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Employment law overview China

Introduction

China, as one of the fastest-growing economies and most populous countries, plays a critical role in business, industry and politics. However, many outsiders encounter significant difficulty understanding Chinese labour law and find themselves in challenging and uncomfortable situations. This may be due to the law’s specificity and scope, which forms a labyrinth of interconnected regulations and rules governing minutia ranging from severance to trade unions. Routine tasks in other jurisdictions can be much more dramatic affairs in China. This can be daunting, but our hope is that after reading this article, you will have the tools and foundation to successfully navigate 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

  • Employers must sign the employment contract with full-time employees or the employer shall pay double the monthly wage to the employees, for at least 11 to 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.

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 Labour 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

In  2019 and late 2020, 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.

  • Personal Information Protection

The Third Session of the 13th National People’s Congress of the PRC voted and passed the Civil Code, which entered into force on 1 January 2021. The Civil Code includes new rules on the protection of an individual’s privacy as well as their personal information. According to the Civil Code, the processing of personal information shall respect the following principles with the aim to be legitimate, just, necessary and not excessive. In addition, the Civil Code also requires that the processing of personal information must meet certain statutory conditions, such as (i) the processing of personal information shall be subject to consent of the individual; (ii) the rules for information processing shall be made public; and (iii) the purpose, method and scope of the information processed shall be explicitly stated. In the context of an employment relationship, it is important for employers to abide by the Civil Code when handling an employee’s personal information, during both the recruitment process and the performance of the employment contract.

  • Trade Secrets

China has taken a series of legislative actions to strengthen its protection of trade secrets. In April 2019, the Standing Committee of the National People’s Congress decided to amend the PRC Anti-unfair Competition Law and provide better protection for trade secrets. According to this amendment, in the event of a serious, malicious and unlawful infringement of trade secrets by a commercial entity, the people’s courts in China may impose punitive damages on the infringer. Furthermore, the courts can exercise their discretionary power and award compensation in the (maximum) amount of RMB 5 million, if the loss suffered by the trade secret owner, or the benefit obtained by the infringer, is difficult to determine.

In September 2020, the Supreme People’s Court released the Provisions on Several Issues Concerning the Law Application in Trial of Civil Cases on Trade Secrets Infringement (the “Provisions”). The Provisions explicitly list different measures for the protection of trade secrets.  The condition granting employers the option to provide training to their employees, as an effective protective measure to safeguard trade secrets, is confirmed by the Provisions. Furthermore, the Provisions also include more detailed rules concerning the identification of trade secrets, findings of infringement, civil liabilities for infringement, etc.

  • Social Insurance

In November 2019, the Ministry of Human Resources and Social Security and the National Healthcare Security Administration jointly issued the Interim Measures for Hong Kong, Macao and Taiwan Residents to Participate in Social Insurance in Mainland China (the “Interim Measures”). The Interim Measures has been in effect since the beginning of 2020 and explicitly require employers in mainland China to contribute to all five types of social insurance for employees from Hong Kong, Macao and Taiwan. The Interim Measures have also clarified the process on registering social insurance for the employees from Hong Kong, Macao and Taiwan and confirmed that said employees shall be entitled to the corresponding social insurance benefits in mainland China.

  • Travel Ban

The outbreak of the COVID-19 pandemic has caused severe difficulties to numerous employers in China. To control the pandemic, the Ministry of Foreign Affairs and the National Immigration Administration Bureau jointly released the Announcement on Temporary Suspension of the Entries by Foreign Nationals Bearing Valid Chinese Visa and Residence Permit (the “Announcement”) in March 2020.

Pursuant to the Announcement, foreign nationals who hold a visa or residence permit other than the diplomatic, official, courtesy or Category C visas are restricted from entering China; if foreign nationals plan to engage in necessary economic, trade, scientific or technological activities or to fulfill emergent humanitarian needs in China, they may apply for a visa at the Chinese embassy or consulate and may enter China with a visa granted after the Announcement.

In September 2020, the Ministry of Foreign Affairs and the National Immigration Bureau released the Announcement on Allowing Three Kinds of Foreign Nationals with Valid Residence Permit to Enter China. This new announcement relieves, to a certain extent, the travel ban imposed by the March 2020 announcement and allows foreign nationals who hold a valid residence permit for work, personal affairs or reunion purposes, to enter China.

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