~July 2000~

The Highest Compensation for Industrial Accident in China

Liu Tao, a Chinese woman worker whose arms were severed in an industrial accident, has sued her factory for Rmb.3.41million compensation. It is the highest compensation claim for an industrial accident in China. Ms. Liu comes from Sichuan and worked in the pressing department in a textile factory in Shenzhen, Jin Long Knitting Co., Ltd. (The author's translation), in which the accident happened. On November 20, 1998, after a long shift, she felt dizzy at work and her arms were cut off by the machine. After medical treatment, the Shenzhen labour authorities assessed her as 100% disabled and advised her that she would need to wear artificial arms.

Unfortunately, even after several months of discussions, Liu could not conclude any agreement with her factory for compensation. There was no other way for Liu but to put the case to court. With the help of a lawyer in Shenzhen, Liu asked the factory to pay compensation of Rmb.3.41 million. The amount shocked many people. The Shenzhen People's Court received the case and arranged a hearing. Eventually, the Court gave a verdict that the factory should compensate Rmb.1.33 million to Liu. The court order also surprised both local and international communities. It is the highest compensation for an industrial accident in China. Both the victim and the factory have appealed the decision. The Shenzhen Intermediate Court heard the case on July 5, 2000, but the verdict is yet to be handed down.

The compensation amount has surprised many people indeed, but less attention has been paid to the legal arguments made by the plaintiff's lawyer. In the second hearing, the lawyer of the factory tried to limit the plaintiff's claims to those outlined in the "Regulations of Occupational Accident Compensation in Shenzhen", but Liu's lawyer used other relevant regulations as the legal basis for the compensation claims, such as the expenses of regular alterations of artificial arms up to the age of 70, the living expenses of Liu and her dependents, the compensation to the mental/psychological damage, and one-off and immediate payment. There are no clear laws on the last three compensation claims. From the author's viewpoint, the case is interesting and important not only for the compensation amount, but also its legal arguments. The case can serve as a test for upcoming lawsuits. Even though China does not follow the Common Law System, the case can still be a reference for future cases. Its legal implication should not be overlooked.

In this case, the following issues are worth noting.

1. This case is mainly due to long work hours and probably unsafe machines. Before the accident, the factory forced its workers to work more than 100 hours overtime every month since May 1998 (the legal maximum overtime is 36 hours every month). During the period from November 1-19, Liu worked 78 hours overtime. Because of such long work hours, the victim suffered dizzy spells and collapsed. In this case, the consequences of collapse were disastrous- the severing of both arms. However, the factory argued that the accident mainly resulted from Liu's own careless mistakes. They maintained that the machine was safe. The management even argued that the exact overtime on Nov. 1-19 was only 52 hours, which still violated the law. They produced Liu's work record in court. However, the victim's line leader gave evidence in court that Liu really did overtime work for 78 hours in the aforementioned period. The court accepted the evidence of the line leader and rejected the evidence of the factory.
   
   This case shows that long working hours are very common in private enterprises in China. It also demonstrates that long hours can adversely damage workers' health and cause serious accidents. Moreover, it also shows that work records kept by factory management are unreliable. A work record does not necessarily reveal workers' real circumstances. Work records become a way for management to cheat the local authorities, corporations and their auditors. This case clearly exposes the loopholes of corporate codes and their monitoring. Corporations often argue that their monitoring is good enough to protect workers' interests. They are willing to open workers' work records and pay slips for inspection, but such documents can be counterfeited. Effective monitoring is very difficult unless workers themselves get involved in monitoring. Monitoring without workers is questionable. To protect its own interests, the factory lied in court. This suggests that they will lie to the public, corporations which subcontract to them, and their auditors.
   
   
2. The factory's lawyer argued that if the factory had to pay the full amount claimed by the plaintiff and pay immediately, it would bring financial difficulty to the factory and the factory will probably collapse and many workers would lose their jobs. Such an argument is a threat indeed. The court was told that many workers' livelihoods were at stake unless the factory's view was favored. This meant that the rule of law could be scarified for the sake of economic prosperity. Such an argument can be used in court because it reflects reality. It is commonly believed in China that economic development comes first and the rule of law is secondary. Many local governments in China share the view that laws cannot be so harsh; otherwise foreign investment will go elsewhere, which will slow down economic development and cause unemployment. Therefore, many local governments keep their eyes closed to the violation of workers' rights by foreign investors. Of course, the fact that local governments are deeply involved in local business makes the situation much worse.
   
   The Dongguan Government reinterprets the Chinese Labour Law on the overtime limit and issues permits to factories for their flexible overtime system(1). In fact, the gray areas in the "Regulations on Occupational Accident Compensation in Shenzhen" ("Regulations in Shenzhen") are often made use of by management to avoid their legal responsibility. This is why the lawyer of the factory tried to stick to the "Regulations in Shenzhen"(2) . For instance, on artificial limbs, the article of the "Regulations in Shenzhen" is unclear as compared with that in the "Regulations on Occupational Accident Compensation in Guangdong" ("Regulations in Guangdong"). In the "Regulations in Guangdong", it is clearly stated that enterprises shall pay the expenses of artificial limbs for industrial accident victims, but it is not stated clearly in the "Regulations in Shenzhen". The problem is that the Shenzhen Government does not amend its regulations accordingly as the "Regulations in Guangdong" are released. It is worried that the Shenzhen Government tries to please foreign investors and makes the regulations loose. Local governments keep their eyes on foreign investment much more than workers' rights and the central government closes its eyes to such situations.
   
   
3. The regulations on industrial accident compensation in China should be improved. In the existing regulations, lump-sum compensation to an occupational accident victim for his/her disability is stated, but compensation for the victim's livelihood is not considered. If a worker is killed at work, the management should pay compensation to the dependants for their support. However, there is no such compensation for the victim's dependents if a worker is disabled due to an accident at work.
   
   Moreover, it is assumed that the occupational accident compensation is paid by the Social Security Bureau (a government department). Thus, the payment is paid every month. There is also a clear statement that enterprises shall pay all of the compensation on occupational accidents if they have no insurance for their workers. However, the monthly payment is still assumed. In this case, the factory had no insurance for the victim. The plaintiff's lawyer argued that the factory is not a government department. Its economic stability cannot be guaranteed, and a monthly compensation payment may disappear if the factory faces economic difficulties or collapses. In such circumstances, the victim and her dependents would fall into a horrible situation immediately. Therefore, one-off and immediate payment of all compensations should be requested in circumstances where enterprises have no insurance for their workers. The most difficult aspect in the case regards the compensation to the victim's mental/psychological damage. This is totally new to China. Although the compensation and the compensation method mentioned above have no clear precedents, at least the lawyer of Liu can use other relevant laws and regulations as legal grounds for such claims. However, it is difficult to find relevant laws for compensating mental/psychological damage. This is very common in the Common Law system because many cases can be referred to, but such case is rare in China. If Liu can win this case, its legal implication is significant. How to evaluate mental/psychological damage is difficult but the Chinese Government should take this issue into serious consideration if it wants to get involved in the game of international trade. Mental/psychological damage is a common claim in civil cases elsewhere in the world.

Occupational health and safety is still a big problem in China. Every year, more than 20,000 workers die in various kinds of industrial accidents. Injuries are numerous. The Chinese authorities should seriously evaluate their laws on health and safety to protect workers' rights, and order local authorities to amend or draft relevant laws accordingly. On this issue, comparative studies of relevant laws of different countries and different judicial systems should be encouraged. Of course, enforcement of laws is still the biggest problem. A comprehensive law without enforcement is just a piece of paper. The rule of law is an indispensable part in international trade. This is a big challenge to the Chinese Government.

by CHAN Ka Wai

Associate Director

Rmb 8.2= USD1

* The original legal documents will be translated and available at our web page soon.

Reference:

1. The Chinese Labour Law limits overtime to 36 hours every month. All enterprises in China should observe the regulation except those in some special industries. The Dongguan Government argues for an exception to overtime limits. They argue that the overtime limit can be spread over a year. In some months, a factory can have overtime more than 36 hours a month, but it will have less in some months. The total hours should not exceed the total limit for a year.
   
   
2. According to the existing procedure, any occupational accident must go through arbitration by local labour authorities before being tabled in court. In arbitration, the Shenzhen Labour Bureau, mainly relying on the "Regulations in Shenzhen", concluded that the factory should pay Rmb.115, 290 to Liu. For many workers, it might be very high compensation. Moreover, most of the workers do not know how to put the case to court unless they get help from lawyers. Most case will be stopped at arbitration. However, we can see a big difference after putting the case to court. Liu could get more than Rmb.1.3 million (more than 10 times of the amount decided in the arbitration). However, the legal procedure and expenses will stop most workers from seeking further justice.