The Employment Law Review: China

Introduction

Employment laws and regulations in China have multiple sources: the Chinese Constitution, national laws promulgated by the National People's Congress, administrative laws formulated by the State Council, regulations enacted by the Ministry of Human Resources and Social Security (MOHRSS), judicial interpretations released by the Supreme People's Court, and local regulations formed by the various provincial or municipal governments. The most significant pieces of employment legislation are the Employment Law and the Employment Contract Law. The general philosophy of employment legislation in China is pro-employee, which imposes strong obligations on employers.

The MOHRSS, with its subordinated departments at all levels, is responsible for supervising the enforcement of employment laws and regulations. For dispute resolution, almost all employment disputes are first submitted to the competent labour arbitration commission. After the labour arbitration commission renders its arbitral award, most employment disputes can then be filed with the people's court.2 In the court proceedings, the judgment from the trial court can be appealed once to a higher-level court.

Year in review

i Trending topics

In early 2020, the Chinese government and judicial authorities, at national, provincial and municipal levels, formulated different regulations and guided judicial opinions to preserve the normal operations of companies and to stabilise employment relationships during the covid-19 pandemic. To ease the effects of the pandemic, different measures were advocated to avoid reductions in workforces, such as adjustments in remuneration, shift work, adopting flexible working hours, among others. Employee sharing is also officially recognised by the MOHRSS as a measure to allocate manpower between different companies.3

In the middle of 2020, the National People's Congress voted to pass the Civil Code, which is China's first codified statute and is expected to further refine the rules on conduct in the civil and commercial fields. Although employment laws and regulations are not directly included in the Civil Code, certain new rules in the Civil Code have significant implications on labour and employment practices, such as an employer's protection of employees' personal information and prevention of sexual harassment in the workplace.

ii Statistics

According to a report issued by the MOHRSS in September 2020,4 the total number of workers in China is 774.71 million, of which 442.47 million are in urban areas. Employment dispute mediation organisations and arbitration commissions in China heard 2.119 million employment dispute cases during 2019, involving a total of 2.381 million workers.

Significant cases

In one case released by the MOHRSS and Supreme People's Court,5 an employee filed labour arbitration and legal proceedings against his employer based on the fact that he did not receive a salary for February 2020. The employer asserted that it had suspended the employment agreement with the employee because of a force majeure, namely the covid-19 pandemic. The arbitral commission ruled in favour of the employee and reasoned that the covid-19 pandemic did not amount to a force majeure for employers to suspend salary payments to employees.

China does not have a case law system and, thus, judicial judgments do not have binding authority. However, in July 2020, the Supreme People's Court issued a guiding opinion that aimed to unify the application of laws and to require judges to refer to similar cases under certain circumstances.6 Therefore, it is reasonable to expect that cases published or decided by the Supreme People's Court or higher-level courts in China will increasingly have more persuasive authority in future judicial practice.

Basics of entering into an employment relationship

i Employment relationship

Employers should enter into a written employment contract with full-time employees.7 However, this is not mandatory for part-time employees. Instead, employers may verbally conclude employment contract with part-time employees.8 Under the Employment Contract Law, the term of an employment contract can be fixed, open-ended or expire on completion of a certain task.9

Employment contracts with full-time employees must include the following terms:

  1. name, address and legal representative or person-in-charge of the employer;
  2. name, address, identity card number or other valid identity certificate of the employee;
  3. contract term;
  4. work content and work location;
  5. working hours, rest days and vacation;
  6. remuneration;
  7. social insurance; and
  8. labour protection, working conditions, and prevention and protection against occupational hazards.10

Employers should enter into a written employment contract with full-time employees within one month of commencement of employment.11 Otherwise, the employer will be liable for not concluding a written employment contract, whereby a monthly payment equal to twice the usual salary is due to the employee until a written employment contract is executed or the employment period reaches one full year.12 If a full-time employee is employed without a written employment contract for more than one year, it will be assumed that an employment agreement with an open-ended term has been concluded.13

The general principle for amending or changing an employment contract is that an employer and an employee shall agree to the amendments or changes, which must be in written form.14 According to judicial interpretation by the Supreme People's Court, any amendments or changes to an employment contract that are not in writing will nevertheless be regarded as effective, provided the amendment or change has been implemented for one month and neither the employer nor the employee has raised any objection.15

In addition, the Employment Contract Law allows an employer to unilaterally change an employee's position when that employee is proven to be incompetent or unable to work in his or her original position following a period of medical treatment.

ii Probationary periods

Under the Employment Contract Law, an employer can agree a probationary period with an employee only once.16 During this period, the employee may terminate the employment contract by giving the employer written notice of three days.17 The employer may terminate the employment contract with immediate effect only if the employee proves to have failed to meet the conditions of employment.18

iii Establishing a presence

There is no specific provision that explicitly prohibits a foreign company that has no legal presence in China from engaging an independent contractor or hiring a Chinese individual directly or indirectly through an agency. However, hiring an independent contractor or a Chinese individual may be regarded as conducting business activities, and Chinese laws prohibit a foreign company from engaging in business activities within China without registering a legal presence.19

As for whether an individual engaged in China creates a permanent establishment, it depends on the tax treaty concluded between China and the relevant foreign country. For example, according to the bilateral treaty between China and the United States, any person engaged by a foreign enterprise for the purpose of providing a service for more than six months within any period of 12 months will constitute a permanent establishment.20

If a foreign company has a registered legal entity in China to directly hire employees, that entity must provide the employees with benefits required by state laws and local regulations.

Under the Employment Contract Law, an employer should (1) contribute to social insurance and housing reserve funds for employees, (2) ensure employees' rights of taking rest and paid annual leave, and (3) provide labour protection, working conditions and prevention and protection in respect of occupational hazards. In addition, in certain regions of China, local regulations also require employers to provide a high-temperature allowance, a heating allowance or other allowance.

According to the tax laws, employers are obliged to withhold individual income tax from payments to employees and contribute the same to the competent tax authority on behalf of the employees.21

If a foreign company establishes a representative office in China, as the representative office is unqualified as an employer under the Employment Contract Law, the representative office can only hire employees through a recruitment agency.22 Under this arrangement, the employees will be employed by the agency and dispatched to work at the representative office of the foreign company.

Restrictive covenants

An employer and an employee may agree to incorporate a non-compete clause in an employment contract or confidentiality agreement.23 The only employees who can be restricted by a non-compete clause are senior managerial and technical personnel and others who have a confidentiality obligation.24

The directors and senior management personnel of a company are subject to a statutory non-compete obligation during employment.25 For all other employees, it is advisable for employers to explicitly agree on a non-competition restriction during employment, if required, and include a clause to this effect in the employment contract.

Any non-competition obligation must apply for no more than two years26 and during the post-employment non-competition period, the employer must pay monthly compensation to the employee. However, if it has not been agreed that the employee will receive non-compete compensation after termination of the employment contract, and the employee has fulfilled the obligation of the non-competition restriction, the employer is obliged to pay a monthly non-competition compensation at 30 per cent of the employee's average monthly salary in the last 12 months before termination of the employment contract. If this obligation is not honoured, a claim by the employee for the compensation will be supported by the people's court. If 30 per cent of the employee's average monthly salary is lower than the minimum monthly wage applicable in the place where the employment contract is performed, the non-competition compensation shall match that minimum wage.27

However, local regulations in some cities and provinces may stipulate default standards for non-competition compensation that differ from those as interpreted by the Supreme People's Court's. For example, the local regulation in Shenzhen prescribes that the monthly non-competition compensation will be no lower than 50 per cent of the employee's average monthly salary in the last 12 months before termination of the employment contract.28

Wages

i Working time

Three types of working hour systems are provided for under the legal regime in China: (1) standard working hours; (2) flexible working hours; and (3) comprehensive working hours. The default is the standard working hours system, under which employees work for eight hours per day and 40 hours per week and shall be entitled to at least one day of rest each week.29

The flexible working hours system is usually applied to positions in which the duties cannot be fulfilled within fixed hours, such as senior management staff. The comprehensive working hours system is often used for positions that require continued work during a certain period or are affected by seasonal factors. The adoption of a flexible or comprehensive working hours system is subject to approval from the local labour administration department.

Under the standard working hours system, employees' usual working hours must not be extended by more than three hours a day or 36 hours a month.30 Under the comprehensive working hours system, employees' working time is calculated per week, month, quarter or year. The average daily or weekly working time will generally be the same as under the standard working hours system.31 Under a flexible working hours system, the laws and regulations do not impose maximum working hours but require employers to take appropriate measures to ensure employees' rest.32

Night work refers to work carried out between 10pm and 6am the following day.33As yet, there are no laws or regulations that impose a limit on the amount of night work that may be performed by workers. However, employers are not permitted to extend the working hours or arrange night work for female employees who are more than seven months pregnant or while breastfeeding.34

ii Overtime

Employees' entitlement to overtime compensation differs according to the respective working hours systems.

Standard working hours

If overtime work is carried out on a working day, employees are entitled to overtime compensation at 150 per cent of their hourly rate. If overtime work is carried out on a rest day, employees are entitled to a day off in lieu, or overtime compensation calculated at 200 per cent of the employee's hourly rate if a day off in lieu cannot be arranged. If overtime work is carried out on a public holiday, overtime compensation will be calculated at 300 per cent of the employee's hourly rate.35

Flexible working hours

In general, employees working flexible hours are not entitled to overtime compensation. However, in certain cities, such as Shanghai, local regulations stipulate that overtime compensation is payable at 300 per cent of employees' hourly rate for every hour of overtime work carried out on public holidays.36

Comprehensive working hours

If the total working hours accrued in each period (whether week, month, quarter or year) exceeds the working hours that will accrue under the standard working hours system, the excess working hours shall be regarded as overtime and compensated at 150 per cent of the employee's hourly rate. If work is carried out on public holidays, the overtime compensation will be calculated at 300 per cent of the employee's hourly rate.37

Foreign workers

Foreign workers in China are subject to many regulations. In particular, they must obtain both a work permit and a residence permit to acquire legitimate working status in China. Both work permits and residence permits are usually valid for one or two years and no longer than five years.

There is no mandatory limit on the number of foreign workers a company may have.

Foreign workers who establish a direct employment relationship with companies registered in China are protected by China's employment laws. However, foreign workers assigned by a parent company to work in China are only protected by the local minimum employment standards in respect of working hours, rest and holidays, safety at work and social insurance. The terms and conditions of employment and the laws and regulations of the home country, as stated in the assignment agreement, will be applicable.

According to the Social Insurance Law, all foreign workers will participate in China's social insurance scheme,38 unless a social insurance contribution exemption is applicable under specific circumstances in the bilateral treaty between China and the other country.

With respect to foreign workers' salaries paid in China, the Chinese entity is the statutory withholding agent, which must withhold and pay applicable income taxes to the competent Chinese tax administration department of the municipal governments. When a foreign worker has no domicile in China and has salaries paid outside China that are borne by a Chinese entity, the foreign worker may either pay individual income tax on a self-declaration basis or entrust the Chinese entity to complete the necessary tax filing and payments in China on his or her behalf.39

Global policies

Employment laws require employers to establish and improve internal rules and policies to ensure that employees enjoy employment rights and perform employment obligations.40 Internal rules and policies are normally set out in an employee handbook.

For internal rules and policies, or amendments thereto, to take effect and bind all employees, the employer must complete the following steps: (1) present a draft of the internal rules and policies to the employee representatives, or all employees, for discussion and solicit proposals and suggestions; (2) negotiate with a trade union or employee representatives on an equal footing; and (3) deliver the finalised internal rules and policies to all employees, which can be accomplished by handing out hard copies, sending emails or posting on an intranet. This consultation process is called Democratic Procedures.41

The importance of an employer's disciplinary rules in the internal management process cannot be overstated. From a practical perspective, it is advised that disciplinary rules are included in an employer's internal rules and policies rather than in employment contracts. Should any disciplinary rules be incorporated in an employment contract, the employer cannot amend those rules without the employee's consent.

The formulation and amendment of an employer's internal rules and policies do not require the consent of its employees, either directly or through a representative body, neither do they need to be filed with a government authority or be subject to official approval. There is also no mandatory requirement for internal rules and policies to include any provision in respect of discrimination or corruption.

Regarding the language of employers' rules and policies, see Section X.

Parental leave

Employees are entitled to paid maternity and paternity leave according to national and local regulations. The maternity insurance fund will pay a maternity allowance directly to the female employee or to the employer, if the employer continues to pay the employee her normal salary during maternity leave. If the maternity allowance does not match the employee's normal salary accrued during maternity leave, the employer is obliged to compensate the employee with the difference.

Pursuant to national regulation, female employees are entitled to 98 days of maternity leave, of which 15 days can be taken before the delivery. In the event of dystocia, an additional 15 days' maternity leave will be granted and in the case of multiple births, an extra 15 days' leave will be granted for each infant. Employees who suffer a miscarriage within the first four months of pregnancy are entitled to 15 days' maternity leave, and those who suffer a miscarriage after the first four months of pregnancy are entitled to 42 days' maternity leave.42

In addition, provinces and cities directly under the central government have formulated local regulations to grant birth-giving leave on top of maternity leave. For example, female employees in Shanghai are entitled to 30 days' birth-giving leave.43 To be eligible for birth-giving leave, the employee giving birth must have complied with the applicable family planning regulations.

A male employee whose wife gives birth is entitled to paternity leave and his employer bears the cost. The length of paternity leave depends on local regulation; for example, it is 10 days in Shanghai.

Some provinces or cities have formulated local regulations that encourage, rather than compel, employers to arrange parental leave for employees. For instance, in Suzhou, after expiry of a spouse's maternity leave, male employees who need to take care of a child under one year old may be granted parental leave following approval by the employer.44

During pregnancy, maternity leave (including birth-giving leave) and while breastfeeding, female employees are protected from unilateral termination of their employment by the employer on grounds such as incompetence, expiry of a period of medical treatment, a material change to an objective circumstance or a reduction in the employer's workforce.45 However, employees on parental leave or paternity leave are not protected from unilateral termination by the employer on the above-mentioned grounds.

Translation

Employment contracts must be written in Chinese. If a version is required in another language, both versions should be drawn up at the same time, and the two must be consistent. Local regulations, such as in Shanghai, also clearly stipulate that employment contracts must be executed in Chinese but can also be executed in both Chinese and a foreign language. If there is any discrepancy between the two, the Chinese version will prevail.46 If an employee is unable to read and understand Chinese, it is advised that the employment contract is drawn up in a bilingual version.

Although employment laws and regulations are only explicit as regards the language for employment contracts, from a practical perspective, it is advisable that employers follow the above-mentioned rules regarding translation in other documents, such as employer's internal rules and policies, employee handbook and confidentiality and non-compete agreements.

If the employer prepares the translation, the law does not require the translated content to be notarised or certified by an independent translation agency.

In employment dispute resolution proceedings, if employment-related documents are written only in a foreign language, the courts will request a Chinese translation before admitting the documents as evidence or recognising the content therein.47 The translation must be issued by a translation agency qualified in judicial practice. If one party disputes an existing Chinese translation, both parties will jointly entrust a translation agency to provide an alternative translation. If the two parties fail to agree on the choice of translation agency, the people's court will determine which shall be used.48

An employer will not be subject to any administrative or criminal penalty if employment documents are not translated into Chinese.

Employee representation

Trade unions are organisations spontaneously founded by workers and led by the All-China Federation of Trade Unions. Although private companies with more than 25 trade union members are required by the Trade Union Law to form an internal trade union,49 this is not strictly enforced in practice in the private sector.

Pursuant to the Articles of Association for Chinese Trade Unions, the general meeting for all trade union members or trade union representatives will be held at least once a year. The ratio of trade union representatives is determined as follows:50

Number of trade union membersNumber of trade union representatives
Between 100 and 200Between 30 and 40
Between 201 and 1000Between 40 and 60
Between 1,001 and 5,000Between 60 and 90
Between 5,001 and 10,000Between 90 and 130
Between 10,001 and 50,000Between 130 and 180
50,001 or moreBetween 180 and 240

To elect trade union representatives, the basic level trade union must first determine the number of representative candidates and conditions, based on which the election unit will organise trade union members to discuss and propose the candidates. The election unit will then hold a general meeting attended by more than two-thirds of the trade union members or trade union representatives, and will conduct the election on a competitive basis. The number of candidates should be at least 15 per cent more than the number of trade union representatives to be elected. Candidates who receive affirmative votes from a simple majority of all trade union members of the election unit will be elected as trade union representatives.51 The term of office of trade union representatives is the same as that of members of the trade union committee, which ranges from three to five years.52

In accordance with the Trade Union Law, if the chairman, vice chairman or commission members of a basic-level trade union are full-time employees, their employment terms are extended automatically for a period matching their term of office. If the chairman, vice chairman or commission members of a basic-level trade union are part-time employees, and their current employment contract is for a shorter period than their term of office, their employment terms will be extended automatically until the expiry of their term of office. Exceptions to these extensions include when an individual has been found to be grossly negligent or reaches the statutory retirement age.53

To hold an employee representative congress (ERC), the number of employee representatives must be at least 30 and no fewer than 5 per cent of the total workforce.54 The ERC must be held at least once a year and the term of each ERC will be between three and five years. To elect or dismiss an employee representative, a plenary session must be held with at least two-thirds of all employees attending. The outcome of the election or dismissal will be valid after being passed by half of all employees.55

When employee representatives attend an ERC or related activities during working hours, their normal remuneration must be paid. Employee representatives appointed by a trade union or elected by employees are protected from dismissal when they are handling disputes in respect of the execution of a collective contract.56

Regarding the duties of employee representation bodies, employers are required to notify trade unions when unilaterally terminating employment and when formulating, amending or cancelling internal rules or policies that directly affect employees' rights and interests. Employers must follow the Democratic Procedures, which include interaction with the ERC, trade unions and employee representatives.57

Data protection

i Requirements for registration

An employer will be deemed a data processor when collecting and processing employees' personal information, and will be bound by the principles, rules and conditions prescribed by China's Civil Code. The mandatory requirements prior to processing personal information include obtaining consent from the individuals concerned, unless otherwise prescribed by laws and regulations.58

Under the Employment Contract Law, employers are entitled to information about employees that directly relates to the performance of employment.59 However, from a practical perspective, it is advisable for employers to obtain employees' consent to process any personal information.

In addition, the Civil Code requires employers to take technical and other necessary measures to ensure the security of personal data and prevent any data being leaked, tampered with or lost.60 However, currently, employers are not required to register with any data protection agency or government authority.

ii Cross-border data transfers

According to the Civil Code, employers should disclose the purpose, method and scope of data processing.61 When employers intend to transfer employees' personal information abroad, they must satisfy the disclosure obligation.

In addition to the Civil Code, the Cybersecurity Law also prescribes obligations in respect of cross-border data transfers. Under this Law, Critical Information Infrastructure Operators (CII Operators) are responsible for the security of data in key sectors, such as public communications, information services, energy, transport, water conservancy, finance, public service, e-government, and other CII that could severely threaten national security, the economy, people's livelihood and public interests if it is damaged, disabled or suffers data leakage.62

All critical data and personal information generated and collected by CII Operators within the territory of China must be stored domestically. The CII Operators must conduct a security assessment as arranged by the cyberspace administration authority when any data or information needs to be transferred abroad.63

For entities not identified as CII Operators, there are currently no effective laws or regulations that require them to carry out a security assessment before transferring information or data to another country.

iii Sensitive data

In accordance with the Information Security Technology – Personal Information Security Specification (the Security Specification), sensitive data refers to any personal information that, should it be disclosed, illegally provided or misused, may endanger the safety of a person or their property, or is very likely to damage a person's reputation, their physical or mental health, or may result in discriminatory treatment.64

The Security Specification also explicitly lists examples of sensitive data, which include identity number, biometric information, bank account details, communication records and content, property information, credit information, whereabouts, accommodation information, health and physiology information, transaction information, and information about children up to 14 years old.

Unlike the protection for general personal data, the Security Specification stipulates that, before collecting sensitive data, explicit consent must be obtained from the individual and that consent shall be spontaneous, specific and clearly expressed, based on the individual's full knowledge.65

iv Background checks

An employer's background checks inevitably involve the collection of personal information. Thus, all background checks must be conducted in compliance with the relevant laws and regulations. In that sense, employers should fully inform individuals about the scope, method and purpose of data processing while background checks are being carried out and obtain the individuals' consent.

In accordance with the Criminal Law, an individual who has been sentenced to criminal penalties must truthfully report his or her criminal record to a new employer.66 In practice, if necessary, employers may require an employee to provide a no-criminal record declaration issued by the public security bureau.

Employers need to obtain employees' authorisation to carry out credit checks before applying for credit reports to the Credit Reference Centre of the People's Bank of China on behalf of employees.67

Discontinuing employment

i Dismissal

Termination of employment is highly regulated in China. Employers are only able to terminate employment relationships for very limited reasons, as provided by the Employment Contract Law (the Statutory Basis). Without the Statutory Basis, employers are unable to legally dismiss employees. Should an employer wrongfully dismiss employees, the affected employees will be entitled to either double severance pay or reinstatement of employment.

Termination for cause by employer

The most widely used Statutory Basis is an employee's misconduct, based on which the employer is entitled to unilaterally terminate employment with immediate effect and without any compensation. The applicable circumstances for termination for cause include:

  1. an employee's failure to satisfy employment conditions during the probationary period;
  2. a serious violation of the employer's rules or policies;
  3. dereliction of duty or malpractice for personal interests leading to the employer's loss;
  4. taking up a second employment that has a serious effect on the employee's work or refusing to rectify the situation after being asked to do so by the employer; and
  5. being held criminally liable.68

Termination by notice from employer

The Statutory Basis includes circumstances under which the employer may unilaterally terminate employment by serving notice of 30 days in advance or paying one month's salary in lieu of notice. The three circumstances are that (1) the employee is unable to carry out his or her original duties or alternative work after a period of medical treatment, (2) the employee is incompetent at work and remains so after a change in position or undergoing training, and (3) there is a material change of objective circumstances on which the employer–employee relationship relied that renders the employment no longer performable and the employer and employee fail to agree on an amendment of the employment contract through consultation.69

Notice to trade union

Pursuant to the Employment Contract Law, when unilaterally terminating employment, the employer must notify the trade union of the reason in advance.70 However, a judicial interpretation by the Supreme People's Court stipulates that, if an employer fails to notify the trade union in advance, that employer can effectively rectify the situation before judicial proceedings are started.71

Employees in the Protected Group

The Employment Contact Law identifies certain employees as the Protected Group. Employers are prohibited from carrying out a termination by notice or a termination through redundancy in respect of employees deemed to be in the Protected Group.

The Protected Group are employees who:

  1. are exposed to occupational hazards and have not yet undergone a medical examination;
  2. are suspected of having an occupational disease and are undergoing diagnosis or medical observation;
  3. have been identified as having lost their capability to work in part or in whole;
  4. are undergoing medical treatment;
  5. are pregnant, on maternity leave or still breastfeeding; and
  6. have worked for 15 or more years with the employer and are within five years of retirement age.72

Termination of employment by employee

Employees are free to terminate their employment at any time by giving 30 days' notice, or three days' notice during a probationary period.73 Furthermore, employees may terminate their employment for an employer's fault (i.e., constructive dismissal) when the employer:

  1. fails to provide adequate working conditions or sufficient protection;
  2. fails to pay full remuneration in a timely manner;
  3. fails to make social insurance contributions;
  4. has internal policies that are in violation of the law and impair the rights and interests of employees; and
  5. otherwise causes the employment contract to be null and void.74

Termination of employment by mutual agreement

A termination of employment with the consent of both employer and employee is applicable for almost all circumstances and regarded as the most ideal approach to end employment. In this situation, a settlement agreement is often used that states that the employer will pay statutory severance plus an ex gratia payment (if applicable) to the employee, in exchange for which the employee will accept the termination of employment and will waive all rights to make any further claim against the employer.

Severance requirements

If the termination is (1) by notice from the employer, (2) a constructive dismissal, (3) by mutual agreement or (4) because of redundancy, employers are obliged to provide employees with severance in accordance with the Employment Contract Law (statutory severance).

As a general rule, statutory severance is calculated as one average monthly salary for each year of service with the employer. If the period of service is more than six months but less than one year, it will be counted as one full year, and if the period of service is less than six months, the severance will be half of the average monthly salary. The average monthly salary refers to an employee's average salary in the 12 months prior to termination of employment, which is capped at three times the municipal average monthly salary as announced by the local government.75

ii Redundancies

The two thresholds for redundancy are that the employer has encountered an applicable situation for making positions redundant and that the number of potentially redundant employees is to be more than 20 or more than 10 per cent of the workforce.76

The Employment Contract Law lists the applicable situations when employers can implement a redundancy programme, which include:

  1. a company restructure during bankruptcy;
  2. a company being in severe financial and operational difficulty;
  3. a change in production methods, introduction of material technological reform or change of business model, making it necessary to lay off employees following amendment of employment contracts; and
  4. other objective economic situations rendering the employment contracts no longer performable.77

When deciding which employees must be retained and will not affected by redundancy, employers must prioritise those employees who have (1) a longer fixed-term contract, (2) a contract with no fixed term, and (3) an elderly person or a minor to support and no other employed member within the family. If within six months of the redundancy programme being completed the employer plans to hire new employees, the employer must first notify the employees who were made redundant and rehire them if they are equally qualified as other candidates.78

The usual steps required for an employer to implement a redundancy programme include:

  1. announcing the redundancy plan to the trade union or all staff;
  2. soliciting opinions from the trade union or employees;
  3. filing the redundancy plan with other required documents with the local labour authority (at least 30 days after the first step);
  4. collecting the filing receipt from the local labour authority; and
  5. discharging employees deemed redundant with immediate effect and paying the statutory severance.

Transfer of business

The Employment Contract Law prescribes that an equity transfer will not affect the continued performance of employment contracts.79 When an employer undergoes an entity's merger and division, employment contracts will continue to be performed by the surviving entity that inherits the rights and obligations of the original employer.80 However, in merger and asset transfers, the employer is entitled to terminate agreements with relevant employees based on a material change of objective circumstances. The affected employees will be compensated with the statutory severance.81

An equity and assets transfer will not necessarily mean employees are transferred to the recipient of the equity and assets. To effect employee transfers in an equity and assets transfer, the original employer, the new employer and the employee usually need to enter into a tripartite agreement. The key term therein is to ascertain whether the original employer pays the statutory severance to the employee at the time of the transfer or the employee's service period with the original employer will be carried over and credited by the new employer.

Outlook

China's State Council has released suggested guidelines for the national economy and for social development in the next five years and until 2035, which includes a proposal to gradually increase the statutory retirement age.82 As the statutory retirement age relates to pension benefits, expiry of employment contract, Protected Group identification and other aspects of employment management, we expect that the delay in increasing the statutory retirement age might be the most active topic in the field of employment law during 2021.

Footnotes

1 Carol Zhu is a partner at Zhong Lun Law Firm.

2 Employers are restricted from filing two kinds of disputes to people's court after labour arbitration. Refer to Article 47 of the Employment Dispute Mediation Arbitration Law for details.

3 'Circular on Improving Guidance and Services of Employee Sharing issued by the MOHRSS', available at http://www.gov.cn/zhengce/zhengceku/2020-09/30/content_5552229.htm>.

4 For statistics issued by the Ministry of Human Resources and Social Security [MOHRSS], see the Ministry's website http://www.mohrss.gov.cn/gkml/ghtj/tj/ndtj/202009/W020200911401822058532.pdf>.

5 See Typical Cases of Labour Disputes (the first batch) published by the MOHRSS and Supreme People's Court of the People's Republic of China.

6 'Guiding Opinions on Unifying Application of Law and Strengthening Searching of Similar Cases', issued by the Supreme People's Court of the People's Republic of China.

7 Employment Contract Law, Article 10.

8 id., at Article 69.

9 id., at Article 12.

10 id., at Article 17.

11 id., at Article 10.

12 id., at Article 82.

13 Implementation Regulations of the Employment Contract Law, Article 7.

14 Employment Contract Law, Article 35.

15 Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Labour Dispute Cases (I), Article 43.

16 Employment Contract Law, at Article 19.

17 id., at Article 37.

18 id., at Article 39.

19 Administrative Measures for the Registration of Enterprises of Foreign Countries (Regions) Engaging in Production and Operation Activities within the Territory of China, Article 2.

20 Agreement Between the Government of the People's Republic of China and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Article 5, Paragraph 3, Item (c).

21 Individual Income Tax Law, Articles 9, 10 and 11.

22 Interim Regulations of PRC State Council concerning the Regulation of Resident Representative Offices of Foreign Enterprises, Article 11.

23 Employment Contract Law, Article 23, Paragraph 1.

24 id., at Article 24, Paragraph 1.

25 Company Law, Article 148.

26 Employment Contract Law, Article 24, Paragraph 2.

27 Interpretations of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Labour Dispute Cases (I), Article 36.

28 Shenzhen Economic Special Zone Regulation on Protection of Company Technical Secret, Article 24.

29 The Regulations of the State Council on the Hours of Work of Employees, Article 3.

30 Employment Law, Article 41.

31 Measures for the Examination and Approval of Flexible Working Hour System and Comprehensive Working Hour System Adopted by Enterprises, Article 5.

32 Opinions on Several Issues re Implementation of PRC Employment Law, Article 67.

33 Circular from the Ministry of Labour regarding the Issuance of Answers to Questions relating to Female Employee Labour Protection Regulation, Article 7.

34 Employment Law, Articles 61 and 63.

35 Notice on Issuing the Interim Provisions on Salary Payment, Article 13.

36 Shanghai Regulation on Employer Salary Payment, Article 13.

37 Opinions on Several Issues re Implementation of PRC Employment Law, Articles 60 and 62.

38 Social Insurance Law, Article 97.

39 Circular of Relevant Individual Income Tax of Resident Individual and Non-Resident Individual issued by the Ministry of Finance and State Taxation Administration, Article 5.

40 Employment Law, and Employment Contract Law, Article 4.

41 Employment Contract Law, Article 4.

42 Special Provisions on Labour Protection for Female Employees, Article 7.

43 Provisions on Population and Family Planning of Shanghai Municipality, Article 31.

44 Provisions on Protection of Female Interest of Suzhou Municipality, Article 18.

45 Employment Contract Law, Article 42.

46 Shanghai Municipality Regulation of Employment Contract, Article 9, Paragraph 2.

47 Civil Procedure Law, Article 70, Paragraph 2.

48 Interpretation of the Supreme People's Court on the Application of PRC Civil Procedure Law, Article 527.

49 Trade Union Law, Article 10.

50 Circular regarding Provisions on General Meeting of Trade Union Representatives at Basic Level Trade Unions by All-China Federation of Trade Unions, Article 9.

51 id., at Articles 16 and 17.

52 Articles of Association for Chinese Trade Union, Article 26.

53 Trade Union Law, Article 18.

54 Corporate Democratic Management Rules, Article 8.

55 Enterprise Democratic Management Rules, Articles 25 and 26.

56 Ministry of Labour Circular on the Release of Regulation on Collective Contract, Article 36.

57 Employment Contract Law, Article 43.

58 Civil Code, Article 1035.

59 Employment Contract Law, Article 8.

60 Civil Code, Article 1038.

61 id., at Article 1038.

62 Cybersecurity Law, Article 31.

63 id., at Article 37.

64 Information Security Technology – Personal Information Security Specification (GB/T 35273-2020), Article 3.2.

65 id., at Article 5.4 (b).

66 Criminal Law, Article 100.

67 Business Procedures for Check of Personal Credit Report at Financial Credit Information Basic Data Base, Articles 4 and 5.

68 Employment Contract Law, Article 39.

69 id., at Article 40.

70 id., at Article 43.

71 Interpretations of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Labour Dispute Cases (I), Article 47.

72 Employment Contract Law, Article 42.

73 id., at Article 37.

74 id., at Article 38.

75 id., at Article 47.

76 id., at Article 41, Paragraph 1.

77 id., at Article 41, Paragraph 2.

78 id., at Article 41, Paragraphs 3 and 4.

79 id., at Article 33.

80 id., at Article 34.

81 Explanation on Several Provisions in PRC Employment Law by the Ministry of Labour, Article 26.

82 Central Committee of the Chinese Communist Party's proposal for formulating the 14th Five-Year Plan (2021–2025) for National Economic and Social Development and the Long-Term Objectives through to 2035, Paragraph 45.

Get unlimited access to all The Law Reviews content