer of the product or may also claim compensation from the seller of the product. If the compensation lies to the liability of the producer of the product but the seller of the product has made the compensation, the seller of the product has the right to seek the compensation from the producer of the product. If it lies to the liability of the seller of the product but the producer of the product has made the compensation, the producer of the product has the right to seek the compensation from the seller of the product.

Article 44

If the defect of a product causes personal injury to the injured person, the injurer shall compensate for the medical expenses, the nursing fees during the period of treatment and income lost due to the miss of work; if it causes the disability of the injured person, the injurer shall pay the fees for self-aid tools, living allowance, compensation for the disability and the living expenses for the persons the injured person supports; and if it causes the death of the injured person, the injurer shall pay the funeral expenses, the pension for the family of the deceased and the living expenses necessary for the persons supported by the deceased before his death.

If the defect of a product causes damage to the property of the injured person, the injurer shall restore the damaged property to its original state or pay compensation according to the market price. If the injured person suffers other substantial damages therefrom, the injurer shall be liable therefor.

[note: the above statutory texts are extracted from the website of Lehman & Hu. For the full texts of the laws quoted here, go here]

Upon further investigation, Motorola has stated in the Chinese media that the battery involved in the case is not genuine Motorola batter; therefore, it should not bear liability for Xiao’s death. In that case, if true, Xiao’s family could only go after the seller of the cell phone, who could then trace the provider of the battery. At the same time, it is not beyond all reason that Xiao probably chose to purchase the shoddy battery when the original battery became unusable. In all possibilities, tracking down the persons liable for producing and selling these types of fake, low-quality battery will very difficult because of the lack of quality regulation enforcement and wide spread practices of the selling and buying of substandard products in China.

Correction

In my yesterday's post, there was an error about the name of the company seeking a trademark for the symbol of a horse, which Ferrari opposed.

In that post, I named the applicant White Clouds Sports Merchandise (“While Clouds”).

It should be corrected as Jia Jian Sports Merchandise of White Clouds District of Guangzhou.

Ferrari is Famous, But Is the Horse Too?

The Beijing 1st Intermediate Court was called to decided whether the picture of the horse corresponding to the Ferrari trademark is a famous trademark. And it decided that it is not, therefore not entitled to protection that the Ferrari trademark has in China.

Ferrari’s “horsing” saga with a Chinese trademark registrant started back in 1996. A Chinese department in Guangzhou, White Clouds Sports Merchandise (“While Clouds”), sought to register a trademark with a picture of a horse for use in selling a line of clothing on April 1, 1995. When the Chinese Trademark Office published the prospective trademark for public opposition on September 7, 1996, Ferrari filed a timely opposition to the registration, claiming that the trademark at issue would cause confusion among consumers with respect to the emblematic Ferrari horse. The Chinese Trademark Office did not buy Ferrari’s argument, citing that White Clouds registered the graphic of the horse first.

Ferrari appealed to the trademark review board. It advanced the argument that both the Ferrari with the horse graphic trademark and the horse graphic alone constitute famous trademarks; therefore, the registration sought by the opponent, if granted, would cause confusion among consumers. Unfortunately to Ferrari, the review board affirmed the trademark office’s decision. Ferrari then brought its battle to the people’s court for relief.

In the Court, Ferrari averred that the Ferrari, along with the graphic of the horse which is closely tied to the Ferrari mark, should enjoy protection as famous trademarks because the Ferrari trademark has become well known around the world, and it has also gained considerable familiarity among Chinese consumers. However, the Court flatly rejected Ferrari’s claim of fame for its heroic horsy. It states three reasons:
1. Ferrari failed to provide evidence of the use and advertisement relative to the trademark at issue, meaning the “horse.” Ferrari proffered evidence supporting the famous status of a related trademark—“Ferrari”, but that is not sufficient to prove that that the mark in question is entitled to protection as requested.
2. China has established an independent system to recognize famous trademarks. The recognition of “Ferrari” as a famous trademark does not equate to the recognition of the horse graphic.
3. The focal issue in the suit is not the Ferrari trademark; rather it is the “horse” graphic. The “horse” cannot be bootstrapped to the Ferrari trademark for like protection.

After more than ten years of trekking in the Chinese legal system, Ferrari got a disappointing verdict. Hopefully, Ferrari got something else too, a lesson to register its trademark, related trademarks as early as possible. Oh, do some advertising on the horse as well, in China!

Wahaha Goes on the Offensive

On July 2, 2007, the chief of Wahaha Group, Zong Qinghou, announced in a press conference that Wahaha would sue three foreign members on the Danon-Wahaha joint venture companies' board within 30 days.

In the past few months since May 2007, Wahaha has been busy defending itself against Danon’s assault on several fronts. On May 9, Danon submitted its disputes with Wahaha Group and Zong Qinghou to arbitration in Stockholm; on June 4, Danon sued two companies managed by Zong’s wife and daughter in a California state court. On June 18, Zong feebly pulled a punch by declaring the trademark transfer agreement with Danon invalid, and submitted that to the Hangzhou Arbitration Commission.

Then Wahaha Group hired the biggest law firm in China -- King & Wood to pull off something big. If Wahaha does what it said, it will file a derivative action against 3 foreign board members: Emmanuel Faber, Francois Caquelin, Qing Peng (秦鹏). The thrust of its allegations is that these three Danon-Wahaha joint venture board members violated Company Law of the P. R. China. It will, allegedly, claim that the defendants violated their duty to be loyal to the joint venture companies as board members by serving on competitor companies’ boards. Wahaha reportedly would seek damages in the amount of 1 million yuan.

If this is the only substantive blaming stone that Wahaha and Zong have got to cast at Danon, the legal ramifications of this derivative action for Danon is less than what the Chinese media have done. Given nationalistic sentiments against Danon (the “foreign devil”), many distributors of Danon-Wahaha joint venture companies have ceased to sell and distribute their products. Legal fees and judicial assessment of damages against Danon would do far less damages than consumer sentiments. After all, that is what ultimately makes or breaks a company.

The saga continues; stay tuned.

China’s New Labor Contract Law (I)

On June 29, 2007, the Standing Committee of the National People’s Congress passed the new Labor Contract Law of the P. R. China (“Labor Contract Law”). After four committee rounds of reading, consultations, and 190,000 or more public pieces of comments, the new law will go into effect on January 1, 2008, and it is expected to be a milestone for protecting workers’ rights across China.

Through a series of blog posts, I intend to introduce a snapshot view of the key clauses set forth in the Labor Contract Law. I hope that readers will have a better understanding of what the new law requires and expects of parties to an employment relationship, and that the enactment of another piece of legislation is but one small step forward in China’s long struggle to build a country under the rule of law.

Statutory Scope of the Labor Contract Law

This law applies to all corporations, privately-owned entities, Private, non-enterprise units and organizations who establish labor employment relationship with workers. Likewise, government agencies, institutions and social groups must comply with the labor contract law in their labor employment relationship with employees.

The net cast by the legislators is wide enough to afford broad protection to employees, workers, especially migrant workers from the countryside. Prior to the enactment of this law, most migrant workers enjoyed little to no legal protection, and they fell through the crack of the Lab law. In recent years, there have been widespread practices of abuses, mutilations, and downright savage treatment of those migrant workers. The slave worker scandal that broke out last month in Shanxi and Henan Province involved hundreds of migrant workers being abducted or forced into slave labor with little to no pay. The savagery gripped the world and shocked conscience of the country. At the same time, it revealed the extent of labor abuses despite the existing labor laws and regulations. In a sense, this law could not have arrived at a better time.