On 13 September, the Suzhou Intermediate People’s Court upheld a lower court opinion that ruled in favour of an employee and ordered the company to pay RMB43,000 as medical fees compensation for its failure to enrol the employee into the social insurance system.
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In the reported case, the employee lodged a written application to the company agreeing not to participate in the local social insurance system and bearing full responsibility for all consequences therefrom. The company approved the application. In November 2010, the employee fell ill, which resulted in medical expenses of RMB69,753.32 (of which RMB61,869.96 should have been payable by the social insurance fund). He filed a labour arbitration against the company, demanding it bear the medical expenses payable by the insurance fund.
The court held that companies must enrol their employees in the social insurance system and make social insurance contributions as required by law. Therefore, the agreement between the company and the employee not to participate in the social insurance system was invalid because such agreement was in violation of mandatory laws and regulations. Given both parties were at fault for not participating in the social insurance system, the court ordered the company to compensate the employee RMB43,000 for the medical expenses.
Some companies do not enrol migrant workers in the local social insurance system, and instead pay them more cash, in full agreement with and often requested by the workers. Such practice puts the company at risk in that it may have to make back payments of social insurance and pay for uninsured expenses.
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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com
