Introduction
Chinese labour law governs all the employment relationships established by various legal entities registered in China and individuals. Mandatory provisions in Chinese labour law usually precede the agreements reached by employers and employees. Also, written employment contracts for employment relationship are required by Chinese labour law.
Labour law generally refers to the rules and regulations governing employment relationships and other social relationships that are closely connected with employment relationships. Chinese labour law applies to all businesses, individual economic organisations, private non-profit entities, etc. in the People’s Republic of China (the “PRC”) and the individuals who have employment relationships with such entities and organisations. Employment relationships between government offices, public institutions and social groups and their employees are also governed by Chinese labour law. Employers and employees (except part-time employees) are required to establish employment relationships by entering into written employment contracts. However, even if the parties fail to execute valid written employment contracts, an employment relationship can still be deemed to exist if the parties act as if they are bound by such a contract.
Key Points
In China, employers must sign employment contracts in written form with full-time employees, and termination must be based on the grounds permitted by law.
- Employers must sign the employment contract with full-time employees, or the employer shall pay double the monthly wage to the employees, for up to 11 or 12 months.
- Probation periods shall not be longer than what is permitted by law and one employee can only have one probation period, otherwise the employer shall pay compensation to the employee for the exceeded probation period or the second probation period performed by the employee.
- Amending an employment contract (e.g. job title) must be agreed by both employer and employee in written form.
- Internal rules which may affect employees’ personal interests must fulfill the consultation process, or they will not take effect (e.g. they will not apply to the employees).
- In China, termination must be based on the grounds permitted by law. Otherwise, the labour relationship may be reinstated, even after termination (e.g. employers may be forced to re-hire terminated employees or pay double severance).
- Chinese severance pay practices are unique, in that a highly paid employee’s severance is capped, which can result in a senior manager’s severance being lower than that of a junior employee.
- Chinese employers cannot require employees to pay liquidated damages, except in limited situations involving non-competition and service-period duties.
- Employees are not entitled to organise labour strikes under Chinese law. However, employees will still engage in self-organised strikes; these strikes are not legally supported by trade unions.
Legal framework
China’s labour law is comprised of the Chinese Constitution, the Labour Law and the Employment Contract Law, administrative regulations, judicial interpretations, local regulations and judicial documents.
Chinese labour law is not codified in a singular piece of legislation and actually draws from a variety of sources. The main sources that comprise China’s labour laws are:
- the Chinese Constitution;
- national laws, in particular the Labour Law and the Employment Contract Law;
- administrative regulations promulgated by the State Council;
- regulations promulgated by the Ministry of Human Resources and Social Security (the “MOHRSS”) and other ministries and commissions of the State Council;
- judicial interpretations released by the Supreme People’s Court and the Supreme People’s Procuratorate; and
- local regulations and decrees of provinces, autonomous regions, municipalities directly under the central government and other large cities.
In addition, judicial documents from local courts and procuratorates, rules and regulations of communities and industries, as well as customs and more can also serve as references in labour cases.
New Developments
These years, Chinese government has made some legislative breakthroughs in personal information protection and data transfer. Under the background of the revision of the Company Law, entities doing business shall pay timely attention to these legislative developments.
From 2023 to early 2024, various Chinese governmental departments enacted new regulations on a wide range of employment law matters, of which the following deserve special attention by entities doing business in China.
On July 1st, 2024, the new Company Law came into effect. Article 68 of the new Company Law stipulates that for limited liability companies with more than three hundred employees, apart from those that legally establish a supervisory board with employee representatives, the board of directors should include employee representatives. Furthermore, Article 120 clarifies that the provisions set forth in Article 68 are equally applicable to companies limited by shares.
In addition to the requirement for employee directors/supervisors, the new Company Law also includes other provisions regarding democratic management that involve the participation of trade unions and employee representative congress. For example, Article 17 of the new Company Law stipulates that when a company is making decisions on significant matters such as restructuring, dissolution, bankruptcy application, and key operational decisions, or when drafting important internal policies, it shall seek the opinions of the company’s trade union and collect the opinions and suggestions of the employees through the employee representative congress or other channels.
Measures for the Security Assessment of Outbound Data Transfer (the “Measures”), as adopted at the 10th executive meeting of the Cyberspace Administration of China on 19th May 2022 came into force on 1st September 2022. The Measures shall apply to the security assessment of data processors’ provision of important data and personal information collected and generated in their operations within the territory of China to overseas recipients. A data processor shall apply to the national cyberspace administration for the security assessment of the outbound data transfer through the local provincial cyberspace administration under certain circumstances, like the data processor that has processed the personal information of over one million people providing personal information abroad.
On March 22nd, 2024, the Cyberspace Administration of China released the Regulations on Promoting and Standardizing Cross-border Transfer of Data (the “Regulations“). According to the Regulations, in specific circumstances, data processors are exempted from the requirements of reporting data export security assessments, entering into personal information export standard contracts, or obtaining personal information protection certifications. These circumstances include the implementation of cross-border human resources management in accordance with labour regulations and collective contracts established in accordance with law, as well as situations where data processors, excluding operators of critical information infrastructure, have cumulatively provided personal information (excluding sensitive personal information) to overseas entities of fewer than 100,000 individuals since January 1st of the current year. Additionally, free trade zones are allowed to develop their own negative lists concerning data within the framework.
- Protection of Women’s Rights and Interests
The Law of the People’s Republic of China on the Protection of Women’s Rights and Interests was revised on 30th October 2022 and came into force on 1 January 2023. Regarding the employer’s responsibility, it stipulates that an employer shall take specific measures to prevent and stop sexual harassment of women, specifies the situations of gender discrimination in recruitment that must be strictly prohibited and emphasizes gender equality under scenarios like promotion and training.
According to the laws, employers shall take measures to prevent and stop sexual harassment of women including: (1) formulating rules and regulations prohibiting sexual harassment; (2) specifying the responsible department or personnel; (3) carrying out education and training activities on prevention and stopping sexual harassment; (4) taking necessary security and safeguard measures; (5) setting up complaint telephone, mailbox, etc. and unblocking complaint channels; (6) establishing and improving investigation and handling procedures, timely handling of disputes and protecting the privacy and personal information of the parties concerned; (7) supporting and assisting female victims in defending their rights according to law and providing psychological counselling to female victims when necessary; and (8) other reasonable measures to prevent and stop sexual harassment.
