Employers Beware - Newly Issued Judicial Interpretation Resolves Ambiguity Under The Criminal Law For Failure To Pay Wages

by Sheppard Mullin Richter & Hampton LLP
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Employers in China who intentionally default on making payment to their workers beware. It is no coincidence that China's People's Supreme Court issued a Judicial Interpretation on January 22, 2013, made effective on January 23, 2013, which further clarified the 2011 amendment to the criminal law making the intentional failure to pay wages a crime. With the coming of Chinese New Year and Spring Festival holidays, the Judicial Interpretation is particularly targeted at employers who default on making wage payments to migrant workers who are often victims.

On February 25, 2011, the National People's Congress promulgated the Amendment for the PRC Criminal Law (8) (the “Amendment”), which took effect on May 1, 2011. Specifically, Article 41 of the Amendment provides for criminal liabilities for employers who intentionally fail to pay wages by failing to pay a “substantial amount” of wages by avoiding payment, transferring assets or refusing payment upon government correction orders. Criminal liability could result in fines or imprisonment or both. Responsible persons of the company can be face prison time that which can be up to 3 years where the employer has been “maliciously failing to pay wages” or withholding wages of a “substantial amount,” and up to 7 years where there are “serious consequences” caused to the employee.

The 2013 judicial interpretation seeks to resolve ambiguity under the Amendment. Under the Amendment it was not clear just what was meant by “serious consequences” to the employee. Where the employees and their dependents livelihood are affected, including discontinuation of education or the inability to obtain medical care for serious illness, this may be considered as a serious consequence. Also, serious consequences may be viewed where the employer makes threats of violence or uses actual violence against an employee who has requested payment of wages.

The Judicial Interpretation further provides guidance on what may be considered as an employer's conduct for malicious failure to pay wages. This may include concealing assets, falsely claiming bankruptcy or closing down the business, or destroying and concealing employee records or other acts which may demonstrate an employers’ intentional evasion of its payment obligations.

The Amendment was further unclear as to what amount of unpaid wages would be considered a “substantial amount” which can trigger this criminal offense. Where the wages have been unpaid for more than 3 months and a certain threshold amount met, this may trigger the criminal offense. The threshold amount can range from over RMB 5,000 to over RMB 20,000. In the specific instance where the employer refuses to pay more than 10 employees, the threshold amount may be met where the unpaid wages are in an accumulated amount of over RMB 30,000 to over RMB 100,000. Notwithstanding these specific threshold amounts provided by the Judicial Interpretation, the local courts will determine the threshold amount as this may differ according to locality.

The Judicial Interpretation further makes clear that the relevant governmental authority responsible for issuing governmental correction orders is the Human Resources and Social Security Department.

The Judicial Interpretation, while being timely issued for the upcoming holidays, will continue to remain as an option for migrant or low-paid workers who are often not paid or where there is a wage dispute deadlock. Employers beware.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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