Attorney Fee-Shifting and Labor Rights in China

The situation in China is ripe for such regulations.  Workers earn little, for starters.  According to Guangdong government statistics, in 2007, the average salary of migrant workers in the Pearl River Delta was 1,290 RMB or roughly $189 migrants make up the vast majority of the region’s factory employees. But in Shenzhen, one of the Delta’s biggest cities, attorneys typically charge RMB 500-5,000 in commission fees or $73 - $732 for labor dispute cases.  Such costs mean that workers are reluctant to go to arbitration or court for relatively small amounts of money owed by their employers—and if they do initiate a lawsuit, they stand to lose much of their settlement to their advocates.

Many Chinese lawyers, in turn, are discouraged from representing employees because they stand to earn little money. Take, for example, law firm in Shenzhen described in a China Legal News article. The firm only represents employees in labor disputes, never employers. It therefore receives very little in the way of payment from its clients. Sometimes, the firm’s lawyers don’t charge any fee at all. The founder of the firm originally thought that if it built up a reputation in labor law, the firm would turn a profit through its sheer number of cases processed.   However, although none of the partners earned much, the firm still lost RMB 600 thousand (about $88,000) in half a year. The same is true for many other lawyers in China; many have had to quit labor law.

The Chinese government has tried two means of encouraging migrant workers to bring labor disputes to arbitration and court:

  1. Government-run legal aid centers in many cities and provinces (such as Beijing, Zhengzhou and Yuhang) provide free representation if a client can prove that he or she is a migrant worker, regardless of the client’s economic situation.
  2. Some places have already begun to formulate attorney fee-shifting provisions.

The problem with solution 1 is that, first of all, there are complaints that legal aid departments are overly bureaucratic. Their procedures are complicated and the time they take to resolve a case is much too long. Secondly, employers can usually hire better attorneys than legal aid departments can offer to employees. Hence, there are instances when employees lose cases where justice is clearly on their side. These losses discourage further legal activism by workers. Many legal aid centers, moreover, only offer advice, not representation.

Shenzhen City is the clear forerunner in adopting attorney fee-shifting rules for labor disputes. Article 58 of the Regulations on the Growth and Development of Harmonious Labor Relations in the Shenzhen Special Economic Zone says, “In a labor dispute arbitration or court case, when the employee wins, his or her attorney fees can be paid for by his or her employer up to a maximum of 5,000 RMB. If his or her attorney fees exceed 5,000 RMB, the employee must cover the cost himself or herself.” This rule was publicized in October 8, 2008 and began to be implemented on November 1, 2008. 

However, since the Harmonious Labor Relations law only applies to the Shenzhen Special Economic Zone, places like Longgang and Bao’an, which are located just outside the Zone but administratively still belong to Shenzhen City, are not included. These two districts are home to most of Shenzhen’s manufacturing and, therefore, most of its labor disputes.  They are more in need of attorney fee-shifting rules than the more upscale housing and retail area that the Zone proper has slowly become.

At present, there are no specific, nationwide laws in China mandating or allowing for attorney fee-shifting in labor disputes, but there are precedents in other areas of law (under China’s civil law system, precedents do not carry legal weight, but they can serve as models for further innovation). For example, when the 20th Century Company accused the Beijing Art and Culture Company of pirating movies Commando and Die Hard 1&2, a court awarded 4,662.41 RMB in attorney fees to the losing party (defendant). In another case, a court ordered Nanjing Tianyin Power Equipment Factory (the defendant) to pay 9,106 RMB in attorney fees to the Nanjing Automatic Power factory.

The Supreme People’s Court (SPC) has experimented with attorney fee-shifting. The SPC Explanation of Some Questions Concerning Use of the P.R. of China Contract Law, which was publicized in 1999, says that a debtor gives up the creditor’s right to the third person. If a recession harms his creditor and creditor bring up the case to the court, the attorney fee and tour spend of the creditor should be paid by the debtor. This can be used in the situation that when a employer owns the debt of his employee and want his own debtor to return the debt directly to the employee, if the employer’s debtor didn’t repay the debt, the employee can bring the case to the law and make both the employer and his debtor afford the attorney fee.  In 2001, the Vice Chief Justice of the SPC, Cao Jianming, said, in regards to a copyright dispute, that in some circumstances, all or part of [the winning party’s] attorney fees can be added into compensation.”

In October 20, 1999, the SPC Five-Year Reform Compendium noted, “From 2000, according to the discussion of committees of the SPC, ‘typical cases’ publicized can be referred to in similar cases brought up in inferior courts.” The SPC then publicized two ‘typical cases’ of attorney fee-shifting as follows: On March 31, 2003, the Shanghai Jingan district court ruled that United Airlines (the defendant / loser) should pay 16,595.10 RMB in attorney fees and 11,802.50 RMB in attorney travel fees. And on April 17, 2003, Taifu Food Co., Ltd. was accused of unfair competition by Taishan Enterprise Co., Ltd.; when Taifu lost, it was forced to pay 20,000 RMB in attorney fees to Taishan.

I hope the above progress in other areas of attorney fee-shifting can lead similar progress in disputes.

In 2007, National People’s Congress (NPC) representative Hou Yibin suggested the creation of attorney fee-shifting provisions at the 10th meeting of NPC Standing Committee.  Hou proposed that attorney fees should be paid by the losing party (it can be either the plaintiff or defendant) and claimed that such laws could reduce unnecessary lawsuits, raise awareness of rights and prove informative to the government. But approval of his idea is still pending.

Fee-shifting has great implications both inside and outside just labor/employment laws.  Much of the literature in this area is about civil rights litigation, and particularly class-action litigation.  In cases where plaintiffs have no money and one is not seeking high (or any) monetary damages but rather injunctive relief of some sort (i.e. having government stop discriminating), fee-shifting is an extremely important mechanism for lawyers to get compensated -- and thus take these cases.

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