A brief overview on Chinese employment law

Author: BenCham Shanghai

The following deals with basic points on Chinese employment law, including those aspects relating to employment of foreigners in China.

  1. Main Sources of Chinese Employment Law

The main sources of Chinese employment law are legislation – laws implemented from national level to local (including from provincial to city levels). The laws and administrative regulations formulated and implemented on national level mainly include the following:

  1. Labour Law of PRC, effective from 1 January 1995 (Amendment thereto effective from 29 December 2018);
  2. PRC Labour Contract Law, effective from 1 January 2008 (Amendment thereto effective from 1 July 2013);
  3. Regulations on Implementation of PRC Labour Contract Law, effective from 18 September 2008; 
  4. Labour Dispute Mediation and Arbitration Law of PRC, effective from 1 May 2008.

In addition, there are judicial interpretations by PRC Supreme People’s Court and various interpretations and guidelines by the High People’s Courts and local rules and regulations.

  1. Eligibility for Establishing Employment Relationship in China
    1. Entities such as companies, partnerships, etc are eligible to act as an employer under Chinese employment law. However, there are exceptions. Entities such as representative offices set up in China by foreign companies or journalist representative offices set up in China are not eligible to act as an employer and they can only “hire” employees via a labour dispatching structure under which a labour dispatching agency such as FESCO dispatches its employees to work at such entities.
    2. In general, employees must reach the age of 18. For specific sectors or positions, employees must obtain the required qualifications prior to working on specific positions, for example, senior management positions at insurance companies.
    3. For foreigners, they must satisfy conditions set by Chinese authorities and obtain the Foreigner’s Work Permit and work-type residence permit for them to conclude lawful employment relationship with Chinese employers, unless they have already obtained the Chinese green card (permanent residence permit). Otherwise, no employment relationship exists between foreigners and the Chinese entities and foreigners are therefore not entitled to employment related protection in accordance with Chinese employment law.
    4. In addition, from the perspective of employment administration authorities, foreigners working in China without holding valid Foreigner’s Work Permit and residence permit will be regarded constituting illegal employment, for which not only will the Chinese employers be imposed on fine of up to RMB 100,000 and confiscation of illegal income (if any), but also the foreigners will be imposed on fine of RMB 5,000 to RMB 20,000 and may be detained for a period of 5 to 15 days, or even be repatriated from China. From perspective of civil law of PRC, the disputes between the foreigners without holding Foreigner’s Work Permit and the Chinese entities where they work will be handled with reference to Contract Law of PRC.  
  2. Terms and Conditions of Employment Contract
    1. For full-time employment, a written employment contract must be signed within one month from the day of commencing working. Otherwise the employee shall be entitled to receive double monthly salary for the period from the day of commencing work till expiration of one year. If, upon expiration of a year calculating from the day of commencement of work, no written employment contract has been signed, it shall be deemed that an open-end employment contract has been concluded.
    2. The following contents must be included in the written employment contract in accordance with theLabour Contact Law of PRC:
  1. Employer’s name, domicile, legal representative or main person in charge;
  2. Employee’s name, domicile, resident ID number or other equivalent ID number;
  3. Term of employment contract;
  4. Contents of work and work place;
  5. Working hours, rest and vacations;
  6. Remuneration;
  7. Social insurance;
  8. Labour protection, working conditions and protection against occupational hazards;
  9. Other items required by laws and administrative regulations to be included in the employment contract.
    1. Chinese employment law provides significant protection for employees. Chinese employment laws set minimum standards / requirements on employment, which mainly include the following:
  1. Working hours are strictly regulated. Except for flexible working time schedules, standard working time schedule of 8 hours per day/40 hours per week with a maximum of 3 overtime hours per day / 36 overtime hours per week shall be applied under the standard working time schedule;
  2. In addition to statutory holidays, employees enjoy statutory paid annual leave. Depending on the total years of their employment, they are entitled to a minimum number of paid annual leave, that is 5, 15 or 20 working days; 
  3. Local governments set and release minimum salaries standards each year. Employers shall not offer salaries which are lower than such minimum salaries; Salaries shall be paid in full and in time.
  4. Sick leave and sick leave payment must be made to employees during statutory medical treatment periods; 
  5. Employers must make social insurance contributions for employees as required by laws and local regulations; etc.

Such minimum standards or treatments required by laws and regulations shall be regarded as implied terms and conditions of the employment contracts. Violation of these standards or treatments may result in employment disputes or punishment imposed by the labour authorities.

  1. Termination of Employment
    1. Ways of terminating employment
  1. The employment laws allow an employer and an employee to mutually terminate their employment contract relationship. 
  2. The employment contract relationship shall end under specific statutory situations:
  1. Expiration of employment contract term;
  2. Employees start to receive basic pensions or reach the statutory retirement age;
  3. Employees die or are declared dead or disappeared by the courts;
  4. Employers being declared bankrupt according to the law;
  5. License of the employers being cancelled, employers being ordered to be closed, or the employer deciding to dissolve.
  1. Under specific and limited statutory situations, employers are allowed to unilaterally terminate the employment relationship.
    1. General conditions for unilaterally terminating employees
  1. In general, Chinese employment law restricts the employers’ right to unilaterally terminate the employment relationship. Only under the limited statutory situations as comprehensively listed in the PRC Labour Contract Law (in Articles 39, 40 and 41), an employer may unilaterally terminate the employment relationship with or without prior notice. Termination under Article 40 and 41 of the PRC Labour Contract Lawentitles the employee statutory severance and notice. 
  2. These statutory situations for unilateral termination by employers include misconduct, severe breach of internal rules and regulations, incompetence, etc under which the Chinese employers have a higher burden of proof to prove that the employers are justified to unilaterally terminate the employees. For situations of misconduct, severe breach of internal rules and regulations etc, the employers are permitted to terminate the employees without payment of severance and notice period. 
  3. Mass dismissal which refers to unilateral termination of over 20 employees or unilateral termination of over 10% of the total headcount. Mass dismissal is only applicable under specific statutory situations and must follow statutory procedures. The statutory situations include the following:
  1. Restructuring according to PRC Enterprise Bankruptcy Law;
  2. Encountering serious operational difficulties;
  3. Switching production, introducing significant technological innovations or adjusting the operation mode which still requires dismissal of employees after amending the employment contract;
  4. Occurrence of significant change of other objective economic situations relied upon at the time of concluding the employment contract, which renders the employment contract impossible to be performed.
  1. In case of being unilaterally terminated, an employee may claim either reinstatement of employment, or payment of double statutory severance, which are the relief the employees shall be entitled to seek for illegal termination. In general, this would be the major risks employers shall consider before implementing unilateral termination.
  2. Accordingto the PRC Labour Contract Law,the amount of the statutory severance is calculated based on the length of the employment term and the average monthly salary of the employees for the 12 months preceding the termination – for each year of service, one average monthly salary shall be compensated. If the average monthly salary is triple local average monthly salary as released by the government, the average monthly salary shall be capped at triple local average monthly salary and compensating years shall be capped at 12 years for the service period as of 1 January 2008. 
  1. Labour Dispatching
    1. Labour dispatching is applicable to those temporary, auxiliary or substitutable positions. 
    2. Under the labour dispatching structure, the labour dispatching firm (a qualified HR agency) is the employer which signs employment contract with employees and sends these employees to work at the labour accepting unit. The labour accepting unit and the labour dispatching firm signs a labour dispatching agreement on the labour dispatching.
  1. If the dispatched employees suffer from damages caused by the labour accepting unit, the labour dispatching firm and the labour accepting unit shall be jointly liable.
  2. Before expiration of the dispatching term of the labour dispatching agreement, generally dispatched employees cannot be returned by the labour accepting unit. Otherwise dispatched employees shall be entitled to reinstatement or payment of double statutory severance.
  3. Statutory situations for unilaterally terminating employees under direct employment are applicable to returning dispatched employees to the labour dispatching firm. In addition, when the labour accepting unit goes bankrupt, is ordered to be close down, the business license is revoked or decides to dissolve prior to expiration of business term, the dispatched employees can also be returned. 
    1. Unless the dispatched employees are returned due to situations justified for unilateral termination under a direct employment (such as misconduct), the labour dispatching firm shall not be necessarily entitled to terminate the dispatched employees, but instead shall pay at least local minimum salary to the returned employees for their remaining employment term, as well as pay the severance to the returned employees upon the expiration of the employment term (if the employment contract is not renewed by providing same or higher employment conditions).
  4. Collective Contract
    1. With respect to remuneration, working hours, rest and vacations, work safety and sanitation, social insurance and benefits etc, trade union may sign collective contracts with the employer through equal negotiation. Where there is no trade union set up at the employer, higher-level trade union may guide the employees to select representatives to sign collective contract with the employer.        
    2. Industrial collective contract is allowed to signed by representatives of employers and trade union for construction, mining and food industries, etc. Regional collective contract can also be signed. 
    3. Collective contracts shall have binding force on employers and employees after the same are filed with the labour authorities and become effective. The employment conditions agreed in the individual employment contracts shall not be lower than the standards set in the collective contracts.
  5.  Discrimination
    1.  There are no comprehensive Chinese laws on the discrimination. However, the PRC Employment Promotion Lawprovides for that employees shall not be discriminated on nationality, race, gender, religion, infectious diseases, etc and set out principles of ensuring equality of employment for female employees, employees from minor ethnic groups, employees from rural areas and protecting the employment rights for disabled persons. ThePRC Law on Protection of Women’s Rights and Interestsalso specifies that women and men enjoy equal employment rights.
    2.  The Notice on Further Regulating the Recruitment Activities to Promote Employment of Womenjointly promulgated by the Ministry of Human Resources and Social Security, etc which was implemented as of 18 February 2019 (the “Notice”), includes detailed requirements on preventing discrimination against women during the recruitment process. The Notice provides for that no restriction / preference on gender of employees to be hired shall be included/set in the recruitment plans, recruitment advertisements and during the recruitment process; no inquiry on the marital or pregnancy status shall be made and no pregnancy test shall be included in the health check for entry; and no restriction on giving birth to child(ren) shall be set as a precondition for employing female employees. Employers or HR service agencies which release recruitment advertisements with discrimination information will be ordered to rectify or ordered to pay fine of RMB 10,000 to RMB 50,000 in case of failure to rectify. HR service agencies’ licenses may even be cancelled in case of severe violation.
  6. Restrictive Covenants
    1. The laws allow the employer and relevant employees to conclude restrictive covenants with respect to confidentiality and non-competition for the term of employment and the period following termination of the employment. Liquidated damages can be agreed on for breach of such restrictive covenants.
    2. In consideration of the employees’ complying with the agreed non-competition obligations following termination of employment for a term of up to 2 years, the employer shall pay non-competition compensations to the employees. If the non-competition compensations are not agreed upon by the parties, the restrictive covenants on non-competition obligations is not necessarily ineffective. However, the amount of compensations shall not be less than the local minimum salaries and generally the monthly payment shall be 30% of the monthly salary averaged for 12 months preceding the termination (certain province or cities set local requirements on the amount of the non-competition compensations). Failure to pay the non-competition compensations for a certain period will entitle the employees’ right to terminate the non-competition obligations.
  7.  Employer’s Criminal Liability 
    1.  The PRC Criminal Lawhas provided for a new type of crime, namely Crime of Rejecting to Pay Employment Remunerations. In case of evading payment of employment remunerations by transferring the properties or absconding, or having the payment capacity but rejecting to pay the remunerations, the amount of which is large, failure to make the payment after the government departments order it to pay will lead to imprisonment of up to 3 years or detention plus payment of fine; and will lead to imprisonment of 3 to 7 years plus payment of fines in case of causing severe consequences.
    2. In case of an employer being found guilty of the above-mentioned crime, the employer shall be subject to the fines and the directly responsible person in charge and other directly responsible persons shall be subject to the above-mentioned imprisonment or detention.
  8.  Dispute Resolution
    1. Labour disputes shall be firstly submitted to the local competent labour arbitration committee for arbitration, which shall resolve the dispute within a time limit of up to 60 days as of acceptance of the case. Except for certain arbitration awards which are final and binding, if one party is not satisfied with the arbitration awards, such party can file a lawsuit with the competent people’s court within the specified timeframe. In case one party is still not satisfied with the court judgment, such party can, within the statutory timeframe, file an appellant case with the upper-level competent people’s court, whose judgment will be the final and binding judgment unless it is invalidated through the re-trial procedure later.
    2. Reconciliation or mediation is allowed during the arbitration or court processes. If the case is mediated and closed by the labour arbitration tribunal or the courts, the labour arbitration committee or the courts will issue a mediation letter to the parties.