Employment 2023 Comparisons

There is no clear distinction between blue-collar and white-collar workers under PRC employment laws. As long as workers are employed by enterprises, individually-owned economic organisations, state departments, institutional organisations and social groups within the boundary of the PRC, no matter whether they are employed as senior staff or frontline workers, they uniformly hold the status of "employees" as protected by PRC employment laws.

Under the current PRC employment laws, employees can generally be divided into directly employed employees and labour dispatched employees.

• Directly employed employees: the employees can be further divided into full-time employees and part-time employees. Full-time employment is the most common form of employment. Conversely, part-time employees do not work more than four hours per day and 24 hours per week for one employer; they can work for more than one employer simultaneously.
• Labour dispatched employees: labour dispatch is an indirect employment arrangement under which an employee is employed by a dispatch agency and then seconded to work for a company. Labour dispatch applies to temporary, auxiliary or substitutable positions, and the law stipulates that the ratio of the number of dispatched employees versus the number of total employees (direct hires plus dispatched employees) of the company shall not exceed 10%.

According to the PRC Employment Contract Law (“Employment Contract Law”), there are three types of employment contract terms:

• a fixed-term contract
• an open-ended contract; and
• a project-based contract expiring at the completion of a specific task or project. 

To establish an employment relationship, a written employment contract shall be entered into within one month from the date on which the employee commences work. If this does not happen, the employer shall pay twice the monthly salary to the employee from the second month of the commencement of employment until the date when a written employment contract is concluded. If, after a year from the commencement of the employment, an employer still fails to conclude a written employment contract, an open-ended employment contract will be deemed automatically concluded between the employer and the employee. However, part-time employees may enter into oral agreements with the employer.

The following information must be included in an employment contract: 

• the employer՚s name, address and legal representative/person in charge; 
• the employee՚s name, home address and the number of valid identification card; 
• the term of the employment contract; 
• the job description and the work location; 
• the working hours, rest time and leaves; 
• remuneration, 
• social insurance; 
• labour protection, working conditions and protection against occupational hazards; and 
• specific provisions on the protection of the rights and interests of female employees.

Working Hours

For full-time employees, there are three types of working hour systems, under which different rules for working hours apply.

• Standard working hours system: employees work no more than eight hours per day and no more than 40 hours per week ("Statutory Standard"), and are entitled to at least one rest day every week. Otherwise, overtime will occur.

• Comprehensive working hours system: generally applicable to certain special industries requiring long shifts (eg, transportation, airlines, fishery industry, offshore oil exploration) and the employer must obtain approval from the competent authorities, unless otherwise provided by local regulations and rules. Working hours are calculated within a certain calculation cycle (month/quarter/year). The average daily working hours and the average weekly working hours must not exceed the Statutory Standard. Otherwise, overtime will occur.
• Flexible working hours system: only applicable to certain job positions (eg, executives, sales personnel, taxi drivers). Similarly, the employer must obtain approval from the competent authorities, unless otherwise provided by local regulations and rules. The employee can perform their duties on a flexible schedule, provided that they properly complete the work assignment in a timely manner.

Part-time employees work with an employer for no more than four hours per day on average and no more than 24 hours per week in total. There are no special rules/restrictions applicable to working hours for part-time employees. 

Overtime 

Overtime refers to the working time that the employer arranges or approves the employees to work, which is beyond the Statutory Standard. According to the PRC Labour Law (“Labour Law”), overtime shall not exceed three hours per day or 36 hours per month.

• Under the standard working hour system, the employer shall compensate the employee’s overtime work in the following ways.
1. For overtime work during working days, the employer should pay not less than 150% of the employee’s normal hourly wage. In general, alternative rest days should not be used to substitute overtime pay for working days.
2. For the overtime work during rest days, the employer can first consider making arrangements for employees to take alternative rest days. If such alternative rest days cannot be arranged, the employer should pay not less than 200% of the employee’s normal daily or hourly wage.
3. For the overtime work during a statutory holiday, the employer should pay not less than 300% of the employee’s normal daily or hourly wage. In general, alternative rest days should not be used to substitute overtime pay for statutory holidays.
• Under the comprehensive working hour system, for the extra hours worked during the calculating cycle (regardless of whether the extra hours are for work days or rest days), the employer should pay not less than 150% of the employee’s normal hourly wage; and for the extra hours worked on statutory holidays, 300% of the employee’s hourly wage should be paid.
• Under the flexible working hour system, generally the employees shall not be entitled to overtime pay while the rules are slightly different by provinces/cities. For example, in Beijing, employees under the flexible working hour system are not entitled to any overtime pay at all. However, in some other cities, if employees work extra hours on statutory holidays, they will still be entitled to overtime pay of not less than 300% of their hourly wage. 

If an employer does not make overtime pay for its employee’s overtime work, the competent labour authorities have the right to order the employer to pay within a limited period; if the employer fails to comply with such order, it will be required to pay 150-200% of the outstanding overtime pay.

The local government of each region sets its local minimum wage, which is normally updated at least every two years and applies to all employees, regardless of their age, position and experience. The minimum wage generally includes a monthly minimum wage and an hourly minimum wage. The monthly minimum wage applies to all full-time employees, while the hourly minimum wage applies to all part-time employees.

It is not statutorily required for employers to provide bonuses on top of basic salaries, however, it is common to see employers reward employees through various bonuses, eg, the 13th month’s salary, year-end bonus, commission, performance bonus. Generally, the issuance of bonuses is solely at the employer's discretion. If it is stipulated in the employment contract or the employer՚s internal policies to provide a certain bonus to the employee, the employer shall be bound by those stipulations.

Apart from the minimum wage requirements, there are no such mandatory requirements on salary increase (although the local government of each region generally issues a salary increase guideline every year, it is only a reference document to guide enterprises to reasonably determine salary increases and is not mandatory). Salary deduction can only be made upon the employee’s consent unless on certain statutory grounds (eg, sick leave period).

Holidays

Generally, holidays in China include 11 days of statutory holiday (New Year’s Day, Spring Festival, Labour Day, Mid-Autumn Festival, National Day, etc) for all employees as well as holidays for certain groups of people (eg, a half-day’s leave for female employees on Women’s Day, and a half-day’s leave for 14-28-year-old employees on Youth Day). 

Leaves

All employees shall be entitled to full paid annual leave, sick leave, and other leaves (maternity leave, childcare leave, etc) in accordance with the PRC laws and the employer’s internal policies. The main categories of leaves include the following.

• Annual leave: any employee whose accumulated employment period (including all the prior employment period with current and former employers) is more than one year shall be entitled to paid annual leave. The number of days of annual leave shall be calculated based on the accumulated employment service years of the employee as follows:

1. one to ten years ‒ 5 days;
2. ten to 20 years ‒ 10 days; and
3. more than 20 years ‒ 15 days

If the employer cannot arrange annual leave for an employee due to its operational needs, with the consent of the employee, such annual leave may not need to be arranged by the employer, but the employer shall pay the employee 300% of the wage (including the 100% normal wage and thus 200% shall be additionally made) on a daily basis for the unused annual leave.

• Sick leave: where the employee suffers from illness or a non-work-related injury, the employee has the right to take sick leave to recover from the illness or injury. The minimum salary standard during sick leave required by laws and regulations may be different among provinces and cities, and the commonly used standard is 80% of the local minimum wage. There are also provinces and cities with different sick leave pay standards, eg, Shanghai has its own sick leave and sick pay regulations.
• Maternity leave: female employees who give birth in compliance with PRC birth control policies are entitled to 98 days of maternity leave, of which 15 days may be taken before delivery. The leave can be extended by an additional 15 days under special circumstances such as dystocia and multiple births. Additionally, extra maternity leave is granted by local regulations where the specific length varies from city to city. For example, in Beijing and Shanghai, the total length of maternity leave is 158 days, including a base 98-day period per national law and 60 days granted by local regulations. According to national law, female employees who suffer a miscarriage during the first four months of pregnancy shall be entitled to 15 days of maternity leave, and those who suffer a miscarriage after four months of pregnancy shall be entitled to 42 days of maternity leave.
• Marriage leave: an employee is entitled to three days of marriage leave according to the national law. Moreover, all legally married couples will be entitled to additional marriage leave granted by local regulations.
• Paternity leave: paternity leave for male employees is granted by local regulations only. For instance, paternity leave for male employees in Beijing and Shanghai is 15 days and ten days respectively.
• Childcare leave: childcare leave is granted by local regulations only. For instance, both Beijing and Shanghai have introduced childcare leave which entitles eligible parents to five days of full-paid leave each year until the child reaches three years of age.
• Elderly care leave: elderly care leave is also stipulated in local regulations only. For instance, in Beijing, an employee who is the only child in their family is entitled to no more than ten working days of full paid elderly care leave per calendar year to take care of their parent(s) (including legal adoptive parents) who need nursing care due to illness, injury or disability. Shanghai currently does not have elderly care leave.
• Bereavement leave: according to the current law, when a parent, spouse or child of an employee of a state-owned enterprise dies, the employee is entitled to take one to three days of bereavement leave. Employers generally refer to this standard in providing bereavement leave to employees. 

Confidentiality and Non-Defamation

Employers may formulate internal policies, or agree with employees in the employment contract or a separate confidentiality agreement on relevant matters of confidentiality, including the protection of the employer’s trade secret and other confidential information. The scope of confidential information shall be defined in the agreement at the discretion of the employer. At present, there are no nationwide regulations requiring the payment of compensation for adhering to the confidentiality obligation. Therefore, in practice, employers need not pay their employees in exchange for their complying with the confidentiality requirements. If an employee violates the confidentiality requirements and causes economic losses to the employer, the employer can claim compensation against the employee based on the policy, relevant stipulations in the employment contract or the confidentiality agreement.

Similarly, employers can set requirements on non-defamation to employees by formulating policies, or by stipulating relevant requirements in the employment contract or a separate agreement, and claim compensation for the employee’s violation and losses caused.

Non-compete is a commonly seen post-termination restrictive covenant for employees so as to protect the confidential information of the employer. Under PRC employment laws, an employer can agree with the employee on non-compete obligations through stipulations in the employment contract or through a separate non-compete agreement. Key stipulations on non-compete include the following.

• Restricted competitive behaviours: work for a competing company that produces the same type of products, engage in the same type of business as their former employer, establish their own business to produce the same type of products, or engage in the same type of business, or compete with their former employer in any other way.
• Scope of employees: employees subject to non-compete clauses shall be senior management, senior technicians or other employees under confidentiality obligations.
• Scope of regions: the geographical region for non-compete clauses shall be stipulated by the employer and the employee, and is generally limited to the region that can form an actual competitive relationship with the employer (factors to consider include business coverage and industry characteristics).
• Non-compete period: the effective period for non-compete clauses shall be stipulated by the employer and the employee, and shall not exceed two years post termination.
• Non-compete compensation: in order to enforce the non-compete clause, the employer must pay compensation to the employee on a monthly basis throughout the non-compete period. The parties can agree on the compensation amount. According to the national rules, where there is no such agreement on the specific amount, the default amount is 30% of the employee’s average monthly salary over the previous 12 months for each month. Local rules may have specific requirements on the compensation standard.
• Liabilities for breach: under PRC employment laws, if an employee breaches the non-compete obligations, the employer can claim for the liabilities for breach of contract as agreed by the parties, including liquidated damages and/or recovery of the compensation made. Meanwhile, the employer can require the employee to continue performing the non-compete obligations for the rest of the non-compete period (if any).

PRC employment laws are silent on the topic of non-solicitation, however, it is commonly used by employers in practice to prevent the former employee from soliciting clients and employees of the former employer.

As violating non-solicitation is not a scenario stipulated by the law where the employer can claim for liquidated damages as agreed with the employees, employers can generally only claim for recovery of financial losses suffered due to an employee’s breach of a valid non-solicitation obligation. If the employer claims for solicitation by employees, the employer needs to prove the solicitation behaviours and the financial losses incurred.

Data Privacy Laws

The PRC Civil Code (effective on 1 January 2021) contains chapters regarding personal information (PI) and privacy protection. The PRC Cybersecurity Law (effective on 1 June 2017), the PRC Data Security Law (effective on 1 September 2021), and the PRC Personal Information Protection Law (PIPL, effective on 1 November 2021) collectively constitute the three fundamental and framework laws regulating data security protection in the PRC. Among these laws and regulations, the PIPL provides the most details regarding PI protection, establishing comprehensive and systematic rules on the processing and protection of PI. Employers should also comply with the PIPL when processing the employees' PI; the sections below briefly summarise the key points under the PIPL.

PI Processing Principles

• Lawful, transparent, accurate and secured: PI shall be processed in accordance with the principles of legality, legitimacy, necessity, good faith, openness, and transparency. In addition, the quality and security of PI shall be guaranteed during the processing.
• With specified purpose: PI shall be processed for a specified and reasonable purpose. The processing shall be directly relevant to the processing purpose and in a manner that has the minimum impact on personal rights and interests.
• Minimised collection: the collection of PI shall be limited to the minimum scope necessary for achieving the processing purpose and shall not be excessive.
• With limited retention period: the retention period of PI shall be the shortest time necessary for achieving the processing purpose, except as otherwise provided by any law or administrative regulation.

Legal Grounds for Processing Employees’ PI

According to the PIPL, PI can only be processed based on statutory grounds, among which, the two grounds most related to the employment sphere are: 

• the individual’s consent has been obtained; and 
• the processing is necessary for the conclusion or performance of a contract to which the individual is a contracting party or for conducting human resource management under the employment rules and regulations legally established and collective contracts legally concluded.

However, the PIPL does not stipulate specific standards for determining what constitutes “necessary for conducting human resource management”, and thus, it is suggested that the employers try to obtain consent from the employees for PI needed in the first place. 

Consent and Separate Consent

As the key legal ground for processing PI, the PI sets out requirements on obtaining “consent”. The consent shall be voluntarily and explicitly given by the individual on a fully informed basis. The PI processor shall truthfully, accurately and completely inform individuals of the required matters ("Items to Inform"):

• the name and contact information of the PI processor; 
• purposes and methods of processing the PI, categories of PI to be processed, and the retention periods;
• methods and procedures for individuals to exercise the rights provided by the PIPL; and 
• other matters that should be notified as provided by laws and administrative regulations.

The PIPL also requires “separate consent” for certain circumstances (eg, sharing PI with third parties; processing sensitive PI; outbound transferring PI), which is a form of consent with higher requirements. The specific requirements and form of separate consent are not specified by the PIPL. Based on the current understanding and practice, to constitute a separate consent, the specific item involving PI processing should be listed as a separate item requesting the individual’s specific consent explicitly for this item, instead of being hidden in a package of items pending for the individual’s joint consent.

Sharing Employees’ PI with Third Parties

The most relevant employment-related scenarios include engaging third parties in background checks, recruitment, payroll services, and labour dispatch, etc. When sharing employees’ PI with third-party processors, apart from the Items to Inform, the employer shall also inform the employees of the recipient՚s name, contact information, purposes and methods of processing, categories of PI, and obtain the employee’s separate consent.

Outbound Transferring Employees’ PI and SCC

The outbound transfer of employees’ PI is not unusual, especially for multinational employers sharing employees’ PI within the global management system. Given the special nature of outbound transfer, the PIPL sets out detailed requirements in this regard. Apart from informing employees of the Items to Inform and additional items, and obtaining separate consent, the PI processor also needs to conduct a PI protection impact assessment and adopt one of the three legal mechanisms: 

• a security assessment organised by the National Cyberspace Department;
• a certification by a specialised agency for protection of personal information in accordance with the provisions of the National Cyberspace Department; or 
• a standard contract formulated by the National Cyberspace Department with the overseas recipient (the “SCC Approach”).

Among the above outbound transfer mechanisms, detailed rules have been laid out regarding the SCC Approach, and the SCC template has been published. Employers who are eligible to adopt the SCC Approach shall follow the relevant rules for complying with the PI outbound transfer requirements.

Retaining Employees’ PI

According to the PIPL, the retention period of PI shall be the shortest time necessary for achieving the processing purpose, though the specific length of the retention period is not specified. It is suggested that employers decide the retention period according to the type of PI and the specific stage in the employment lifecycle.

Legal Liabilities

PI processors who violate the PIPL in their PI processing will be subject to the following legal liabilities.

• Civil liabilities: individuals can file lawsuits against PI processors according to the PRC Civil Code claiming an infringement on PI. As provided by the PIPL, the burden of proof for such cases is on the PI processor to prove that it is not at fault. Otherwise, the PI processor shall be liable for damages and other civil liabilities. Where PI processors violate the requirements under the PIPL during PI processing and infringe the rights and interests of multiple individuals, the People’s Procuratorate, consumer organisations prescribed by the laws, and organisations determined by the state cyberspace authorities may file lawsuits.
• Administrative liabilities: competent PI protection authorities can also issue orders for rectification, warnings, and confiscate unlawful income against PI processors for violations of PIPL. In the case of failure to rectify, legal liabilities include fines, rectification and confiscation of unlawful income.
• Criminal liabilities: the PIPL refers to the PRC Criminal Law for relevant behaviours constituting crimes. According to the PRC Criminal Law, fines and/or up to seven years of imprisonment can be imposed for illegally acquiring, selling or providing PI to third parties.

Foreigners working in PRC should abide by laws and regulations such as the Law on the Management of the Entry and Exit of the PRC, and the Regulations on Management of Foreigners Working in China. According to these regulations, for a foreigner to legally work in China, the following requirements shall be met:

• they have reached the age of 18 and are in good health;
• they have professional skills and work experience required by the job;
• they do not have a criminal record;
• they have a definite employer; and
• they have a valid passport or other international travel document.

In addition, for foreign workers to legally work in China, the prior approval of competent labour administrative authorities, work permit and residence permit shall be obtained. Failure to obtain the valid permits will lead both the employer and employee to penalties, and detention may be imposed on the foreign employee. These rules do not apply to foreign employees of foreign embassies, consulates, offices of the United Nations and other international organisations in China, which enjoy diplomatic privileges and immunities.

As a side point, the term of employment contract between an employer and a foreign worker may not exceed five years. The employer may apply for renewal within 30 days prior to the expiration date, and the employment contract can be renewed upon the labour administrative authorities’ approval and completion of the work permit extension procedures.

General Registration Requirements

All foreign workers shall obtain valid working permits to work in China, except for very special circumstances, eg, if the duration of stay in China is less than 90 days and the worker enters China for certain reasons including:

• to conduct a trial for sports training in China;
• to purchase machinery and equipment for supporting maintenance, installation, commissioning, disassembly, guidance and training; or
• to be dispatched to domestic branches, subsidiaries and representative offices to complete short-term work.

In other circumstances, the registration can generally be divided into two kinds depending on the duration of the stay (ie, whether it is over 90 days). Generally, there are two kinds of arrangement commonly adopted in practice for employers to have foreign nationals work in China:

• the foreign national is directly employed by a PRC entity, which acts as the employer of that foreign national (“direct hiring”); or
• the foreign national is employed by a foreign entity and then seconded to work in a PRC entity (“international secondment”).

To implement the international secondment mode, the foreign worker must be in a managerial or technical position in China, and the foreign entity shall issue a secondment letter, stipulating contents including but not limited to workplace, term, salary and position. The PRC entity shall apply for the work permit with the secondment letter. 

Type of Foreign Workers

There are different types of foreign workers permitted to apply for work permits, including high-end talents (Category A); foreign professionals (Category B); and other foreign personnel (Category C); there are specific criteria indicating which category shall apply to the foreign employee when applying for work permits.

Procedures for Obtaining a Work Permit and Residence Permit for a Foreigner who Comes to Work in China From Abroad

For a PRC employer to hire a foreign employee who comes from abroad, the general procedures for obtaining work permit and residence permit are as follows:

• the employer is to register in the “Service System for Foreigners Working in China” and upload the relevant documents required;
• the employee may apply for a Z visa after the work permit notice be issued and enter China with the work permit notice;
• within 15 days of entry with the work permit notice, the employer should apply for a work permit; and
• the foreign employee shall then apply for residence permit after receiving the work permit.

Mobile work (remote work) is not a new concept and has been widely used during the COVID-19 pandemic period. Post-pandemic, some employers still keep the remote work option open to their employees, or adopt a hybrid work mode (onsite and remote). 

Work location is a mandatory term in an employment contract, and normally, it will be an onsite location. Switching from onsite work to remote work will generally require the mutual consent of both the employer and the employee. In practice, there remain some uncertainties or difficulties related to remote work, mainly those set out below.

• Employee management: in the remote work mode, employers may lack adequate channels to monitor employees՚ working status, and thus supporting policies are suggested to be incorporated during remote work mode, including a request for the employee to check in online through attendance software during their normal working hours and retain all remote work software and instant messaging tools online and responsive during working hours.
• Work-related injury: for employees who get injured during remote work, there is some uncertainty about how to prove that an injury occurred during work hours, in the workplace, and for work-related reasons. According to the judicial practice, if it can be proved that the injury occurred during the working hours required by the employer, and that the employee was working at that time (eg, there is an online record of the work, there is a description of the work in the work log, and even an email sent as proof of the work done at the time), it is still likely that work-related injury will be recognised and the employer needs to bear relevant statutory obligations.
• IP protection: in the remote work arrangement, the vast majority of information is transmitted through the internet, and it is more difficult to monitor employees՚ behaviours and ensure that they do not disclose confidential information from the employer. Therefore, it is suggested that the employer strengthen the confidentiality requirements during remote work periods and co-operate with IT software suppliers to establish a comprehensive mechanism for the protection of the employer’s IP during remote work.

Although some universities in China have been trying to implement this kind of leave for teachers, “sabbatical” is not a legal concept stipulated by PRC employment laws, but rather a kind of optional leave granted by universities to teachers. Consequently, there is a lack of stipulations on the terms of employment (salary standard, etc) during the sabbatical period at the national level, and there are no related cases where the attitude of the arbitration commission/court can be seen.

With the development of the platform economy and the need for more flexible employment, new forms of employment have further developed and infiltrated a growing number of industries in the past year; typical new manifestations include delivery persons, online platform taxi drivers and network anchors. The identification of the relationship between the platform enterprises and the individuals engaged, and the protection of such individuals’ rights and interests, are of most concern.

The national and local governments have been issuing regulations and policies governing new forms of employment in recent years. The Ministry of Human Resources and Social Security, together with seven other departments, issued a guiding opinion in 2021, which for the first time introduced a new concept called a "less-than-complete employment relationship" (as opposed to an ordinary employment relationship or a civil law relationship). It also set out comprehensive provisions to ensure platform workers’ rights and interests, including reasonable pay, accident insurance participation and vocational training. Local rules and regulations have also been issued, providing more detailed guidance, including allowing work-related injury insurance to be paid separately for individuals under new forms of employment. It will be important to pay attention to the new rules coming out in the future concerning this new form of employment.

According to Labour Law, trade unions shall represent and safeguard the legitimate rights and interests of employees, and carry out their activities independently in accordance with the law. The Trade Union Law of PRC (“Trade Union Law”) (last revised in 2021) further clarifies the status of a trade union, which is a voluntary organisation formed by employees of their own free will.

Trade unions have the general right to represent and protect the rights of employees. According to the Trade Union Law, specific rights of trade unions include but are not limited to:

• supervising employers’ violation of relevant policies, demanding the employer to rectify any violations, and ensuring that the employees exercise their right to democratic management in accordance with the law;
• assisting and guiding the employees in signing employment contracts, attending negotiation and signing collective contracts with the employer on behalf of the employees, and filing arbitration or cases on behalf of the employees; and
• providing advice regarding the employers’ disposition of employees and reviewing the reason for unilateral termination of employees.

Under PRC employment laws, employees can exercise their right to democratic management through the employee representatives’ congress, which has the right to inspect the daily operation of the employer and is responsible for representing the employees’ legal interests. 

The employee representatives shall be elected by employees; the specific proportion and number shall be determined in accordance with the implementation measures of the employee representatives’ congress of the enterprise, or determined by the enterprise through consultation with the trade union, but shall be no fewer than 30 people.

In most cases, employment terms and conditions are agreed and executed individually, but collective bargaining also takes place at both the enterprise level and the industry level. PRC employment laws permit collective employment contracts on matters relating to remuneration, working hours, rest and vacations, occupational safety and health, insurance and welfare, while requiring that the draft be submitted to the employee committee or all employees for discussion. Currently, most collective contracts are negotiated at the company level, and collective contracts are more common in enterprises in the manufacturing and retail industries. In 2020, the All China Federation of Trade Unions (ACFTU) issued a Notice to emphasise the importance of collective contracts during the COVID-19 pandemic.

According to national law, a collective contract shall be concluded between the employer and the trade union that represents employees; for an employer which has not established a trade union, the next higher-level trade union shall guide the representatives elected by the employees to conclude a collective contract with the employer. The collective contract shall be submitted to the labour administrative department after being concluded, and shall become effective after the lapse of 15 days from the date of receipt by the labour administrative department unless any objections to the contract are raised.

The PRC employment laws set strict limitations on employment relationship terminations and there is no such concept of “termination at will” for full-time employees. The statutory grounds can be divided as follows.

Non-fault Termination

Termination upon mutual agreement

An employment contract may be terminated upon mutual agreement between the employer and the employee, and the employer is obliged to pay the employee the statutory severance. 

Unilateral termination by the employer

An employer is entitled to unilaterally terminate the employment contract with a 30-day prior written notice or one month’s salary in lieu, and with severance pay:

• where an employee suffers from an illness or a non-work-related injury and is unable to undertake the original job or other job arranged for them by the employer following completion of the stipulated medical treatment period;
• where the employee is proved incompetent in their job and continues to be incompetent after receiving training or a position amendment by the employer;
• where the objective circumstances for which the conclusion of the employment contract is based have undergone major changes (“Major Change to the Objective Circumstances”) and, as a result, the employment contract can no longer be performed, and the employer and the employee are unable to reach an agreement on the change of the employment contract.

Unilateral termination by an employee (ie, resignation)

An employee has the right to unilaterally terminate the employment contract by giving their employer three days՚ prior written notice during the probation period. After completion of the probation period, an employee may terminate their employment contract upon 30 days’ prior written notice to the employer.

Fault Termination

Unilateral termination by the employer

An employer is entitled to unilaterally terminate the employment contract without prior notice or any severance pay if an employee is under any of the following circumstances:

• where an employee is proven to have failed to satisfy the recruitment requirements during the probation period;
• where an employee has seriously violated the internal policies of the employer;
• where an employee has committed serious dereliction of duty or practices graft, causing material damage to the employer;
• where an employee has established an employment relationship with another employer concurrently, which materially affects the completion of their tasks with the current employer, or the employee refuses to rectify the matter as demanded by the employer;
• where an employee is prosecuted for criminal liability according to the law; or
• where an employment contract is rendered wholly or partially void when the employee causes the employer to conclude or amend the employment contract against the employer’s true intention by means of fraud, coercion or taking advantage of the employer՚s disadvantaged position.

Unilateral termination by the employee

If any of the following circumstances occurs, an employee may terminate the employment contract immediately:

• where an employer fails to provide labour protection or working conditions pursuant to the provisions in the employment contract;
• where an employer fails to pay the remuneration in full and/or on a timely basis;
• where an employer fails to make social insurance contributions for the employee in accordance with the PRC laws;
• where an employer’s internal rules and policies violate the law and cause damages to the employee’s rights and interests;
• where an employment contract is rendered wholly or partially void if the employer causes the employee to conclude or amend the employment contract against the employee’s true intention by means of fraud, coercion or taking advantage of the employee՚s disadvantaged position; or
• where an employer uses means such as violence, threats or unlawful restriction of personal freedom to coerce an employee to work, or where an employer gives orders which violate safety rules or force an employee to engage in dangerous operations which endanger the employee’s safety.

End of Employment

An employment contract will be ended when any of the following occurs:

(a) the term of the employment contract expires;

(b) the employee starts to take their pension entitlement or the employee reaches legal retirement age;

(c) the employee is dead or declared dead or missing by the People’s Court of PRC;

(d) the employer is declared bankrupt; 

(e) the employer has its business licence revoked, is ordered to close down, or decides on early liquidation; or 

(f) any other situation stipulated by applicable PRC laws.

Under circumstances (a), (d) and (e), the employer shall pay the employee statutory severance.

Economic Layoffs

If an employer is reducing its workforce by 20 persons or more, or by 10% or more of the total number of its employees, the termination ground of economic layoff can be invoked under any of the following circumstances:

• restructuring pursuant to the Enterprise PRC Bankruptcy Law;
• serious difficulties in production and/or business operations;
• the employer switches production, introduces a major technological innovation or revises its business method, and, after the amendment of employment contracts, still needs to reduce its workforce; or
• other major changes in the objective economic circumstances relied upon at the time of execution of the employment contracts, rendering them unable to be performed.

Before the layoffs, the employer has to follow the procedural requirements as stipulated in the Employment Contract Law as follows:

• to explain the circumstances to its trade union or all of its employees 30 days in advance;
• to consider the opinions of the trade union or the employees; and subsequently
• to report the layoff plan to the competent labour authorities.

Notice Period

Whether prior notice is necessary depends on the specific statutory ground for the termination. As per 7.1 Grounds for Termination for the circumstances listed under “Unilateral termination by employer” in the “Fault Termination” section, an employee must be given a 30-day prior written notice or one month’s salary in lieu of notice. An employee shall also give prior notice to the employer upon resignation.

In terms of economic layoffs, employers shall explain the situation to the trade union or all of its employees 30 days in advance (which can be regarded as a form of prior notice) and seek their opinions before reporting the proposed layoffs to local administrative authorities. 

Additionally, though not required by the Employment Contract Law, some local regulations in cities such as Beijing require the employer to give prior notice (or salary in lieu of notice) to employees when the term of an employment contract expires and the employer decides not to renew it.

Severance

Please refer to 7.1 Grounds for Termination and the list of termination grounds on which the employee is entitled to severance pay.

Generally, statutory severance is one month՚s salary for every year of service. Since the Employment Contract Law took effect on 1 January 2008, severance pay must be calculated in two parts.

• For the service period before 1 January 2008: severance pay will be calculated in accordance with the applicable laws and regulations before 1 January 2008 (these can vary from the calculations that apply after 1 January 2008).
• For the service period after 1 January 2008: severance pay will beone month՚s salary for every year of service (a service period of at least six months but less than a year will be counted as one year), and half a month՚s salary for a service period of less than six months. The one month՚s salary is calculated based on the employee՚s average monthly salary during the 12 months prior to termination. However, when the average monthly salary of an employee exceeds three times the social average monthly remuneration issued by local government at the locality of the employer, the employee՚s average monthly salary shall be capped at three times of the social average, and the length of service period should be capped at 12 years.

Procedural Requirements for Termination

The requirements to be observed include:

• notifying the trade union of the ground for termination (for grounds of unilateral termination by the employer);
• delivering the termination notice to the employee and making the statutory severance payment if needed (for grounds of unilateral termination by the employer);
• registering the termination with the labour authorities if so required by local regulations, and assisting with the social insurance and housing fund transfer for the employee; and
• issuing an employment certificate to the employee.

Under PRC employment laws, dismissal for serious cause is generally understood as Article 39 of the Employment Contract Law; see  to 7.1 Grounds for Termination, “Unilateral termination by the employer” under the “Termination for faults” section. Among the circumstances listed, subsection (c), “where an employee has seriously violated internal policies of the employer” is the most commonly used one in practice. For an employer to successfully terminate an employee for serious violation of the employer's internal policies, the following conditions must be met:

• the burden of proof is on the employer to prove relevant disciplinary violation behaviour;
• the company՚s internal rules and regulations clearly stipulate that the behaviour is a serious violation of discipline, and the company consequently has the right to unilaterally terminate its employment contract; and
• the above internal rules and regulations fulfil the democratic and publicising procedures.

The employer also needs to fulfil the procedural requirements as summarised in 7.2 Notice Periods.

Normally, a written termination agreement will be reached between both parties upon mutual termination of the employment contract. There are no statutory requirements on the format or must-have terms regarding the termination agreement. According to the judicial interpretations, the release clause shall be generally enforceable as long as it does not violate the mandatory provisions of laws and administrative regulations or fall under fraud, duress or exploitation of an unfavourable position.

An employer cannot unilaterally terminate the employment of employees in the following circumstances (unless termination is based on Article 39 of the Employment Contract Law):

• the employee is engaged in operations that expose them to occupational disease hazards and has not undergone a pre-departure occupational health check-up, or is suspected of having contracted an occupational disease and is being diagnosed or is under medical observation;
• the employee has been confirmed as having lost (or partially lost) their capacity to work as a result of contracting an occupational disease or sustaining a work-related injury with their current employer;
• the employee has contracted an illness or sustained a non-work-related injury, and the statutory medical period has not expired;
• the employee is a female employee on pregnancy, maternity or breastfeeding leave; or
• the employee has been working for the employer continuously for at least 15 years and has less than five years before the statutory retirement age.

In addition, if an employee falls into any of the above circumstances, the employment contract shall not be ended upon expiration of their employment contract. Instead, their employment contract must be extended until the relevant circumstance ceases to exist.

Employees who consider that they have been wrongfully dismissed may bring a wrongful dismissal claim to the judicial authorities; the grounds generally include:

• substantive violations of the law: the basis (factual basis or the statutory grounds invoked) for unilateral termination cannot be substantiated; or
• procedural violations of the law: including not notifying the trade union and not fulfilling relevant formalities requirements.

If their claim is supported, the remedy will be either reinstatement of employment with back pay or a double severance payment.

Discrimination is prohibited by PRC employment law. The Labour Law generally provides that people should not be treated unfairly due to race, sex, religion, etc, and women should have equal rights of employment as men. Additionally, the PRC Employment Promotion Law provides that employees are entitled to equal employment, and individuals seeking employment shall not be discriminated against because of ethnicity, race, gender, religious belief, disability, and whether the individuals are from rural places. The PRC Law on the Protection of Rights and Interests of Women, which was newly amended and took effect on 1 January 2023, further ensures equal employment rights for female employees and prohibits discrimination against female employees. There are also specific regulations prohibiting discrimination against individuals who are hepatitis B carriers.

"Equal employment rights disputes" has been listed as a separate cause of action since 2019. Generally, individuals can file "equal employment rights disputes" lawsuits before the court requiring the company to bear the corresponding legal responsibilities. The burden of proof is usually on the individual to prove that the enterprise conducted discriminative actions. Remedies available to employees vary depending on the specific cause of action, while monetary compensation for economic loss and emotional loss in certain circumstances are the main remedies. Other possible remedies include requiring the enterprise to apologise to the individual publicly.

Currently in China, labour arbitration procedures are generally conducted onsite. However, for court proceedings, online litigation is now widely used, especially since the COVID-19 pandemic. According to the Rules of Online Litigation of People's Courts, the court may rely on the electronic litigation platforms to complete all or part of the litigation procedures of case docketing, mediation, exchange of evidence, questioning, court trial and service online.

The court shall decide whether to conduct an online court trial via video based on the opinions of the parties, the circumstances of the case, social impact, technical conditions and other factors. However, there are also circumstances where online court trials shall not apply, specifically:

• all parties expressly disagree, or any of the parties disagree with a good reason;
• none of the parties has the technical conditions and capability to participate in an online court trial;
• it is necessary to ascertain identities, verify originals or check physical objects onsite through the court trial;
• if the case is difficult and complicated and there is a wide variety of evidence, the application of an online court trial is not conducive to finding out the facts and applying laws;
• the case involves national security or state secrets;
• the case has a great social impact and has attracted wide public attention; and
• the court considers that there is any other circumstance that is not suitable for an online court trial.

In China, most employment-related disputes are solved under a two-stage framework, ie, labour arbitration followed by litigation. According to the PRC Employment Dispute Mediation and Arbitration Law, before filing an employment dispute with a court, it is mandatory to submit the dispute to the competent local labour arbitration commission, an institution specialising in hearing employment dispute cases. If any party is unsatisfied with the arbitration award, which is not final (arbitration award is final for certain kinds of cases), the party is entitled to bring the lawsuit to the competent people’s courts (the first instance courts and then the second instance court). 

According to the PRC Employment Dispute Mediation and Arbitration Law, where a labour dispute involves more than ten employees and the employees have a same claim, they may recommend their representatives to participate in the mediation, arbitration or litigation. 

In addition to arbitration and litigation, an employer and employee are encouraged to consult with each other and to reach a mediation agreement on employment dispute settlement under PRC employment laws. Even though the employment disputes had been submitted to arbitration or litigation, an employer and employee still could negotiate and reach a mediation agreement, as long as the final arbitral award or court decision has not been made. The conciliation is not mandatory and must be based on both parties’ voluntariness. The parties may choose to directly submit their employment disputes to arbitration without any pre-claim conciliation. 

In addition, labour supervision is also an available option. According to the Regulation on Labour Security Supervision, any organisation or individual shall have the right to report to the labour supervisory authority (an administrative department responsible for the supervision of labour security administration) any act of violating labour laws, regulations or rules. The labour supervisory authority will accept the reports and complaints, and investigate, correct and impose punishment for any relevant acts.

Under PRC law, generally, the arbitration commission/court will not award the prevailing party attorney’s fee or other costs. However, there may be special rules, eg, according to a local rule in Shenzhen, where the employee is the prevailing party in a labour dispute arbitration or litigation case, the attorney’s fee paid by the employee may be borne by the employer while the maximum amount shall not exceed RMB5,000. The portion exceeding RMB5,000 shall be borne by the employee.