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Forums For Adjudicating Employment Disputes

In the People’s Republic of China (PRC), adjudication of a labour dispute must generally first be heard by a labour dispute arbitration committee. The labour dispute arbitration committee at the place where the labour contract is performed, and the labour dispute arbitration committee at the employer’s registered location, both have jurisdiction over the labour dispute. If the parties apply to both committees the labour dispute arbitration committee at the place where the labour contract is performed will take precedent.

Parties can generally appeal an arbitration decision with the competent people’s district court, which conducts a de novo review. Only employees have the right to appeal arbitration decisions related to certain types of disputes, such as claims for medical expenses for occupational injuries. District court decisions may be appealed to intermediate court for a final review.

Disputes not deemed as labour disputes, such as disputes relating to recruitment, may be filed directly in court.

In order to reduce the number of disputes being handled by labour arbitration and courts, employers are encouraged to establish mediation committees. The establishment of such committees is not compulsorily, and parties are not required to submit disputes to the committees or other mediation organisations.


The Main Sources Of Employment Law

China has different levels of labour laws. At the national level, there are laws enacted by the National People’s Congress and its Standing Committee. Regulations and rules are issued by the State Council and the central government labour administrative authorities. At the local level, there are laws enacted by the provincial and municipal people’s congresses and their standing committees. Regulations and rules are also issued by the provincial and lower-level government authorities. Generally speaking, local legislation clarifies national legislation by providing more details.

The main sources of employment law at the national level includes the Labour Law, the Labour Union Law, Labour Contract Law, the Employment Promotion Law, the Labour Disputes Mediation and Arbitration Law, the Rules on Paid Annual Leave of Employees Working in Enterprises, and the Interim Rules on Payment of Salary.

Starting October 1, 2016, decisions of courts are required to be published on the internet. Unlike common law jurisdictions, case decisions are not formally used as precedents. However, the Supreme People’s Court does issue interpretations and guiding precedents that lower courts are instructed to follow.


National Law And Employees Working For Foreign Companies

In general, PRC labour laws apply to all individuals directly employed by foreign-invested enterprises.

By contrast, a representative office of a foreign company is not permitted to directly employ PRC citizens, but must employ individuals through a qualified employment agency. The agencies are the legal employers, but the representative offices may have labour law obligations imposed through service contracts with the agencies.

Foreign national employees employed by offshore employers and seconded to work for foreign-invested enterprises or representative offices of foreign companies will generally be subject to the governing laws of their employment contracts with their offshore employers.


National Law And Employees Of National Companies Working In Another Jurisdiction

In general, PRC law will apply to employees employed by PRC companies who are seconded to work in another jurisdiction, subject to the arrangements between the home entity, host entity and the employee.


Data privacy

China is considering a comprehensive draft Personal Information Protection Law. Approval is expected in the second half of 2021 with law setting requirements that will apply to employers for the collection, use, and transfer of employee personal information. In particular, tighter requirements are likely for the cross-border transfer of personal information and in regards to “sensitive” personal information. Under current law, the collection, use, and transfer of employee personal data generally requires only a one-time employee consent.

Legal Requirements As To The Form Of Agreement

Full-time employees must have written employment contracts. The written employment contract must be concluded within 30 days when the employee gets on-board. Part-time employees can be employed under written or oral contracts.


Mandatory Requirements
  • Trial Period
  • It is not a legal requirement to provide an employee with a trial period, usually called a “probationary period”. However, it is common practice to do so. The maximum length of the probationary period depends on the length of the employment contract. No probationary period is allowed where the employment is for less than three months. An employer may stipulate only one probationary period per employee.

  • Hours Of Work
  • China has three working hours systems: standard working hour system; flexible working hour system; and comprehensive working hours system. The standard working hour system is eight hours per working day and 40 hours per working week. The flexible working hour system and comprehensive work hours system are limited to specific positions that are not suitable for the standard working hours system. Labour bureau approval is required for an employer to adopt an alternative working hours system.

  • Special Rules For Part-time Work
  • Part-time workers are defined as employees working no more than four hours per day or 24 hours per week. Part-time employees are not covered by most protections under the Labor Contract Law. In particular, there is no requirement that part-time employees must be given employment contracts. In addition, part-time workers may be terminated at-will.

  • Earnings
  • An employee’s salary must be no less than the minimum salary standards set by the local governments. The rates depend on the work location and the type of employment, e.g. full-time employees and part-time employees.

  • Holidays/Rest Periods
  • All employees are entitled to enjoy statutory public holidays. An employee who has worked continuously for at least one year is entitled to paid annual leave of five to fifteen days. Paid annual leave entitlement is based on an employee’s total working service in the workforce.

    Employees under the standard working hour system must be provided with at least one rest day per working week. As for employees under an alternative working hour system, employers must provide rest through measures such as shifts and flexible working hours.

  • Minimum/Maximum Age
  • Employees must be at least 16 years old, provided that approval may be granted to employ children under the age of 16 for performing art, sports and specialty-skill work. There are no maximum age limits for an employee to work, although statutory retirement ages may apply.

  • Illness/Disability
  • An employee suffering from non-occupational illness or injury is entitled to statutory medical treatment leave of between 3 and 24 months. The length of the leave will depend on the employee’s total number of years in the workforce and the years accrued at the current employer. Local regulations may apply in regard to the length of the medical treatment leave. When an employee is in statutory medical treatment leave, the employer may terminate the employee only for cause.

    Employees suffering from occupational injuries or illnesses are entitled to fully paid occupational injury leave. Employees can usually take up to 12 months leave depending on the status of the illness or injury. When an employee is in occupational injury leave, the employer may terminate the employee only for cause.

  • Location Of Work/Mobility
  • The place of work must be specified in the employment contract. An employer may reasonably adjust an employee’s place of work based on business requirements, provided that a mobility clause has been included in the employment contract.

  • Pension Plans
  • Employers are obligated to contribute to pension insurance administered by the local labour authorities. Supplementary pension plans are encouraged, but not required.

  • Parental Rights (Pregnancy/ Maternity/ Paternity/ Adoption)
  • Female employees are entitled to medical examination leave during pregnancy. Employees are usually entitled to 98 calendar days for maternity leave, and one hour per day for nursing leave during the first year after giving birth. Male employees are entitled to paternity leave in a few jurisdictions. The specific leave for parental rights may vary around the country.

  • Compulsory Terms
  • The following terms must be included in an employment contract:

      1. the name, domicile and legal representative or main person in charge of the employer;
      2. the name, domicile and number of the resident ID card or other valid identity document of the employee;
      3. the term of the employment contract;
      4. the job description and the place of work;
      5. working hours, rest and leave;
      6. compensation;
      7. social insurance;
      8. labour protection, working conditions and protection against occupational hazards; and
      9. other items that laws and statutes require to be included.
  • Non-Compulsory Terms
  • An employer may agree with an employee on other terms, such as a probationary period, training, confidentiality, non-competition and supplementary insurance. An employer and employee may not agree to termination grounds that are not set forth in the Labour Contract Law.


Types Of Agreement

Employment contracts are divided into fixed-term employment contracts, open-term employment contracts, and project-based employment contracts.

A fixed-term employment contract is an employment contract with an expiration date. An open-term employment contract is a contract without an expiration date. A project-based employment contract expires upon complete of a specific job assignment.


Secrecy/Confidentiality

Although secrecy and confidentiality is implicit in the employment relationship, it is common practice for the employer to include confidentiality clauses in employment contracts or enter into separate confidentiality agreements. Confidentiality clauses generally concern the protection of trade secrets and intellectual property of the employer. It is advised to specify that the confidentiality obligation will cover the employment term and remain in force after employment has ended.


Ownership of Inventions/Other Intellectual Property (IP) Rights

The default rule for patents is that the ownership lies with the employer for “service inventions or creations”. The Implementing Regulations for the Patent Law set forth statutory compensation rates that must be paid to employee-inventors upon grant of a patent and the use and license of the patent. These rates, however, would not apply if compensation is separately set forth in contract or employer rules.

Generally speaking, while the Copyright Law provides that employees are authors of works, employers have the right to use such works.


Pre-Employment Considerations

There are no special regulations.


Hiring Non-Nationals

Non-nationals who are directly employed by PRC entities require work authorization before they can work in China. Generally speaking, non-nationals who are employed and paid offshore may perform services in China without work authorization up to 90 days in a calendar year. However, while most foreigners may still complete short-term projects on business visas, certain projects require short-term work visas.

In some jurisdictions, issuance of work authorization requires applicants to meet work experience and education requirements. Residents of Hong Kong, Macao, and Taiwan do not require work authorization to be employed in China.


Hiring Specified Categories Of Individuals

Restrictions are stipulated on who can be employed to carry out specific work in certain industries e.g. the food service, the financial industry or the education industry (where employees will have contact with children).


Outsourcing And/Or Sub-Contracting/Temporary Agency Work

Use of labour dispatch is capped at 10% of the total workforce and limited to temporary, auxiliary, and substitute positions. There are no specific national regulations regarding outsourcing or subcontracting. In the case of outsourcing and/or sub-contracting, there is no automatic transfer of employees.

Changes To The Contract

In general, an employer may not change terms of an employment contract without the employee’s consent. An employer may make unilateral changes in very limited circumstances, such as when the employee is “incompetent” or in poor health. Any alteration of the employment contract generally must be executed in writing. An employer may be deemed to have breached a contract if the employer changes a material term without the consent of the employee.


Change In Ownership Of The Business

A change in the ownership of the employer does not affect existing employment contracts. If the business is subject to a merger or a division, existing employment contracts also remain effective. Employment contracts may not be transferred between employers. Thus, in an asset or business transfer, there is no automatic transfer of employees to the new owner. In order to transfer employees in such a situation, employees must terminate contracts with the first employer and sign contracts with the new employer.

An asset and business transfer may be grounds for the vendor to terminate employment contracts.


Social Security Contributions

Both employers and employees are required to make contributions to social insurance funds including pension, medical, and unemployment insurance. The employer is also required to contribute to occupational injury insurance and maternity insurance. Contributions made by employees must be withheld by employers from employee salaries.


Accidents At Work

An employer must provide all employees with safe working conditions in compliance with PRC law. Employees who are suffer occupational injuries or illnesses may be entitled to compensation from occupational injury insurance.

Employers are also responsible for accidents caused by the acts of their employees when the employees were acting in the course of their employment.


Discipline And Grievance

PRC law is silent on the process of discipline and raising grievances. An employer may introduce an internal policy setting out discipline and grievance procedures. As a discipline and grievance policy will directly affect the interests of employees, the employer must introduce such a policy through statutory employee consultation procedures.


Harassment/Discrimination/Equal pay

The Employment Promotion Law specifies that employees shall not be discriminated against on the grounds of ethnicity, race, gender, religion, disability or the status as a migrant worker from a rural area. In general, employers cannot refuse to employ a person because the person is the carrier of an infectious disease. Employees alleging discrimination may bring actions in court and demand compensation from employers.

The Law on the Protection of Women’s Rights and Interests prohibits sexual harassment against women. Victims are entitled to lodge a complaint with an employer or the authorities. At the national level, no definition of harassment is provided. Some local regulations define sexual harassment and require that employers prevent and prohibit sexual harassment in the workplace.

The principle of equal pay for equal work is established under PRC law. However, no clear standard has been provided to implement the principle.


Compulsory Training Obligations

Although employers have a general obligation to provide training to all employees, this requirement is not enforced in practice. Employees at risk of occupational disease, however, must be provided training before they commence work and periodically throughout employment. Training is compulsory for certain positions in certain industries, such as in finance.


Offsetting Earnings

Where an employee causes losses to the employer, the employer may offset the losses against the employee’s salary, provided that the employee has agreed to such action in writing. However, the monthly deduction may not exceed 20% of the employee’s monthly salary and the balance, after the deduction, may not be less than the local minimum salary.


Payments For Maternity And Disability Leave

A female employee is entitled to full pay during maternity leave. Part of the employee’s salary will be paid by the maternity insurance fund as a birth allowance. The difference between the birth allowance and the employee’s basic salary must be paid by the employer. A female employee’s right to pay during maternity leave may be subject to compliance with family planning requirements.

During statutory medical treatment leave for non-work-related illness or injury, the employee’s salary may not be less than 80% of the local minimum salary. Additional requirements stipulated by local regulations may also apply.


Compulsory Insurance

Employers are required to make contributions to pension insurance, medical insurance, unemployment insurance, occupational injury insurance, and maternity insurance. Employers are also required to deduct amounts from employee compensation for pension insurance, medical insurance, and unemployment insurance. Insurance requirements may vary by location.

The statutory social insurance programs are managed by the labour authorities.


Absence For Military Or Public Service Duties

Employees are entitled to take leave for military or public service duties. When an employee exercises the right to vote or participates in certain union activities, the employee is deemed to still be working.

The employer is obligated to keep the employee’s job position open when the employee is on leave for military service.


Works Councils or Trade Unions

Strictly speaking, PRC law does not require that trade unions be established. Employees have the right to choose whether to establish a trade union within the employer. The employer may not obstruct the employees from establishing a trade union. Establishment of a trade union must be approved by the higher-level trade union. Only unions affiliated with the All-China Federation of Trade Unions are permitted. In practice, many employers come under heavy pressure by the higher-level union authorities to establish unions.

If there is a trade union, the employer must contribute an amount equal to 2% of total payroll to the trade union. When an employer wants to unilaterally terminate an employee, the employer must notify the union. Trade union committee members are also afforded additional protection with regard to their employment period and termination of employment.

While trade unions are defined as the day-to-day representative of employees, employers are coming under increased pressure to also establish employees’ representative congresses (“ERCs”). ERCs are responsible for approving collective contracts and should be consulted when employers intend to take actions affecting the “significant” interests of employees, such as adopting or amending company rules.


Employees’ Right To Strike

PRC law does not explicitly grant employees the right to strike or explicitly prohibit strikes.


Employees On Strike

There are no specific rules regarding the termination or reduction of salaries for employees on strike. If an employee on strike commits gross misconduct, the employer may immediately terminate the employee’s employment.


Employers’ Responsibility For Actions Of Their Employees

When employees cause injuries to others when carrying out their work duties, the employer will be liable for any compensation due. Where the injuries are intentionally committed or the result of negligence, the employee will be jointly and severally liable with the employer.

Procedures For Terminating the Agreement

In general, all terminations, including termination by the employee, should be made by serving a written termination notice to the other party.

If the termination is initiated by the employer, the employer should specify the legal basis for the termination in the notice. In addition, the employer must give the trade union prior notice of the termination. The trade union has the right to provide its opinion regarding the grounds for the termination and be notified in writing of the employer’s action regarding the termination.

Prior approval from a government authority is not required by law. However, the required notification to the labour bureau for mass layoffs may in effect constitute an approval procedure.


Instant Dismissal

An employer can instantly dismiss an employee if the employee:

  • does not satisfy the required conditions for employment during the probationary period;
  • materially breaches the employer’s rules or regulations;
  • seriously neglects the employee’s work duties which causes substantial damage to the employer;
  • works for another employer that materially affects the employee’s job, or the employee refuses to rectify the situation when it is brought to the employee’s attention by the employer;
  • commits fraud when entering the contract; or
  • has been found guilty of a criminal offence.

Employee's Resignation

An employee may resign by serving 30 days’ prior written notice to the employer, provided that only three days’ notice is required for resignation during a probation period.


Termination On Notice

An employer may dismiss an employee by giving 30 days’ prior written notice to the employee for the following reasons:

  • after the statutory period of medical treatment for a non-work-related illness or injury, an employee cannot return to work, either to the employee’s original job or to an alternative position arranged for the employee by the employer;
  • the employee is incompetent and is still incompetent after training or adjustment of the employee’s position by the employer; or
  • a material change in the objective circumstances at the time of the conclusion of the employment contract which makes performance of the contract impossible and, after consultations, the employer and the employee are unable to reach agreement on amendment of the employment contract.

Termination By Reason Of The Employee's Age

An employment contract will automatically end when the employee reaches statutory retirement age or starts to enjoy statutory pension insurance benefits. The retirement age for males is 60 years old. The retirement age for females is 50 years old (or 55 years old for certain management positions).


Automatic Termination In Cases Of Force Majeure

An employment contract automatically ends when: (i) the employee dies, or is declared dead or missing by a People’s Court; (ii) the employer is declared bankrupt; or (iii) the employer’s business licence is revoked, the employer is ordered to close down or dissolved, or the employer decides to dissolve itself.


Collective Dismissals

The Labor Contract Law defines a collective dismissal when an employer terminates 20 or more employees or where the number of employees to be terminated is less than 20 but comprises 10% or more of the total number of employees of the enterprise. In order to effect a dismissal, the employer must first explain the situation to the labour union or all staff 30 days in advance and seek the opinion of the labour union or the employees. The employer may carry out the dismissal after reporting the dismissal plan to the labour administrative authorities.

Permitted grounds for a collective dismissal include the following:

    1. the employer undergoes restructuring pursuant to the provisions of the Enterprise Bankruptcy Law;
    2. the employer has serious production and business difficulties;
    3. the enterprise undergoes a change of production, significant technological reform or change of mode of operation and upon variation of labour contracts, there is still a need for retrenchment; or
    4. the objective circumstances for which the conclusion of a labour contract is based upon have undergone significant changes and as a result thereof, the labour contract can no longer be performed.

The following personnel shall be given priority to be retained in a collective dismissal:

    1. a worker who has entered into a fixed-term labour contract of a long period with the employer;
    2. a worker who has entered into a non-fixed-term labour contract with the employer; or
    3. a worker whose family members are not employed or who needs to support aged or under-aged family members.

Where an employer that carries out a collective dismissal exercise is re-hiring employees within six months, the employer must notify the terminated personnel and they must be given priority for employment under the same conditions.


Termination By Parties’ Agreement

An employer and an employee may agree to terminate an employment contract.


Directors Or Other Senior Officers

There are no specific rules relating to the dismissal of directors or other senior officers. Senior officers and directors with managerial positions will be subject to the labour laws. Termination of employment does not automatically bring to an end the directorship or corporate governance. Separate steps will be required to bring the directorship or corporate governance to an end (pursuant to the company’s articles of association).

Directors that do not assume managerial positions are not treated as employees and accordingly are not subject to labour laws.


Special Rules For Categories Of Employee

Certain categories of employees may be afforded greater protection from dismissal. In general, unless an employee seriously violates the rules and regulations of the employer, the employee cannot be dismissed if the employee: (i) contracts an occupational injury or illness and has lost partial or full work capability; (ii) is in statutory medical treatment leave; (iii) is pregnant, on maternity leave, or in the statutory nursing period; or (iv) has been working for the employer for more than 15 years on a consecutive basis and is less than 5 years away from his/her legal retirement age.

The terms of the employment contract will extend upon the expiration for employees in the above categories until the specific circumstance disappears.

Employees on a part-time basis may be terminated at any time without cause.


Specific Rules For Companies in Financial Difficulties

There is no explicit legal basis for an employer to terminate employees because the employer is experiencing financial difficulties. Instead, financial difficulties could be grounds for a mass layoff if the employer can show that the employer has (i) “serious difficulties in production and/or business operations”; (ii) the employer undergoes a change of production, significant technological reform or change of mode of operation and upon amending the employment contracts, there is still redundancies; or (iii) there exists a “major change in the object economic circumstances relied upon at the time of conclusion of the employment contracts, rendering them unperformable”.

Mass layoffs apply to terminations of at least 20 employees or less than 20 employees if the employees terminated account for at least 10 percent of the workforce. In order to effect a mass layoff, the employer must discuss the situation with its trade union or all employees at least 30 days prior to the proposed layoff. The employer is also required to provide a workforce reduction plan to the labour bureau.

In a mass layoff, the employer is required to give priority to retaining the following employees: (i) those who have entered into fixed-term contracts with relatively long terms or entered into open-term contracts; or (ii) those who are the only ones in their families to be employed and whose families have an elderly person or a minor for whom they need to provide for.

As a practical matter, mass layoffs are rare. Employees are generally terminated by mutual agreement.


Restricting Future Activities

PRC law permits post-termination non-compete restrictions to be applied to employees who are senior managers or senior technicians, or who otherwise have access to confidential information. A post-termination non-competition period may not exceed two years. Monthly non-compete compensation must be paid to the employee during the term of the non-compete obligation. The default national compensation standard is 30% of the employee’s prior salary. Some local jurisdictions set down higher compensation standards than the national level. An employer is permitted to waive enforcement during the noncompete term with the payment of three months’ compensation. Some local jurisdictions permit employers during employment to waive non-compete obligations (and thus avoid paying any compensation).

PRC law does not prohibit non-solicitation or non-disparagement clauses effective after termination of employment.


Whistleblower Laws

There are no special regulations relating to Whistleblower laws.


Special Rules For Garden Leave

There are no special regulations for garden leave.


Severance Payments

In general, an employee is entitled to severance if terminated by notice, terminated by mutual agreement, terminated upon the expiration of the contract term, or terminated in a mass layoff. An employee is also entitled to severance if the employee terminates employment due to the fault of the employer.

Severance is based on the number of years that the employee worked with an employer. The rate is one month’s “average compensation” for each full year worked. Employment of more than six months but less than one year is counted as one year.

The severance pay payable to an employee for any period of less than six months is one-half of the employee’s average monthly compensation. The average monthly compensation is determined by taking the total amount of salary, bonuses, allowances, and subsides from the final 12 months of employment, and dividing the total by 12. The amount of severance is subject to a statutory cap which will be various among different local jurisdictions.

If the employee is terminated on notice after completion of the statutory period for medical treatment, the employee in some cities may be entitled to a medical subsidy amounting to six months’ salary. Employees suffering from severe diseases or terminal diseases will be entitled to additional medical subsidies.


Special Tax Provisions And Severance Payments

The portion of a severance payment that is less than three times the average local annual salary will be tax-free. Payments above this level will be subject to reduced tax in accordance with special rules.


Allowances Payable To Employees After Termination

Employers are not required to pay allowances to employees after termination.


Time Limits For Claims Following Termination

The time limit to file an application for arbitration of a labour dispute is one year from the date when the party knew or should have known that there was a dispute. However, if the dispute arises from a delayed payment of labour compensation, the time limit to file a claim is one year from the date of termination of the labour relationship.

Specific Matters Which Are Important Or Unique To This Jurisdiction

At-will employment is not allowed. An employee may be terminated only on grounds expressly set forth in PRC law.



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Jeffrey Wilson
JunHe LLP
China


Bai Hongjuan
JunHe LLP
China


Disclaimer:

© 2021, Jun He LLP. All rights reserved by Jun He LLP as author and the owner of the copyright in this chapter. Jun He LLP has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this Guide.

The information in the How to Hire and Fire Guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: June 2021