Employment 2019 Second Edition Comparisons

Last Updated September 09, 2019

Contributed By Zhong Lun Law Firm

Law and Practice

Authors



Zhong Lun Law Firm Founded in 1993, Zhong Lun Law Firm is one of the largest full-service law firms in China with over 300 partners and over 1600 professionals working in eleven domestic offices across China and five overseas office in Tokyo, London, New York, Los Angeles and San Francisco. Zhong Lun’s labour and employment team handles both contentious and non-contentious matters for clients. The team deals with domestic labour disputes as well as foreign-related labour disputes and advises clients on labour and employment issues and consult on general labour and employment matters. Our clients include multinationals, large state-owned enterprises, large-scale financial institutions, many foreign law firms along with small and medium-sized foreign and Chinese companies.

In China, the legal status of individuals who provide profitable labour service may be summarised into the following four categories:

  • full-time employees;
  • part-time employees;
  • dispatched employees; and
  • service contractors.

The first three categories are known as employees and governed by the employment laws and regulations which impose substantial mandatory regulations on their employers, eg, minimum wage and working hours protection.  Service contractors, being different from employees, function in the legal domain of non-employment civil relationships, where the mutual agreement between service provider and receiver is highly respected.

Among the three categories of employees, material difference still can be found with respect to statutory entitlement, working standards, termination condition etc. Full-time employment is the standard form of employment applicable for most regular positions while, for temporary, auxiliary and replaceable positions, employees can be hired by labour service agencies and dispatched to work at where they are needed as dispatched employees. Part-time employment is supplementary to the other forms of employment, and widely used for positions that require a high degree of flexible labour, such as housekeepers or cleaners.

In China’s judicial practice, disputes may arise where service contractors claim their employment status as that of employees and request the corresponding entitlement to the legal benefits. Concerned with this potential dispute, companies in China tend to engage individual service providers with caution.

From the angle of contract terms, the contracts for full-time employment can be divided into three types:

  • contracts with a fixed term;
  • contracts with an open-ended term; and
  • contracts that expire upon the completion of agreed work tasks.

Full-time employment contracts, including contracts with dispatched employees, should be executed in written form within one month of the date that the employee initially provides service. Before the end of the contract term, the termination of full-time employment contract is strictly regulated by law.

In contrast, part-time employment contracts can be established orally, and there is no need to set a contract term as the law allows part-time employment contracts to be terminated by either party with immediate effect.

Pursuant to the statutory requirements, full-time employment contracts in China shall include the following terms:

  • name, address and legal representative/person-in-charge of the employer;
  • name, address, ID card number or other valid identity certificate of the employee;
  • contract term;
  • job duties and workplace;
  • working hours, rest days and vacation;
  • labour remuneration;
  • social insurance; and
  • labour protection, working conditions and occupational hazard prevention and protection.

On top of the mandatory terms, employers and employees in China may opt to incorporate further terms into employment contracts including probationary periods, performance targets, professional training, confidentiality obligations, non-competition obligations, IP protection mechanisms and additional employee benefits.

In consideration of different working patterns of different jobs, three types of working hour systems are designed for full-time employees in China:

  • Standard working hour system - employees work no more than eight hours per day and no more than 40 hours per week. The employer may extend the working hours after consultation with trade unions and employees. The extended working hours shall not exceed an additional three hours per day and 36 hours per month.
  • Flexible working hour system - since certain jobs, such as sales promotion or field work, cannot be performed with fixed working hours each day, the flexible working hour system provides a solution by allowing employees to arrange their working hours based on the actual needs of their duties. As employees under the flexible working hour system are not entitled to overtime compensation or working-days-off, in most cases, implementation of the flexible working hour system is subject to employees’ consent, pre-approval by the Chinese labour authority and employers’ commitment to preserve employees’ basic right to rest.
  • Comprehensive working hour system - caters to the jobs which need continuous work within a certain period of time, such as fishing and harvesting. Under the comprehensive working hour system, working hours may be calculated by month, quarter or even by year. Within each unit period, if the total working hours exceed the norms posed by the standard working hour system, employees will be entitled to overtime compensation. Similar to the flexible working hour system, employers need to obtain employees’ consent and pre-approval from local labour authorities before applying the comprehensive working hour system.

Part-time employees have a unique working hour system as they are compensated by the hour. Specifically, each employer shall not use the same part-time employee for more than four hours per day, on average, or more than 24 hours per week.

The Chinese labour laws require an employees’ monthly wage to be no lower than the local municipal minimum monthly wage. The municipal minimum monthly wage and minimum hourly rate (applicable for part-time employees) are updated and publicly announced by each local government on a yearly basis. In addition to a base salary, other popular forms of compensation adopted by many employers in China include the 13th month salary, year-end bonus, sales commission and allowances.

In addition to minimum monthly wage requirements, Chinese labour laws mandate the minimum compensation standards for overtime work. Specifically, the lowest compensation standards are 150% (working days), 200% (rest days) and 300% (public holidays) of an employees’ normal salary rate.

Employers in China are under no obligation to increase employees’ compensation, but the reduction of an employees’ salary will not be put into effect without the employees’ consent or under the special circumstances provided by the Provisional Regulations on Wage Payment, promulgated by the former Ministry of Labour and local municipal governments. An example would be the withholding of alimony according to judgment or order of the court.

Public Holiday Entitlement and Statutory Annual Leave

There are 11 days of public holidays in China. In addition to public holidays, full-time employees are entitled to statutory annual leave as long as they have been continuously employed for one full year, accumulatively, with all former and current employers.

The length of statutory annual leave is calculated based on employees’ accumulative employment years. Therefore, employees’ statutory annual leave would be, per annum, either five days (one to ten years accumulative employment), ten days (ten to 20 years accumulative employment) or 15 days (20 or more years accumulative employment). Both public holidays and statutory annual leave are treated as paid days for employees.

Maternity Leave, Birth Leave and Breastfeeding

Female employees in China are entitled to a maternity leave of 98 days. Additionally, if the new birth does not violate China’s family planning regulation, postpartum employees will be entitled to birth leave, the length of which is subject to the local regulations of each city (eg, 30 days in Shanghai). Before the new-borns turn one year old, their mothers can take one-hour paid breaks each working day for breastfeeding.

During the maternity leave and birth leave period, China’s social insurance fund will provide female employees with a maternity allowance. If a female employees’ actual salary standard is higher than the maternity allowance, the employers shall provide the difference, ensuring the compensation standard is not unfavourably changed due to giving birth.

Sick Leave

Employees may take paid sick leave when they are suffering from illness or non-work-related injury. The sick leave period is called a medical treatment period. The statutory medical treatment period applicable for each employee is calculated based on employees’ accumulative years of service, accrued with former and current employers, and ranges from three months to 24 months. Employers may unilaterally terminate employees if they need to take sick leave beyond their statutory medical treatment period.

During sick leave periods, employers are required to make sick leave payments to the employees based on the standard agreed in the employment contract or as indicated in employers’ internal sick leave policies. These shall be no lower than the standard prescribed by the local government regulations in different cities of China. Take Beijing as an example, sick leave pay is 80% of the local minimum monthly wage.

Confidentiality

In China, an employees’ confidentiality obligation to employers is not explicitly stipulated by law, but is imposed by the principles of good faith and loyalty. The confidentiality obligation applies both during and after employment. However, in practice, it is quite difficult to hold employees liable for any breach of their confidentiality obligation solely based on this general principle. In order to protect the business' secrets and other confidential information, many Chinese employers choose to explicitly stipulate, in employment contracts or confidentiality agreements, a detailed scope of the information that the employers deem confidential, in addition to general reference to employee’s confidentiality obligations.

Under PRC Labour Contract Law, employer and employee may agree on non-competition restrictions in the employment contract or confidentiality agreement, stipulating that, after the termination or ending of the employment contract, the employer shall pay financial compensation to the employee on a monthly basis during the non-competition restriction period.

If the employee breaches the non-competition restrictions, he or she shall pay liquidated damages to the employer, as stipulated in the non-competition agreement. In addition, the personnel subject to competition restrictions shall be limited to the employer’s senior management, senior technicians and other personnel with confidentiality obligations.

The scope, territory and term of non-competition restrictions shall be agreed upon by the employer and the employee, and the term of non-competition restriction shall not exceed two years. In the restricted period, the employee cannot work for a competing employer that produces the same type of products or engages in the same type of business as his or her current employer, or establish his or her own business to produce the same type of products or engage in the same type of business.

As mentioned, if an employee performs the agreed non-competition obligation, the employers shall provide financial compensation to the employees on a monthly basis. If the financial compensation is not agreed in the employment contract or the non-competition agreement, the national default compensation standard is 30% of the employee’s average monthly salary of the 12 months prior to the termination of his or her employment.

This default compensation standard sets the statutory guideline, however, employer and employee may agree on a higher or lower standard based on local government regulations. For example, Shenzhen provides a higher level of compensation at 50% of the employee’s average monthly salary from the 12 months prior to the termination of employment.

When employees breach the non-competition obligation, employers are entitled to claim the agreed liabilities for the breach, which usually include continued performance of non-competition, payment of liquidated damages, refund of the paid financial compensation and recovery of actual losses suffered by the employers beyond the amount of liquidated damages.

Apart from the financial liabilities for employees’ breach, it is difficult to enforce non-competition obligations under current judicial practice in China. There are two major reasons for this:

  • the performance of non-competition obligation is believed to be in conflict with personal freedom; and
  • the non-competition period (no longer than two years from employment termination or expiry) usually expires when the final court judgement on the disputed performance of non-competition obligation is issued.

It is difficult to find the legal definition of non-solicitation obligation in any PRC statutes, let alone the statutory remedy for any breach of this obligation. However, regardless of this legislative blankness, the non-solicitation obligation is widely used in labour practice in China, as the very existence of a non-solicitation obligation satisfies the general business needs of the employers.

The non-solicitation obligation is usually phrased to make clear that employees shall not directly or indirectly solicit, induce or encourage any others to leave their employment, or any customers to end their business relationship with the employers, both during employment and for a certain period after the termination of employment.

Due to the lack of a legal basis for non-solicitation, it may be still premature to conclude on the validity of the non-solicitation clause. Based on analysis of previous cases, Chinese courts have explored the validity of the non-solicitation clause by weighting different factors in different cases, eg, whether the employees have accepted the non-solicitation clause after sufficient explanation or notification, or whether the burden on employees was unreasonably onerous.

In light of this, it is no wonder the enforceability of the non-solicitation clause is weak under current PRC judicial practice. In theory, employers can claim for recovery of financial losses suffered due to an employee breach of non-solicitation. However, due to the difficulty in providing evidence on the existence of solicitation and the financial losses connected, it is unlikely for employers to succeed in a claim against a violation of non-solicitation obligation.

A comprehensive legal system on data privacy hasn’t yet been well established in China, though there are some general rules on protection of personal information scattered in the existing PRC statues.

Under the regime of employment regulation, employers in China have the right to collect employees’ personal information related to performance of employment including name, gender, ID number, contact details, education background and work experience. Employers are also under legal obligation to keep employees’ personal information confidential and use such information only for the purpose of employment.

In practice, to avoid dispute on use of personal information, employers in China usually request written acknowledgment from employees, authorising use of personal information for employment purposes, upon commencement of employment.

It is worth noting that, since online HR system are widely used by employers in China to collect and store employees’ personal information, employers should also comply with the PRC Cyber Security Law when using an online system to process employees’ personal information. The relevant rules posed by the PRC Cyber Security Law are summarised as follows:

  • the collection and process of personal information shall follow the principle of being legitimate and necessary;
  • the collector and the user of personal information shall announce the purpose, methods and scope of such collection and shall obtain the consent of the subjects whose personal information is to be collected;
  • it is prohibited to disclose, tamper with or destroy the collected personal information or disclose such information to others without the subjects’ permission, unless such information has been processed to prevent specific persons from being identified or the information cannot be otherwise restored;
  • necessary measures should be taken to ensure the security of personal information and to protect the information from disclosure, damage or loss; and
  • in case of disclosure, damage or loss of personal information, immediate measures should be taken and the subjects of such information and relevant authorities should be promptly notified of any incidents.

China has formulated recommended national standards for the protection of personal information. The Information Security Technology – Personal Information Security Specification, as a recommended national standard, provides guidance for employers to collect and process personal information.

Although this technical standard is not compulsory, it does provide a best practice reference for employers when collecting and processing employees’ personal information. An example from the Personal Information Security Specification would be that employers shall not collect personal information from illegal sources, shall minimise amount of information collected, shall collect personally sensitive information with the clear consent of the subjects and take measures to control access to personal information.

China is a country with one unified sovereignty but multiple legal jurisdictions. Therefore, it is necessary to mention two points of note to the subject of foreign workers under the PRC employment regime before going any further. In August 2018, the PRC State Council decided to cancel the work permit requirement allowing Hong Kong, Macao and Taiwan residents to work in mainland China, which signifies that these groups of residents will be granted almost the same employment standards as mainland residents when working in the mainland.

As for national identification of individuals, the PRC Nationality Law prescribes that a Chinese national is deemed as having lost Chinese nationality once foreign nationality is obtained. In view of these aspects, foreign workers, as discussed below, will not refer to China’s Hong Kong, Macao and Taiwan residents but will include individuals who lose their Chinese nationality.

The use of foreign workers is regulated in China and subject to pre-approval by the authorities of the State Administration of Foreign Experts Affairs ('SAFEA'). Under PRC immigration laws and regulations, foreign workers shall apply for and obtain work permits and residence permits to have legitimate working and residential status in China. Failure to obtain valid work permits and residence permits may subject the foreign workers to penalties including warnings, fines, ordered exit from China within a prescribed time, detention or even deportation.

The threshold requirements for a foreigner to work in China are as follows:

  • being 18 years old or above and in good health;
  • mastering professional skills and having a certain period of work experience;
  • having no criminal record in the past;
  • having a definite employer in China; and
  • bearing a valid passport or other international travel documents.

The detailed standards to determine whether a foreigner is qualified to work in China will be discussed in 4.2 Registration Requirements.

The registration requirements for foreign workers to work in China differ based on the working period. Where foreign workers are to complete short-term tasks (ie, less than a 90 day stay in China) at a subsidiary company, branch company or representative office in China, or to install, repair or provide guidance on use of certain machineries at plants in China, they may apply for business visas to enter China and be exempt from obtaining a work permit.

Where the required working period exceeds 90 days, foreign workers are legally obligated to obtain both the work permit and residence permit. To obtain the work permit and residence permit, foreign workers usually establish either of the following two kinds of legal relationship:

  • the foreign workers directly enter into an employment relationship with companies in China ('direct employment'); or
  • the foreign workers are assigned to work at a company in China ('international assignment').

For the second approach listed above, the foreign workers may not establish an employment relationship with Chinese entities governed by PRC Labour Contract Law and retain their original offshore employment, which is the reason this approach is preferred by multinationals in most cases.

To implement the international assignment effectively, two more conditions need to be satisfied:

  • the assignment is arranged between an offshore parent company and its subsidiary in China; and
  • the foreign workers serve at managerial or technical positions in China.

Upon establishment of the legal framework, the personal profiles of a foreign worker need to be submitted for review to the SAFEA authority in China which administrates the granting of work permits to foreign applicants. During the review process, the SAFEA authority in China examines the specific conditions of the applicants against the permissible standards for granting a work permit. The most widely fulfilled standard to obtain a work permit from the SAFEA authority is that the foreign workers hold a bachelor degree or higher and have already accrued two years of working experience in relation to the position they are about to serve in China.

If the foreign workers are to receive extremely high salary in China, ie, higher than six times the municipal average monthly salary announced in the working city, it will be quite easy for these foreigner workers to apply for and obtain work permits.

Among the permissible standards for granting a work permit, the SAFEA authority in China uses a point-based system to ensure a comprehensive evaluation of foreign applicants. The point-based system accurately quantifies foreign workers’ conditions from the aspects of overall employment years, working periods in China, salary standard, educational background, current age and Chinese language proficiency. Take educational background as an example, bachelor’s degrees, master’s degrees and doctoral degrees respectively score 10, 15 and 20 points in the point-based system. If the final score of a foreign worker is over 60 points, then the applicant will be deemed qualified to obtain the work permit.

After foreign workers have successfully obtained the work permit, a residence permit must be applied for at the exit-entry administration authority in China. The residence permit will be issued to foreign workers once the exit-entry administration authority verifies that valid work permits are held. By bearing the residence permit, foreign workers are entitled to multiple entries into China with no limitation on each single period of stay, as long as the residence permit is within its validity period.

Under PRC Trade Union Law, the Chinese trade union is the organisation spontaneously founded by workers and the All-China Federation of Trade Unions ('ACFTU') is the leading body of trade unions in China. According to the Articles of Association of the ACFTU, the Chinese trade union is a working class mass organisation led by the Communist Party of China, a bridge and link between the Party and the workers, an important social pillar of the state power, and a representative of the interests of members and workers .

From PRC law prospective, trade unions and other employing entities are the bridge and bond that connect employers and employees. The employers consult the trade unions about their policies and other issues relating to employees, meanwhile, opinions, suggestions or requests collected from the employees are fed back through trade unions to the employers as reference for employers’ decision-making.

Trade unions also play a part to relieve social pressure by harmonising the relationship between the employers and employees should a potential dispute arise between them. As required by PRC Labour Contract Law and Trade Union Law, when employers intend to unilaterally terminate employees, the reasons for such termination shall be notified to the trade unions in advance and the trade unions retain the right to demand employers make rectification if any violation of the applicable laws is discovered.

To implement the duties of representing and safeguarding the interests of employees, the trade union supervises the daily operation of the employee representative assembly and consults the employers on various employment matters. The participation of trade unions in collective consultation on various employment related decisions is also mandated by law in China. When employers plan to formulate or amend policies that have a direct impact on employees' immediate rights and interests, these policies shall be presented to the trade union, or all employees, for discussion. After the proposal or opinions being collected during the discussion process, the trade unions or employee representatives shall be consulted based on equal negotiation.

The PRC Trade Union Law prescribes that enterprises and other employing entities shall establish internal trade unions if the number of trade union member exceeds 25. Under current practice in China, although trade unions have not been established in every company, especially in foreign invested companies, enterprises with large number of employees are frequently lobbied to form trade unions by officials from the ACFTU local district branch or local labour department.

Under PRC regulations on employee representative bodies, the Employee Representative Assembly and the Employee’s Assembly (collectively referred to the 'ERA') are the basic forms in China for enterprises to practice democratic administration and functions, being the body through which employees can exercise their right to participate in democratic administration.

The general duties of an ERA include advice and supervision on employment related matters as well as democratic appraisal of enterprise development plans. The rules and policies that have a direct impact on employees' immediate rights, interests and redundancy plans shall go through consultation with, and be reviewed by, the ERA. In addition, the ERA performs its duties by supervising employers’ performance of the collective agreements, contribution to employees’ social insurance and satisfactory protection for labour safety etc.

With respect to the composition and operation of the ERA, there have been no uniformed national rules applied to all kinds of organisation. The Regulations of the Workers' Congress of Industrial Enterprises Owned by the Whole People apply to state-owned enterprises only. The local governments of provinces and cities (such as Shanghai, Gansu and Tibet) have issued their own regulations on how the ERA should be convened and held. Under these local regulations, trade unions shall help and guide the companies to elect employee representatives based on the number of total staff. The number of employee representatives should not be less than 30 people, and the ERA should be held at least once a year.

Under PRC labour laws and regulations, collective agreements refer to written agreements concluded through a collective consultation between employers and their employees on matters of remunerations, working hours, rest days and leaves, labour safety and hygiene, vocational training, social insurance and welfare benefits.

During the consultation for collective agreements, both employers and employees shall have an equal number of, and no less than three, representatives with one chief representative appointed on each side. The consultation representatives for the employees shall be selected by the trade unions. Where there are no trade unions established, the consultation representatives shall be elected by a majority of the employees.

The collective agreements shall be signed by the chief representatives of both sides. After the execution of the collective agreements, the agreement should be filed for review by the labour administration department. If there is no objection from the labour administration department after 15 days have passed, the collective agreements take effect and the employers and all their employees become legally bound. The labour remuneration and other employment conditions agreed in individual employment contracts with employees shall not be less favourable than those agreed in the collective agreement.

If a dispute arises in the course of a consultation for a collective agreement, either party may submit a written application for co-ordination to the labour authority, or the labour authority may directly intervene to co-ordinate when it deems as necessary. Labour disputes arising from the performance of the collective agreements can be resolved through labour arbitration proceedings. The trade unions initiate the labour arbitration or litigation proceedings against the employers if any violation of the collective agreement and infringement upon employees’ rights is discovered.

As the general philosophy of China’s employment laws is quite pro-employee, termination of employment by employers is highly regulated. Employers can only unilaterally terminate employees if a statutory condition appears. When a labour arbitration tribunal or court in China decides that a termination decision made by an employer is wrongful, the employer will be liable to pay double the statutory severance to the employee, or even reinstate employment (see 7.1 Wrongful Dismissal Claim).

Termination for Cause by Employer

An employer’s legitimate termination in China can be affected when the employees:

  • fail to reach the employment conditions during probationary period;
  • seriously violate employers’ internal rules and policies;
  • cause material damage to employers due to dereliction and malpractice for personal interests;
  • establish a second employment simultaneously with another employer which has a serious impact on the completion of their work tasks, or refuse to make corrections when requested by their employers;
  • use fraudulent or coercive tactics or take advantage of the employer’s unfavourable position to force the employer to conclude the employment contract in against with its true intention, which renders the employment contract void; or
  • are being pursed for criminal liability.

Termination with Thirty Days’ Notice by Employer

Under PRC Labour Contract Law, termination by prior 30-day notice is only allowed under the following statutory scenarios, ie, illness or non-work-related injury, incompetency and change of objective circumstance which renders the employment contract no longer performable. To implement employers’ termination by notice, certain procedures must be fulfilled by employers prior to the termination.

Termination due to employee’s long-term sick leave

In the case of long-term illness, employees are legally entitled to the statutory medical treatment period ('SMTP') and employers are forbidden from terminating the employees for illness during the SMTP. Upon employees’ exhaustion of their SMTP, if they are unable to serve in their original positions or the alternative positions arranged by employers, the employers may terminate the employees by serving a 30-day notice, or by paying the employees one-month salary in lieu of notice.

Termination due to employee’s incompetency

If employees are deemed as incompetent by their employers, the employers are required to either change their job positions or provide training. If the employees remain incompetent after their job positions are changed or training has been provided, the employers may proceed with the termination by serving the employees with a 30-day notice or paying them one-month salary in lieu of notice. 

Termination due to change of objective circumstance

In cases of the material change of objective circumstance rendering the original employment contract no longer performable, employers are obligated to negotiate with the employees for the amendment of their original employment contract. If no agreement is reached after the negotiation, employers may terminate the employees by providing the employees a 30-day notice or paying them one-month salary in lieu of notice. The objective circumstances can include workplace relocation, asset transfer, or change of business modal or product structure etc, which in practice are mostly under the discretion of labour arbitrators and judges.

If the employers fail to observe the procedural requirement before terminating the employees, the termination will likely be deemed as wrongful.

Termination by Employee

Under PRC Labour Contract Law, where an employer displays any of the following circumstances, its employees may terminate the employment contract without informing the employer in advance: 

  • failing to provide labour protection or work conditions agreed in the employment contracts;
  • failing to pay remuneration promptly; 
  • failing to pay social security premiums for employees;
  • the rules and procedures formulated by the employer are in violation of any law or regulation or impair rights and interests of employees;
  • the employment contract is void due to the employer using fraudulent or coercive tactics or taking advantage of the employee’s unfavourable position to force the employee to conclude the employment contract in against with his/her true intention; and/or
  • using means such as violence, threats or unauthorised detention to coerce an employee into working for the employer.

Employees may even terminate the employment contract, without any notice, in two exceptional conditions which include where employees are forced to work by means of violence, threat or illegally restrained personal freedom, or where the employers violate safety regulations and order employees to perform dangerous operations that are life-threatening.

Mass Redundancy

In addition to the termination avenues mentioned above, the employers in China may also pursue employment termination by evoking mass redundancy and undergoing the correspondent procedures. There are two thresholds for employers who wish to initiate the mass redundancy:

  • the affected employees number more than 20 or account for more than 10% of the total staff; and
  • the employers have encountered an objective situation where a reduction of the current workforce is necessary.

Under Article 41 of PRC Labour Contract Law, the applicable situations for employers to evoke mass redundancy include:

  • the employers undergo restructure during bankruptcy;
  • the employers are in severe financial and operational difficulty;
  • the employers introduce technological innovation for new products or change of business modal and it is still necessary to lay off employees after changing the labour contracts; and
  • any other objective economic situations rendering employment no longer performable. 

As mass redundancy usually involves termination with a large number of employees, the procedures for mass redundancy are strictly reviewed by the authorities of local labour administration department.

Before employers lay off their employees, they should report to the labour administration department of the Human Resources and Social Security Bureau ('HRSSB') of the municipal, district or county level, and the following procedures should be implemented:

  • explaining the situation to the trade union or all employees 30 days in advance;
  • putting forward the layoff plan;
  • presenting the layoff plan to the trade union or all employees for their opinions and amending the plan accordingly;
  • reporting to the labour administration department of the HRSSB and soliciting for its opinions; and
  • announcing the final layoff plan and carrying out the relevant procedures according to laws and regulations.

If there are retention opportunities, the following employees shall be prioritised:

  • those who have longer or open-term employment contracts; and
  • those who are the only money makers of the family.

The labour administration department of the HRSSB should provide a written response within fifteen days of accepting the report from the employers. Employers can carry out the layoff plan only after receiving the written response from the labour authorities.

Notice Periods

On one hand, under PRC Labour Contract Law, employers in China are only allowed to terminate employees with a 30-day notice under the scenarios mentioned in 6.1 Grounds for Termination. Even if employers and employees agree on termination with an alternative period of notice for no reason, the agreement will be deemed invalid and the employers cannot terminate the employees for no reason by serving them the agreed notice in contradiction with the statute.

On the other hand, employees are entitled to terminate their employment relationship by serving a 30-day notice, or a 3-day notice during the probationary period, to their employers. 

PRC Labour Contract Law prescribes certain special conditions under which employees may terminate employment with immediate effect, without notice (see 6.1 Grounds for Termination)

Severance

For terminations effectuated by notice or under mass redundancy, the employers are required to pay severance based on employees’ years of service with the employers at the rate of one month's wage for each year of service. Any period more than six months but less than one year shall be counted as one year. Any period less than six months shall be paid with one half of an employees’ monthly wage.

If an employees’ monthly wage is greater than three times the average monthly wage of the locality, as published by the local government, the rate of severance payable shall match, ie, be three times the average monthly wage of the locality, and the severance will be capped at 12 months.

However, this only applies for the period after 1 January 2008, when PRC Labour Contract Law became effective. For periods prior to 1 January 2008, severance is based on the number of years the employees have worked for the employers at the rate of one month’s wage for each year the employee has worked. Each period less than a full year will be counted as a full year and there is no cap on the monthly amount to be paid. The payment of statutory severance is due once the terminated employees have completed any handover requested by employers.

Under PRC Labour Contract Law, an employer may terminate an employee with immediate effect in the case of an employee’s material violation of employer’s internal rules, which is the same as dismissal for (serious) cause leading to a summary dismissal. To implement a summary dismissal, employers serve a written termination notice to employees in which the employees’ misconducts are explicitly specified. In addition, employers are under a legal obligation to notify trade union regarding any summary dismissal.

Employees who are summarily dismissed in China are able to make a claim, to the labour arbitration commission or court, that they have been wrongfully terminated. If the employees succeed in the claim of wrongful termination, they will be entitled to either double severance pay or reinstatement of employment, based on the employees’ choice (See 7.1 Wrongful Dismissal Claim).

During the labour dispute resolution process, the employers will bear the burden of proving the summary dismissal is legitimate and take the adverse consequences if the proof regarding the summary dismissal is deemed insufficient by labour arbitration commission or court. As such, to mitigate the potential risks, employers in China are usually counselled to use summary dismissal with substantial prudence and collect solid or at least admissible evidence on employees’ misconducts before implementing the summary dismissal.

Under PRC Labour Contract Law, employers may enter into a mutual termination agreement with employees. Excepting very limited statutory circumstances, employers may propose a mutual termination agreement at any time within the term of the employment contract.

In practice, termination through mutual agreements is one of the best ways to exit an employment relationship between employer and employee with no requirement on prior notice and the least potential legal risk of being sued by employees. However, the employer shall provide statutory severance to the employees if the mutual termination is proposed by employers.

Employers in China are prohibited from terminating certain employees by notice or through mass redundancy. These employees include:

  • those who have lost whole or partial labour capacity due to occupational disease or work-related injury;
  • those who are in the statutory medical treatment period due to illness or non-work-related injury;
  • those who are female employees either pregnant, on maternity leave or in the breastfeeding period;
  • those who have accrued 15 years of continuous service with the same employer and are within five years till retirement; and
  • those who are exposed to occupational disease and have not undergone an occupational health examination or are suspected of having an occupational disease and are put under diagnosis or medical observation.

Additionally, employers cannot terminate or end an employment contract with the full-time chairman, vice chairman and commission members of the trade union during their term. Their employment contract shall be extended to match their office term. For a part-time chairman, vice chairman or commission member whose contract term is shorter than their office term, the contract term shall be automatically extended to the end of their office term.

If employees in China believe they are wrongfully dismissed, they may resort to either of the following two remedies according to PRC Labour Contract Law:

  • employers’ payment of double statutory severance as liquidated damages; or
  • reinstatement of employment and the back payment of salary and social insurance contribution for the entire dispute resolution period.

Pursuant to PRC Labour Law, Employment Promotion Law and relevant regulations, employees shall not be discriminated against due to their nationality, race, gender or religious belief both during the process of recruitment and the performance of established employment.

Recent regulative momentum in China demonstrates that employers are forbidden to exert discriminatory standards against female candidates due to their marital status or pregnancy during the process of recruitment. Any employer that releases recruitment information that is found discriminatory against females may be subject to a warning or even a fine from the relevant labour authority.

In China, the aggregate number of disputes arising from discrimination is rather small compared with disputes on employers’ wrongful dismissals or underpayment of labour remuneration. Among the decided cases related to discrimination, quite a few disputes occur where employees dispatched by a labour service agency claim for equal treatment with employees that are directly hired by employers regarding remuneration and other beneficiary entitlements. In addition, in recent years special cases have been seen where employers are ruled as wrongful to place employees diagnosed as HIV carriers on compulsory leave.

In anti-discrimination cases, the grieved employees usually bear the burden of preliminarily proving the existence of the discrimination. The remedy available for such employees is not mandated by law but ruled on a case-by-case approach, including rectification of discrimination, compensation for mental suffering or formal apology from employers. Where employers are found to have committed wrongful dismissal due to discrimination, employees are entitled to the statutory remedies mentioned in 7.1 Wrongful Dismissal Claim.

According to PRC Mediation and Arbitration Law on Labour Dispute, employment disputes usually go through two stages of judicial procedures which are knows as labour arbitration and labour litigation. The employment disputes at labour arbitration and labour litigation are respectively heard by the labour arbitration commission and the Chinese courts. In practice, if either party to the dispute is dissatisfied with the award given by the labour arbitration commission, they may promptly proceed to initiate labour litigation, otherwise the arbitral award will become effective and enforceable.

In short, labour disputes shall first be submitted to the labour arbitration commission, this being a pre-condition for initiating labour litigation. The labour litigation stage may include two legal proceedings, ie, the first instance and the second instance. If either party to the dispute is dissatisfied with the judgement of the first instance, they may further appeal to a higher court for the second instance, and the court of second instance issues the final judgement of the dispute.

However, the PRC law limits the employers, but not the employees, from initiating labour litigation following the labour arbitration award for two kinds of cases:

  • disputes on recovery of remuneration, medical expenses for work-related injury, severance or compensation with the claimed amount being no more than the municipal average yearly salary in the last year; and
  • disputes on implementation of statutory standards in respects of working hours, rest and holidays, social insurance etc.

This limitation on the employers’ right to further initiate the labour litigation is one of the key demonstrations of preferential treatment for employees in China. This arrangement is believed to facilitate an efficient resolution of employment disputes for employees whilst preventing employers from unduly prolonging the contentious period and delaying the performance of their obligations to employees.

Employers and employees may choose to solve employment disputes via mediation before heading into a labour arbitration. The mediation institutions in China include:

  • labour dispute mediation commission established within employers;
  • labour dispute mediation commission set by law; and
  • other organisations that have the function of mediation on labour disputes in the country.

The settlement agreements reached between employers and employees during the mediation process, witnessed by mediation institutions, are legally effective. However, parties to these settlement agreements are unable to apply for court enforcement of such agreements without reviewing the substance of the original dispute.

As provided by the Regulation on Labour Security Supervision, an employee who believes that an employer has infringed upon his or her lawful rights or interests under employment law may make a complaint to the authority of labour security administration. The authority of labour security administration is responsible for accepting reports and complaints on violation of labour security laws, regulations or rules and lawfully investigating, correcting and punishing the violations.

In PRC judicial practice, the prevailing party in labour disputes will not be supported in recovering legal fees accrued during the contentious period. However, there is an exception to this practice. Pursuant to the local regulation in Shenzhen, when employees succeed in a labour case they may claim an attorney’s fee from the employer with the amount capped at RMB5,000.

Zhong Lun Law Firm

10-11/F, Two IFC, 8 Century Avenue, Pudong New Area,
Shanghai 200120, P. R. China

+86 21 6061 3081

+86 21 6061 3555

carolzhu@zhonglun.com www.zhonglun.com
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Law and Practice

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Zhong Lun Law Firm Founded in 1993, Zhong Lun Law Firm is one of the largest full-service law firms in China with over 300 partners and over 1600 professionals working in eleven domestic offices across China and five overseas office in Tokyo, London, New York, Los Angeles and San Francisco. Zhong Lun’s labour and employment team handles both contentious and non-contentious matters for clients. The team deals with domestic labour disputes as well as foreign-related labour disputes and advises clients on labour and employment issues and consult on general labour and employment matters. Our clients include multinationals, large state-owned enterprises, large-scale financial institutions, many foreign law firms along with small and medium-sized foreign and Chinese companies.

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