Employment 2022

Last Updated July 06, 2022

China

Law and Practice

Authors



Zhong Lun Law Firm was founded in 1993 and is one of the largest full-service law firms in China, with over 390 partners and more than 2,400 professionals working in 12 domestic offices across China and six overseas offices in Tokyo, London, New York, Los Angeles, San Francisco and Almaty. Zhong Lun has built a diversified and far-reaching global platform to provide comprehensive, one-stop legal services to clients more effectively. The labour and employment team handles both contentious and non-contentious matters for clients. It deals with domestic labour and employment issues as well as cross-border employment issues. Zhong Lun’s clients include large and medium-sized multinational and domestic enterprises, as well as small start-up companies.

The employment laws and regulations in China continued to evolve with technical advancements and social developments over the last 12 months. The top five changes or updates in relation to employment practice are detailed below.

New Regulation on Construction Workers

On 28 August 2022, the Ministry of Housing and Urban-Rural Development and the Ministry of Human Resources and Social Security issued a circular titled "Measures for the Administration of the Real-Name System for Construction Workers (for Trial Implementation)" (“Circular”), which changes the discriminatory term "migrant workers" to "construction workers". Under the Circular, construction enterprises will not be forced to sign employment contracts with the construction workers employed, but rather will sign written working agreements if the conditions for establishing a labour relationship are not satisfied.

New Revisions to PRC Population and Family Planning Law

The Standing Committee of the 13th National People's Congress voted to pass the decision on amending the PRC Population and Family Planning Law in August 2021. These new amendments allow one couple to bear three children, introduce supporting measures in respects of taxation, employment, insurance, etc, for active childbearing, and intend to promote long-term balanced development of China's population.

To support the three-child policy, a dozen provinces and cities across the nation have updated their local regulations on population and family planning and put forward different measures in support of childbearing. In Beijing and Shanghai, for example, if one couple gives birth in accordance with the law, the birth leave to which the female party is entitled (in addition to the 98 days’ maternity leave) is increased from 30 days to 60 days, and both parties can enjoy five days of parental leave per year before their child reaches three years old.

New Regulation on Checking Criminal Records

The Ministry of Public Security's Working Rules for Public Security Departments to Handle Criminal Record Checks (“Working Rules”) came into effect on 31 December 2021. According to the Working Rules, employers can check the criminal records of their employees or candidates during the recruitment process, provided that such checking complies with the relevant provisions on employment prohibition as prescribed in the laws and regulations. The Working Rules also stipulate that the relevant organisation and individual shall keep the criminal information obtained strictly confidential, and not use such information for any other purpose.

New Policies on Deferred Payment of Social Insurance Premiums

Shanghai experienced an Omicron outbreak in the second quarter of 2022 and imposed very strict lockdown measures for the period. For the purpose of economic recovery, the Ministry of Human Resources and Social Security, the National Development and Reform Commission, the Ministry of Finance and the State Taxation Administration jointly issued a new circular in May 2022 to further expand the scope of implementation of the interim deferred payment of social insurance premiums (“Circular”).

With the issuance of the Circular, the scope of applying deferred payments is expanded to more industries experiencing difficulties than in previous years, especially those manufacturers and supply chains seriously that have been impacted by the pandemic and are suffering difficulties in production and business operation.

The Circular also points out that micro, small and medium-sized companies and individually owned businesses that have participated in social insurance as employers may also apply for deferred payment of social insurance premiums, if they are located in cities that have been seriously impacted by the pandemic and have encountered temporary difficulties in production or operation.

Easing of Quarantine Period for Inbound International Travellers

On 28 June 2022, the Comprehensive Group of the State Council Coping with the Covid-19 Pandemic through Joint Prevention and Control Mechanism released the Plan for Prevention and Control of the Covid-19 Pandemic (9th Edition) (the “Prevention and Control Plan”). According to the Prevention and Control Plan, the quarantine policy for inbound international travellers is changed from “14 days of centralised quarantine plus seven days of home-based health monitoring” to “seven days of centralised quarantine plus three days of home-based health monitoring”.

China's employment laws do not distinguish between blue-collar and white-collar workers: whether they are employed as senior managers (such as general managers) or workshop machine operators, employees are uniformly subject to China's employment laws in terms of wage, working hours, holidays and leave, employment contract terms, conditions of termination, etc. In China, there are four types of employees:

  • full-time employees;
  • part-time employees;
  • dispatched employees; and
  • employees with "incomplete employment relation" – ie, an employment relationship under which employers conduct labour administration of the workers, but where such relationship does not fully meet the circumstances to be determined as an employment relationship.

Material differences between the categories can be found with respect to statutory entitlements, working standards, termination conditions, etc.

Full-time employment is the standard form of employment for most regular positions. For temporary, auxiliary and replaceable positions, individuals can be hired by labour service agencies and dispatched to work where they are needed as dispatched employees. Part-time employment is supplementary to other forms of employment and is widely used for positions that require a high degree of flexible labour and can be compensated on an hourly basis, such as housekeepers or cleaners. For employees with incomplete employment relation, where the enterprise does not fully comply with the situation of establishing employment relations but conducts labour management of workers, the enterprise and the workers may sign a written agreement to reasonably determine the rights and obligations of the enterprise and the workers.

Contracts for full-time employees can be divided into three types:

  • contracts with a definite term;
  • contracts with an indefinite term; and
  • contracts termination upon completion of agreed work tasks.

Employers sign written employment contracts with full-time employees within one month of employment commencing. Failure to do so may cause a double salary penalty to be imposed on the employers. Termination of a full-time employment contract is strictly regulated by law.

In contrast, part-time employment contracts can be established orally and termination is generally at will, so whether the contract is for a definite or indefinite term is not the main concern when establishing part-time employment.

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

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

In addition to these mandatory terms, employers and employees in China may opt to incorporate other terms including probationary periods, performance targets, professional training, confidentiality, non-competition, IP protection obligation, contractual benefits for employees, etc.

As different jobs have varying working patterns, 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 working hours after consultation with trade unions and employees, but the extended working hours shall not exceed three hours per day or 36 hours per month.

Flexible Working Hour System

Since certain jobs, such as senior managers, sales promotion or field work, are not suited to fixed working hours, a flexible working hour system enables employees to arrange their working hours based on the actual needs of their duties. Employees under the flexible working hour system are not entitled to overtime compensation or compensation days, except for compensation for overtime work on public holidays applicable in certain cities. In most cases, the implementation of a flexible working hour system is subject to:

  • the employees’ consent;
  • the employer's commitment to preserving employees’ basic right to rest; and
  • pre-approval by the local labour authority.

Comprehensive Working Hour System

This caters for jobs that have an intensive workload only within a certain period, such as fishing and harvesting. Under the comprehensive working hour system, working hours may be calculated by month, by quarter or even by year. If the total working hours within each unit period exceed the norms posed by the standard working hour system, employees will be entitled to overtime compensation.

Like the flexible working hour system, employers are also required to obtain employees’ consent and pre-approval from the local labour authority before applying the comprehensive working hour system. However, as the pilot zone chosen by the central government, Shenzhen is authorised to explore a special working hour administration system and has made the first step by allowing employers who are unable to implement a standard working hour system to adopt a flexible or comprehensive working hour system by notifying and making a commitment to the local labour authority, rather than obtaining prior approval.

Part-time employees have a unique working hour system as they are compensated based on hours worked. Specifically, part-time employee cannot work for the same employer for more than four hours per day, on average, or more than 24 hours per week.

China applies a minimum wage requirement in all cities, and employers must pay their employees no less than the minimum monthly wage published by the local municipal government of each city in China.

In addition to a monthly base salary, other forms of compensation usually adopted by employers in China include the 13th month salary, year-end bonus, sales commission and allowances. The 13th month salary and the year-end bonus are normally paid before the Chinese New Year holiday. In addition to the minimum wage requirement, China’s employment laws also mandate minimum compensation standards for overtime work. Specifically, the lowest compensation standards are 150%, 200% and 300% of an employee’s normal hourly rate for overtime worked on weekdays, rest days and public holidays, respectively.

Under PRC employment laws, employers are not mandated to increase employees’ wage, but any reduction of employees’ wage is strictly regulated. If an employer intends to reduce an employee’s wage, it will not take effect without the employee’s consent unless it occurs under special circumstances prescribed by the Provisional Regulations on Wage Payment. For example, employers may withhold the individual income tax, the employees’ portion of social insurance contribution and any alimony required to be withheld in court judgments and rulings from an employee's wage.

Public Holiday Entitlement and Statutory Annual Leave

There are 11 days of public holiday in China. In addition to public holidays, full-time employees are entitled to statutory annual leave if 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. 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. If the birth is in line with China’s family planning regulation, postpartum employees will also be entitled to birth leave, the length of which is subject to the local regulations of each city (eg, 60 days in Shanghai). Before the child turns one year old, working mothers can take one-hour paid breaks each working day to breastfeed. From the perspective of economic support, China’s maternity insurance fund will provide eligible female employees with a maternity allowance. In August 2021, the PRC Population and Family Planning Law was amended, so that couples are now allowed to have three children.

Sick Leave

Employees may take paid sick leave when they are suffering from illness or non-work-related injury. The sick leave period, during which employees are protected from termination, is known as the statutory medical treatment period (SMTP). In most cities in China (ie, excluding Shanghai), the SMTP is calculated based on employees’ seniority accrued with all former and current employers, and ranges from three to 24 months.

During sick leave periods, employers shall provide sick leave pay to employees based on the standard agreed in the employment contract or indicated in each employer's internal policies. These standards shall not be lower than the default standard prescribed by the local government of different cities in China. For example, in Beijing sick pay shall not be lower than 80% of the local minimum monthly wage.

Confidentiality

In China, a confidentiality obligation applies both during and after employment. However, in practice, it is quite difficult to hold employees liable for breaching the confidentiality obligation by only referring to this general confidentiality obligation. To better protect trade secrets and other confidential information, many Chinese employers choose to explicitly stipulate, in employment contracts or confidentiality agreements, a detailed scope of information that employees shall hold confidential.

Non-disparagement

The non-disparagement obligation does not draw direct legal basis from Chinese statutes but can be inferred from the principle of good faith and loyalty. In practice, many employers in China incorporate the non-disparagement obligation into employment contracts with employees or into their internal policies. The provision on a non-disparagement obligation is usually phrased to prohibit employees from making any statement or disclosing any information that derogates or damages the reputation or interests of the employers, their affiliated companies or other employees.

If a non-disparagement obligation is incorporated into an employee’s employment contract or an employer's internal policies with certain disciplinary measures, any violation of this requirement could be sanctioned by the employer imposing corresponding disciplinary measures. In general, employees will not be bound by the non-disparagement obligation after the employment, unless the employer and the employee reach agreement on a post-employment non-disparagement obligation. However, if former employees defame employers and seriously damage an employer's reputation, they will still be liable in legal action brought by the employer, regardless of whether or not they have a non-defamation agreement with the employer.

Under the PRC Employment Contract Law, employers may agree on post-employment non-competition restrictions in the employment contract or in a separate non-competition agreement with senior managers, senior technicians and other employees who have confidentiality obligations.

The scope, territory and term of non-competition restrictions could be agreed by the employer and the employee upon negotiation. The maximum term of post-employment non-competition restriction is 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 their former employer, nor establish their own business to produce the same type of products or engage in the same type of business, nor compete with their former employer in any other way.

If an employee meets the agreed post-employment non-competition obligation, the employer shall provide monthly compensation during the restricted period. If the compensation standard is not agreed, the national default compensation standard shall apply, which is 30% of the employee’s average monthly salary in the last 12 months prior to the termination of employment and no lower than the local minimum monthly wage.

Breaching Non-competition Obligations

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

Apart from the financial liabilities for an employee's breach, it is difficult to actually fulfil the non-competition obligation under current judicial practice in China for the following two major reasons:

  • the compulsory performance of a non-competition obligation is believed to conflict with personal freedom to some extent; and
  • the maximum two-year restriction period cannot be interrupted by labour arbitration and litigation proceedings, and usually expires before the final court judgment is rendered.

It is difficult to find a legal definition of the non-solicitation obligation in PRC statutes, let alone the statutory remedy for breach of this obligation.

However, regardless of this legislative blankness, the non-solicitation obligation is widely used in China, as its very existence satisfies employers' general business needs. 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.

The enforceability of the non-solicitation clause is still weak under current PRC judicial practice. In theory, employers can claim for recovery of financial losses suffered due to an employee’s breach of a valid non-solicitation obligation. However, due to the difficulty in providing evidence on the existence of solicitation and the financial losses connected thereto, in practice it is very difficult for employers to succeed with a claim for an employee's violation of a non-solicitation obligation.

Under the PRC Employment Contract Law, employers in China have the right to collect employees’ personal information that relates directly to the performance of the employment contract, including name, gender, ID number, contact details, education background, work experience, etc.

Under the PRC Civil Code, the processing of personal information includes collecting, storing, using, editing, transmitting, providing and disclosing said information. Under the context of an employment relationship, employers are the information processor and shall follow the mandatory principles, conditions, rules and restrictions in relation to collecting and processing employees’ personal information.

On the basis of the PRC Civil Code, the PRC Personal Information Protection Law (PIPL) came into effect on 1 November 2021 and sets more detailed regulations regarding the protection of personal information. It is deemed to be the most relevant and important legislation with which employers should comply when handling employees’ personal information during employment management. The following discussion regarding the protection of personal information will focus on the provisions in the PIPL as well as other relevant regulations.

The Mandatory Principles

According to the PIPL, when processing employees’ personal information, the employer shall:

  • comply with the mandatory principles of legitimacy, justification, necessity, honesty and integrity, without processing any personal information through misleading, fraudulent or coercive methods;
  • have a clear and reasonable purpose and adopt the approach with the least impact on an individual’s rights and interests, without excessive collection of personal information;
  • disclose the rules for the processing of personal information and explicitly state the purpose, method and scope of processing said information; and
  • shoulder the responsibilities relating to the processing of personal information and take the necessary measures to preserve the security, accuracy and integrity of the processed personal information.

Employees' Consent

The PRC Employment Contract Law entitles the employer to collect employees’ personal information that is related directly to the performance of the employment contract. The PIPL further prescribes that the information processor may be exempted from obtaining individual consent if such processing is necessary for the conclusion or performance of a contract to which the individual is a party or for exerting human resources management based on labour rules or policies formulated by law or collective agreement signed by law. Although this provision allows employers to process personal information without obtaining employees’ individual consent, from a practical point it is still advisable for employers to obtain employees' consent so as to better avoid future disputes.

The Informing Obligation

Prior to the processing of personal information, the PIPL requires the employer to faithfully, precisely and completely inform the individuals of the following in a significant way, using understandable words:

  • the name and contact details of the personal information processor;
  • the purpose and method of processing the personal information, the category of the personal information to be processed and the period for retaining the personal information; and
  • the method and procedure for the individuals to exercise their rights under the PIPL.

Transfer of Personal Information to a Third Party

In accordance with the PIPL, if the employer transfers any personal information to another personal information processor (eg, for the purpose of payroll services), the employer shall inform the employees of the name and contact details of the receiving party, the processing purpose and method and the category of personal information, and shall obtain the employees’ individual consent.

Where the employer entrusts a third party to process personal information, the employer shall agree with the entrusted party the purpose, term, handling method, category of personal information, protection measures and respective rights and obligations, and the employer shall also supervise the processing of personal information conducted by the entrusted party. When such entrustment is no longer valid, the entrusted party shall return or delete the personal information without retaining any copy thereof.

Cross-border Transmission of Personal Information

Multinational employers in China often need to conduct cross-border transmissions of personal information during communication with their headquarters. According to the PIPL, one of the following conditions must be met when completing a cross-border transmission of personal information:

  • completion of a security assessment organised by the state cyberspace administration (Security Assessment);
  • completion of a personal information protection certification conducted by professional agencies appointed by the state cyberspace administration (PI Protection Certification);
  • conclusion of a contract with the foreign receiving party by using the standard contract formulated by the state cyberspace administration with the rights and obligations of both parties prescribed therein (Standard Contract); and
  • any other conditions prescribed by law or regulation from the state cyberspace administration.

To further clarify these conditions, China released three corresponding regulations in June and July 2022, which provide detailed rules on the Security Assessment, the PI Protection Certification and the Standard Contract. These new regulations will be discussed in the following sections.

Security Assessment

According to the PIPL, the Critical Information Infrastructure Operators (CIIO) and the personal information processor that processes personal information shall domestically store the personal information collected and generated inside China, and can only transmit such information abroad upon the completion of a Security Assessment.

The CIIO refer to important internet facilities and information system in key sectors, such as public communications, information services, energy, transport, water conservancy, finance, public service, e-government, scientific industry of national defence and others that can severely threaten national security, the economy, people's livelihoods and public interests if they are damaged or disabled or suffer data leakage.

The Cyberspace Administration of China (CAC) released the Measures on Security Assessment for Outbound Data Transfer ("Measures") in July 2022, which came into effect on 1 September 2022. According to the Measures, data processors shall complete a Security Assessment for outbound data transfer if they:

  • are to transfer critical data abroad;
  • are CIIO and will provide personal information abroad;
  • process the personal information of more than one million individuals, and will transmit personal information abroad;
  • have transferred abroad the personal information of more than 100,000 individuals or the sensitive personal information of more than 10,000 individuals in total since January 1 of the previous year and will transmit personal information abroad; or
  • meet other conditions as required by the state cyberspace administration for completing a Security Assessment.

PI Protection Certification

The Practice Guide on Cyber Security Standards – Security Certification Specification for Cross-border Processing of Personal Information ("Specification") was promulgated in June 2022. According to the Specification, PI Protection Certification is applicable to the following scenarios:

  • the cross-border transfer of personal information between subsidiary or affiliated companies of multinationals or the same economic or business entity; and
  • overseas processing of the personal information of individuals inside China for the purpose of providing products or services to domestic individuals in China, analysing or assessing actions of domestic individuals, or others as prescribed by the laws and regulations.

The Specification also provides guidance on the steps, principles and basic requirements of the PI Protection Certification.

Standard Contract

The CAC released the draft Provisions on Standard Contracts for Outbound Transfer of Personal Information ("Provisions") together with the standard Personal Information Outbound Transfer Contract for public comment in June 2022. The draft Provisions set forth the applicable scenarios where personal information processors may achieve an outbound transfer of personal information through the execution of the Standard Contract with a foreign recipient, the mandatory requirement of filing the executed Standard Contract with the cyberspace authority at the provincial level, and the incidents that will oblige the personal information processor to have the Standard Contract executed and filed once again. A formal version of the Provisions is expected to be promulgated soon.

Obligations of a Personal Information Processor

Pursuant to the PIPL, employers as personal information processors shall take the following measures to ensure the processing of personal information complies with the laws and regulations and prevent unauthorised access and leaking, distorting and loss of personal information:

  • formulating internal management policies and operation procedures;
  • implementing classified management of personal information;
  • adopting correspondent encryption, de-symbolising or other technical security measures;
  • setting the operation access involving personal information in a reasonable manner and arranging regular security education and training for relevant practitioners;
  • formulating and organising the implementation of a contingency plan for personal information security incidents; and
  • other measures prescribed by law or regulations.

The use of foreign workers is highly regulated in China and subject to pre-approval by the authorities of the State Administration of Foreign Experts Affairs or the Human Resource and Social Security. Under PRC immigration laws and regulations, foreign workers shall apply for and obtain work permits and residence permits in order to have legitimate work and residential status in China. Failure to obtain such permits may subject both the employer and the foreign workers to penalties, including warnings and fines; the foreign workers may also be ordered to exit from China within a prescribed time, be kept under detention or even face 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 corresponding work experience;
  • having no criminal record;
  • having a definite employer in China; and
  • bearing a valid passport or other international travel documents.

For detailed standards to determine whether a foreigner is qualified to work in China, see 5.2 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, 90 days’ stay in China or less) at a subsidiary company, branch company or representative office in China, or to install, repair or provide guidance on the use of certain machineries at plants in China, they may apply for business visas to enter China and be exempted from the need to apply for a work permit.

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

  • the foreign workers directly enter into an employment relationship with the employers registered in China (“direct employment”); or
  • the foreign workers are assigned to work at the companies registered in China (“international assignment”).

For an international assignment, foreign workers may retain their original offshore employment without establishing an employment relationship with Chinese entities.

Work Permit

Implementing international assignment

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

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

Upon the establishment of the legal framework, the application documents need to be submitted for review to the approving authority that administrates the granting of work permits to foreign applicants. During the review process, the approving authority 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 is the holding of a bachelor or higher degree and having two years of working experience in relation to the position the foreign applicant is about to serve in China.

Points-based system

Among the permissible standards for granting a work permit, a points-based system is designed to enable a comprehensive evaluation of foreign applicants. The points-based system quantifies foreign workers’ conditions from the aspects of total employment years, working periods in China, salary standard, educational background, current age and Chinese language proficiency. Taking educational background as an example, a bachelors, masters or doctoral degree scores ten, 15 or 20 points, respectively, under the points-based system. If the final score of a foreign worker is over 60, the applicant will be deemed qualified to obtain the work permit.

Residence Permit

After a work permit is granted, the foreign worker must apply for a residence permit at the exit-entry administration authority in China. The residence permit will be issued to the foreign worker once the exit-entry administration authority verifies that a valid work permit has been granted. With a 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 still valid.

Under the PRC Trade Union Law, a Chinese trade union is an 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 ACFTU's Articles of Association, 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.

The Role of Trade Unions

According to the PRC Employment Contract Law, trade unions are the bridge and bond that connects employers and employees. Employers shall consult with trade unions on internal policies and other matters relating to the direct interest of the employees; accordingly, opinions, suggestions or requests collected from the employees are relayed to employers through trade unions, as reference for their decision-making.

Trade unions also play a part in harmonising the relationship between employers and employees if a potential dispute arises. As required by the PRC Employment Contract Law and the Trade Union Law, when an employer intends to terminate an employee unilaterally, it shall notify the trade union of the reason for the termination in advance, and the trade union may demand the employer makes rectification if any violation of the applicable laws is discovered.

Safeguarding Employees and Internal Trade Unions

To fulfil 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. 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 employee representative assembly, or all employees, for discussion. After the proposal or opinions are collected during the discussion process, the trade unions or employee representatives shall be additionally consulted on an equal footing.

Under the PRC Trade Union Law, companies and other employing entities shall establish internal trade unions if the number of trade union members exceeds 25. Under current practice in China, the obligation to establish a trade union is not strictly enforced; employers with a large number of employees are frequently lobbied to form trade unions by officials from the ACFTU local district branch.

Under the PRC Constitution, state-owned enterprises shall practise democratic management through an Employee Representative Assembly (including an Employee’s Assembly – collectively the ERA) and other forms according to the law. The Regulation on Democratic Management of Enterprises, issued by the ACFTU, clarifies that companies in private sectors shall also implement democratic management. The ERAs are the basic forms in China through which employers practise democratic administration and exercise their democratic rights.

The general duties of an ERA include advising on employers’ business development and operations, and supervising employers' compliance with employment-related laws and regulations and internal rules and policies. Employers shall consult with the ERA on rules and policies that have a direct impact on employees' immediate rights and interests, as well as any plans for a reduction in force. In addition, the ERA supervises employers’ performance of the collective agreements, contributions to employees’ social insurance and the fulfilment of requirements relating to occupational health and safety, etc.

The Regulation on Democratic Management of Enterprises specifies that the number of employee representatives should not be less than 30, and the ERA should be held at least once a year. The local legislative bodies of provinces and cities (such as Shanghai) have issued their own regulations on how the ERA should be convened and held, with more detailed rules. At present, ERAs mainly exist in state-owned enterprises and private companies with large numbers of employees.

Under the PRC labour laws and regulations, collective agreements refer to written agreements concluded through a collective consultation between employers and their employees on matters of remuneration, working hours, rest days and leave, 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 representatives (no less than three), 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 should be filed for review by the labour administration department after execution. If there is no objection from the labour administration department within 15 days, the collective agreements will take effect. The labour remuneration and other employment conditions agreed in individual employment contracts with employees shall not be less favourable than those in the collective agreements.

Labour disputes arising from the performance of the collective agreements can be resolved through labour arbitration and litigation proceedings.

China’s employment laws are quite pro-employee, and dismissal is highly regulated; employers can only dismiss employees if a statutory condition arises. When a labour arbitration commission or court decides that a termination made by an employer is wrongful, the employer will be liable either to pay double the statutory severance or to reinstate employment, depending on the employee’s choice and the arbitral commission or the court’s ruling (see 8.1 Wrongful Dismissal Claims).

Termination for Cause by Employer

Employers are entitled to terminate employment with immediate effect if an employee:

  • fails to meet the employment conditions during the probationary period;
  • seriously violates the employer's internal rules and policies;
  • causes material damage to the employer due to dereliction or malpractice for personal interests;
  • establishes a second employment with another employer that has a serious impact on the completion of their original work tasks, or refuses to rectify when requested by their employers;
  • uses fraudulent or coercive tactics or take advantage of the employer’s unfavourable position to force the employer to conclude or amend an employment contract against its true intention, which renders the employment contract void; or
  • is held as criminally liable.

Termination With 30 Days’ Notice by Employer

Under the PRC Employment Contract Law, termination with a prior 30-day notice is only allowed under the following three statutory scenarios:

  • expiration of the SMTP;
  • an employee's incompetency; and
  • a change of objective circumstance.

Employers can also terminate an employee's employment based on the above scenarios by paying the employee a one-month salary in lieu of notice. Certain procedures must also be fulfilled by employers prior to the termination.

Termination due to expiry of the SMTP

When employees contract an illness or suffer from a non-work-related injury, they are entitled to the SMTP, during which employers are forbidden to terminate their employment without cause. The length of the SMTP is determined by an employee's number of years of service. If the employee is unable to resume work in their original position or in an alternative position arranged by the employer upon the expiration of the SMTP, the employer may terminate the employee by providing either notice or payment in lieu of notice.

Termination due to employee’s incompetency

If an employee is evaluated as being incompetent by their employer, the employer is required to either change their job position or provide training. If the employee remains incompetent after a change of position or receiving training, the employer may proceed with the termination by providing either notice or payment in lieu of notice.

Termination due to change of objective circumstance

If a material change of objective circumstance renders the original employment contract no longer performable, an employer is obliged to negotiate an amendment of the employment contract with the employee. If no agreement is reached after the negotiation, the employer may terminate the employee by providing either notice or payment in lieu of notice.

Asset transfers or workplace relocation to a remote place or another city may amount to a material change of objective circumstances. For other situations, the judicial bodies will determine the application of the material change of objective circumstance on a case-by-case basis.

Termination by Employees

Under the PRC Employment Contract Law, an employee may terminate its employment contract with immediate effect where the employer displays any of the following circumstances:

  • failing to provide labour protection or the work conditions agreed in the employment contracts;
  • failing to pay full remuneration without delay;
  • failing to pay social security premiums for employees;
  • formulating rules and policies formulated that are in violation of law or regulation and impair the rights and interests of employees; and
  • using fraudulent or coercive tactics or taking advantage of the employee’s unfavourable position to conclude or amend the employment contract against the employee’s true intention, rendering the contract void.

Employees may even terminate the employment contract without providing notice to their employer under two exceptional conditions:

  • where employees are forced to work by means of violence, threat or illegal restriction of personal freedom; or
  • where employers violate safety regulations and order employees to perform dangerous operations that are life-threatening.

Mass Redundancy

In addition to the terminations mentioned above, employers may also pursue employment termination by evoking mass redundancy and undergoing the correspondent procedures. There are two thresholds for employers to evoke mass redundancy:

  • the number of affected employees is more than 20 or accounts for more than 10% of the total staff; and
  • the employers have encountered an applicable situation to implement a mass reduction of the workforce.

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

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

As mass redundancy usually involves the termination of employment for many employees, the local labour authority will review whether the two thresholds have been fulfilled and whether the mass redundancy has been implemented according to the required procedures. In a mass redundancy, the employers shall follow these steps:

  • explain the reason for mass redundancy to the trade union or all staff, and announce the redundancy plan;
  • present the redundancy plan to the trade union or employees for comment;
  • file the redundancy plan with other required documents to the local labour authority (must be at least 30 days after the first step);
  • collect a receipt from the local labour authority that evidences the successful filing of the mass redundancy; and
  • terminate the employees' employment on the ground of mass redundancy.

Labour authorities in China are usually unwilling to grant a receipt to endorse a mass redundancy because they intend to stabilise employment and avoid labour disputes, especially during the pandemic period. Therefore, it is currently not an easy task for employers in China to fulfil all of the required steps and achieve an employment termination in this manner.

Notice Period

Under the PRC Employment Contract Law, employers in China are only allowed to terminate employees' employment by giving 30 days' notice under the three statutory situations mentioned in 7.1 Grounds for Termination. Any agreement between employers and employees on other situations that can apply termination by notice is deemed invalid and not enforceable. However, there is an exception for foreign employees based in Shanghai according to local regulation formulated by Shanghai government, which recognises the agreed termination by notice as being valid and enforceable.

Employees are entitled to terminate an employment relationship by serving 30 days' notice to the employers without any reason, or three days during the probationary period.

Severance

For terminations by notice, through mutual negotiation or under mass redundancy, employers are required to pay severance to employees. Severance is calculated based on the employees’ years of service with the employers, at the rate of one month's wage for each year of service. A period of more than six months but less than one year shall be counted as one year and compensated with one full month of wage, while a period of less than six months shall only be compensated with half a month's wage.

If an employee's average monthly wage in the 12 months prior to the termination is greater than three times the average monthly wage of the locality, as published by the local government (the “City Cap”), the City Cap shall be used as the monthly wage for severance calculation, and the compensable service is capped at 12 years.

These rules are prescribed in the PRC Employment Contract Law, which came into effect on 1 January 2008. Different cities in China have followed different rules to calculate severance for service years accrued before 2008: some directly apply the PRC Employment Contract Law, while others choose to apply local regulations or regulations that were effective before 2008.

Under the PRC Employment Contract Law, an employer may terminate an employee's employment with immediate effect if the employee materially violates the employer’s internal rules or policies (“summary dismissal” or “dismissal for cause”). To implement a summary dismissal, employers shall serve written termination notices to employees explicitly specifying any misconduct, and quoting internal rules or legal provisions. In addition, employers are legally obliged to notify the trade union of any summary dismissal.

Employees who are dismissed for cause in China can file complaints to the labour arbitration commission and court, claiming that they were wrongfully terminated. If the employees succeed in their claim, they will be entitled to either double severance pay or reinstatement of employment, based on the employees’ choice and the ruling of the arbitral commission or court (see 8.1 Wrongful Dismissal Claims).

In labour dispute resolution proceedings, employers bear most of the burden of proof and will take the adverse consequences if their proof is deemed to be insufficient by the labour arbitration commission or court. To mitigate the potential risks, employers in China are advised to use summary dismissal with prudence and to collect solid and admissible evidence on employees’ misconduct before implementing a summary dismissal.

Under the PRC Employment Contract Law, employers may enter into mutual termination agreements with employees, and there are no specific procedures or formal requirements for signing them. Employers may propose and achieve mutual termination agreements with employees at any time during or even after employment, except in very limited circumstances. The releases incorporated in the mutual termination agreements are generally enforceable unless one party can sufficiently prove the existence of fraud or coercion, that an unfavourable position was taken advantage of, or that there was a serious misunderstanding or obvious unfairness.

In practice, termination through mutual agreements is the most ideal way to end an employment relationship because it has no legal requirement of prior notice and, from a cost-efficient perspective, potential dispute resolution proceedings can be avoided for both parties. In most cases, employers provide ex-gratia payments on top of statutory severance to the employees in exchange for mutual termination.

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

  • those who have lost total or partial labour capacity due to occupational disease or work-related injury;
  • those who are in a statutory medical treatment period due to illness or non-work-related injury;
  • female employees who are either pregnant, on maternity leave or in the breastfeeding period;
  • those who have accrued 15 years of continuous service with the current employer and are within five years of 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 under diagnosis or medical observation.

In addition, the employment contracts of a full-time chairman, a vice chairman and commission members at the basic level of a trade union shall be extended in line with the length of their office terms. For a part-time chairman, vice chairman or commission member whose contract term is shorter than their office term, the term of their employment contract shall also be automatically extended to the end of the office term. The exceptions are circumstances where the trade union leaders have committed serious misconduct or have reached statutory retirement age during their term.

Termination in violation of the PRC employment laws is referred to as wrongful dismissal. In judicial practice, the grounds for a wrongful dismissal claim could be classified into the following three categories:

  • the dismissal does not have factual basis;
  • the dismissal is applied with wrongful legal provision; or
  • the dismissal does not satisfy procedural requirements.

If employees in China believe they have been wrongfully dismissed, they may resort to either of the following two remedies under the PRC Employment Contract Law:

  • the employer's payment of double statutory severance; or
  • the reinstatement of employment and the back payment of salary and social insurance contributions for the entire dispute resolution period.

Under the PRC Employment Law and the Employment Promotion Law, employees shall not be discriminatorily treated due to their nationality, race, gender or religious belief during the recruitment process and the performance of their employment. Furthermore, employers are forbidden to exert discriminatory standards against female candidates due to their marital status or pregnancy during the recruitment process. Any employer that releases recruitment information with standards that are found to be discriminatory against females will be subjected to a warning or fine from the labour authority.

In China, the total number of claims related to discrimination is small, as the aggrieved employees usually bear the burden of providing preliminary proof on the existence of discrimination. The remedies available for such employees include the rectification of discrimination, compensation for mental suffering and a formal apology from the employers. Where employers are found to have committed wrongful dismissal due to discrimination, employees are entitled to the statutory remedies mentioned in 8.1 Wrongful Dismissal Claims.

According to the PRC Mediation and Arbitration Law on Labour Disputes, employment disputes go through two stages of judicial procedures known as labour arbitration and labour litigation, except in special circumstances. Employment disputes in labour arbitration proceedings and labour litigation proceedings are heard by the labour arbitration commissions and the people’s courts, respectively. In practice, if either party to the dispute is dissatisfied with the award given by the labour arbitration commission, such party can proceed to initiate labour litigation within 15 days of receiving the arbitral award; otherwise, the arbitral award will become effective and enforceable.

Labour disputes should first be submitted to the labour arbitration commission, which is the pre-condition for initiating labour litigation. If the labour arbitration commission fails to render its award before the time limit of 45 or 60 days from acceptance of the case, either party may directly initiate labour litigation.

Labour Litigation

Labour litigation may include two legal proceedings in most cases – ie, the first instance and the second instance. If either party to the dispute is dissatisfied with the judgment of the first instance, they may further appeal to a higher court for the second instance, and the court of second instance will issue the final judgment on the dispute.

However, the PRC Mediation and Arbitration Law on Labour Disputes limits employers – but not employees – initiating labour litigation following the labour arbitration award for two kinds of cases:

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

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 performance of their obligations to employees. Nonetheless, employers are permitted to submit an application to the intermediate court for the revocation of an arbitral award if a mistake is found concerning procedures or the application of law, etc.

In the process of settling labour disputes, labour arbitrators and judges will adhere to the principle of mediation before, during and after the court process, and try their best to strive for a settlement between the two parties to the dispute. Employers and employees may also choose to solve employment disputes via mediation before heading into labour arbitration. The mediation institutions in China include:

  • employers' own labour dispute mediation commissions;
  • labour dispute mediation commissions set by law; and
  • other organisations that serve the function of mediation on labour disputes established at the county level.

The settlement agreements reached between employers and employees during the mediation process, witnessed by mediation institutions, are legally effective. However, if one party fails to perform its obligations under the settlement agreement, the other party is unable to apply for the court’s direct enforcement of such agreement. Any dispute over performance of the settlement agreement needs to be resolved through labour arbitration and a judicial process.

As provided by the Regulation on Labour Security Supervision, employees who believe that their employer has infringed their lawful rights or interests under labour security laws and regulations may file a complaint to the authority of labour security supervision. The authority of labour security supervision is responsible for receiving reports and complaints on employers’ violations of labour security laws and regulations, and for lawfully investigating, correcting and punishing the violators.

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

Zhong Lun Law Firm

6/10/11/16/17F
Two IFC
8 Century Avenue
Pudong New Area
Shanghai 200120
People's Republic of China

+86 21 6061 3666

+86 21 6061 3555

carolzhu@zhonglun.com www.zhonglun.com
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Trends and Developments


Authors



King & Wood Mallesons is a leading law firm with exceptional legal expertise and depth of knowledge. It provides comprehensive one-stop-shop legal solutions to clients in China as well as internationally. The labour and employment department has six partners and more than 20 attorneys and assistants based in Beijing, Shanghai, Shenzhen, Guangzhou and Suzhou which enables it to quickly and effectively resolve labour law issues across mainland China. It has provided legal services to more than 300 Fortune 500 companies, multinational companies, large state-owned enterprises and well-known domestic enterprises. Its extensive experience in handling both adversarial and non-adversarial matters as well as direct participation in legislation facilitates a deep and accurate understanding of the complicated and rapid changes in PRC labour and employment law and policies, as well as the latest practices in HR, management and employment issues.

Introduction

In the context of the ongoing and gradually normalised COVID-19 pandemic, China’s labour market has been continuously changing and developing for the past year, including the changes in response to the pandemic as well as other dynamics. The following developments are particularly noteworthy:

  • dynamics of new forms of employment for platform economy workers;
  • trends in social insurance enrolment and contribution by third-party agencies; and
  • the newly enacted Personal Information Protection Law of the PRC and its implications on employees' personal information management.

Dynamics of New Forms of Employment

With the development of the platform economy and the need for more flexible employment forms amidst the COVID-19 pandemic, new forms of employment have developed further and infiltrated more and more industries in the past year. While creating new job opportunities and promoting the economy, the new forms of employment also bring about new problems and challenges. Amongst these problems, the identification of the relationship between platform enterprises and the individuals engaged and the protection of such individuals’ rights and interests are of most concern.

Regulations and policies

The national and local governments have been issuing regulations and policies concerning new forms of employment in recent years. On 16 July 2021, the Ministry of Human Resources and Social Security, together with seven other departments, issued the Guiding Opinions on Protecting the Employment Rights and Interests of Workers under New Forms of Employment (“Opinions”). The Opinions have, for the first time, introduced a new concept called the “less-than-complete employment relationship” as opposed to an ordinary employment relationship or a civil law relationship. It has also set out comprehensive provisions to ensure platform workers’ rights and interests, including reasonable pay, accident insurance participation and vocational training, etc. Generally speaking, however, the legislation in relation to new forms of employment in China is still being explored at a relatively early stage and is awaiting specific implementing rules from the government.

Judicial practices

Employment-related disputes arising from new forms of employment are increasing year by year and the focus of such disputes usually lies in whether there is an employment relationship between the platform enterprise and the worker.

Based on the judicial cases in recent years, though the prevailing opinion is that the employment relationship does not exist between the platform enterprise and the worker, there has been a significant increase in the number of cases where the court ruled that a de-facto employment relationship was formed between the two parties. When making decisions on whether there is an employment relationship, the factors that the courts may consider usually include:

  • which employment method the platform enterprise has adopted (eg, direct hire, labour dispatch or outsourcing);
  • whether the workers are under the supervision of the platform enterprises; and
  • whether the parties have reached a clear agreement not to form an employment relationship between them.

In a nutshell, when platform enterprises adopt the outsourcing method, the possibility that workers are found to have formed de-facto employment relationships with the platform enterprises will be greatly reduced. In addition, if the platform enterprise and the worker reach a written agreement confirming the non-existence of any employment relationship between them, courts would be inclined to recognise the validity of such agreements.

Suggestions

Laws and regulations on protecting the rights and interests of workers in new forms of employment are being gradually improved, and the respective rights and obligations of the platform enterprises and workers will also be made clearer. The platform enterprises need to pay attention to the upcoming laws and regulations as well as the latest trends in judicial practice in this area to strictly abide by such mandatory requirements and bear the responsibilities in accordance with the law while enjoying the benefits brought by the rapid development of the digital economy.

Trends in Social Insurance Enrolment and Contribution

Background and new changes of companies' enroling and contributing social insurance for employees through third-party agencies

Although the Social Security Law of the PRC requires an employer to enrol and pay social insurance contributions for its employees in the locality where it is registered and located, enrolment through a third-party agency such as a human resources service provider at a place other than the employer’s location is commonly adopted by many companies in China, especially in larger cities like Beijing and Shanghai. However, since the Measures for Administrative Supervision of Social Insurance Funds (“Measures”) were implemented on 18 March 2022, this “common practice” needs to be revised to come into compliance.

According to the Measures, social insurance enrolment and contribution through entities other than the employer risks being deemed as fraudulently obtaining social insurance by fabricating personal information and employment relationships. In addition, many local government authorities have started to strengthen the enforcement relating to social insurance enrolment and contribution and have begun to exercise greater scrutiny over the enrolment. For example, on 30 June 2020, the Beijing Social Security Fund Management Centre issued a notice requiring employers to submit basic employment information including the type of employment, position, salary, contract term and the social credit number of the employer when enroling the social insurances for new hires in the official online system. This is to determine whether there is an actual employment relationship between the individual being enroled and the party enroling the individual. In addition, the local Human Resources and Social Security Department of Guangdong Province also implemented a notice on 25 April 2022 to carry out special inspections and audits of companies and third-party agencies on their unlawful enrolment of social insurance.

With the introduction of more stringent regulation by the government at both national and local levels, it is anticipated that the enrolment and contribution of employees’ social insurance by a third-party agency at a place where the employer is not registered is becoming less feasible in practice.

Risks faced by employers by entrusting third-party agencies to contribute social insurance at places other than the employers’ location

Regulatory risks arising from the supervision of social security administration

Social insurance contribution by a third party will bring many risks to the employer and the agency in the current context. One significant risk comes from the supervision of the social security administration. If the employee’s social insurance is contributed in another city by an entity other than the employer, the local social security administration of the employee’s registered city may order the employer to make up the contribution in its registered city within a stipulated period and pay the late payment fines. If the payment is not made within the stipulated period, the relevant administrative authorities may also impose a fine on the employer ranging from one to three times the amount in arrears.

Through this firm's consultation, the social security administrations of many districts in Beijing even hold the opinion that non-compliance also occurs if the employer enrols and contributes social insurance in another district of Beijing. In this situation, the employer has to request the refund of the contribution from the district involved in the wrongful enrolment and then transfer the enrolment to its registered district and pay the social insurance contributions and the late payment fine there.

Risks of constructive termination by employees

According to the Employment Contract Law of the PRC, an employer’s failure to contribute social insurance for an employee pursuant to the law is one of the statutory grounds on which the employee would be entitled to unilaterally terminate the employment relationship and request statutory severance. The Guangzhou Labour Dispute Arbitration Commission and the Guangzhou Intermediate People's Court have even taken a step further by jointly issuing an opinion specifying that where the employer has entrusted a third party to contribute social insurance for the employee, such employee is entitled to terminate their employment contract and receive the statutory severance from the employer.

However, in cities other than Guangzhou, it is uncertain in practice whether the employee can successfully claim such statutory severance. In Beijing for example, some judges tend to view that severance should not be granted if the employer can prove that the employee has acknowledged or consented to such arrangement, while some other judges hold a contrary opinion that the employee’s consent and acknowledgement cannot exempt the employer from paying the severance to the employee.

Risks of paying employees’ social insurance benefits

Another risk of paying social insurance by a third-party agency is that the social security administration may refuse to pay the insurance benefits. One typical situation is in work-related injury cases, where the employer wants to collect benefits in the occurrence of a work-related injury but the social security administration holds the opinion that the third-party agency is not the employee’s actual employer and thus refuses to pay the benefits. In this case, the insurance benefits to which the employee would otherwise be entitled should be recovered by the actual employer according to the Social Security Law of the PRC.

Although in some cases the employer and the entrusted agency may have entered into an agreement stipulating that the third-party agency shall pay the benefits if the employee fails to collect them from the social security administration, the validity of such agreement is highly controversial in practice as such an enrolment and contribution arrangement is not in line with the mandatory regulations. Although the courts have, in a few cases, recognised the validity of such provisions, the common understanding is that the employer cannot shift its obligation to pay the benefits to the third-party agency via written agreements.

Criminal liability

In addition to the above-mentioned administrative and civil liability, third-party contribution arrangements may also expose the third-party agency as well as the employer to potential criminal liability for fraudulently obtaining social insurance by fabricating personal information and employment relationships, according to the Measures. This could be a signal that the authorities will take more severe measures to crack down on third-party contribution arrangements in the near future.

Solutions

With the increased enforcement by the national and local social security administrations in the area of social insurance enrolment and contribution, the employer, the employee and the third-party agency are facing more risks for non-compliance than before. When it comes to administrative supervision, employment relationship disputes, benefits collection and other related issues, the employer usually bears most of the risks, compared to the employee and the third-party agency.

Therefore, an employer using an unrelated third party to enrol employees and pay their social insurance in a city other than the company’s location should rethink this arrangement to ensure that it complies with the regulations. Here are a few options for the employer to consider:

  • commence contributing the social insurance in its own name and in the city in which it is registered;
  • set up a branch or subsidiary in the city in which the employees are located and transfer their employment to the branch or subsidiary, then arrange for the branch or subsidiary to enrol the employee into the local social insurance scheme;
  • use labour dispatched workers from the local labour dispatch company for those temporary, auxiliary or alternative positions, and the local dispatch company will enrol the dispatched workers into the local social insurance scheme;
  • outsource part of the service to a local service company, and that company will enrol the insurance for its own employees.

Personal Information Protection Law of the PRC and its Implications on Employees’ Personal Information Management

Data protection has been given more and more importance in China in recent years and there have been several legislative developments in this area since 2017, including the promulgation of the Cyber Security Law of the PRC (which came into effect on 1 June 2017), the Data Security Law of the PRC (which came into effect on 1 September 2021) and, most importantly, the Personal Information Protection Law of the PRC (PIPL) (which came into effect on 1 November 2021).

The newly enacted PIPL sets out comprehensive rules concerning personal information protection, including the principle of processing personal information (PI), specific PI processing requirements for different circumstances, possible legal liabilities, etc. As employers deal with the PI of employees during daily operations, the PIPL also has great implications on employment-related scenarios, and the key implications are summarised as follows:

Legal grounds for processing the PI of employees: obtaining employees' consent is recommended

According to the PIPL, statutory grounds are needed for PI processing. The below two grounds are most relevant in employment-related scenarios:

  • the individual’s consent has been obtained; or
  • the processing is necessary for the conclusion or performance of a contract to which the individual concerned is a party, or for the implementation of human resource management based on the employment rules and regulations formulated in accordance with the law or the collective contracts concluded in accordance with the law.

Legally speaking, as “necessary for implementing human resource management” alone is a legal ground for processing PI, employees’ consent is not required once this condition is met. However, given that the absence of a specific standard in practice for determining what can be construed as “necessary” for implementing HR management under the PIPL, employers are still advised to try to obtain consent from the employees even when they think the processing of information is necessary for HR management.

Specific requirements for consent

According to the PIPL, consent must be voluntarily and explicitly given by the individual on a fully informed basis. To this end, the employer should truthfully, accurately and completely inform the employee of the following matters (“Requisite Matters”) in a conspicuous manner and in clear language that is easy to understand:

  • 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 the individual to exercise the rights provided by the PIPL; and
  • other matters that should be notified to the individual as provided by laws and administrative regulations.

Separate consent

According to the PIPL, separate consent is needed on various occasions. The specific requirements of separate consent are not specified in the PIPL; they are based on the general understanding and current practice. This means the consent should be specifically related to the relevant PI processing purpose instead of being related to a package of processing purposes covering multiple processing activities.

The circumstances where separate consent is required are as follows:

  • providing PI to third parties;
  • disclosing PI to the public;
  • processing sensitive PI;
  • installing devices for the collection of personal images and identification information in public places for purposes other than public security; and
  • cross-border transferring of PI.

Specific PI processing rules for certain circumstances

In addition to the requirement of separate consent, the PIPL also sets out stricter requirements when it comes to certain PI processing circumstances. The circumstances most commonly seen in employment-related scenarios are as follows.

Providing PI to third parties

The scenarios most related to employment include employers engaging third parties in background checks, pre-employment medical checks, payroll services and labour dispatch, etc.

The PIPL differentiates third parties into “entrusted agent” and “PI processor” based on whether the third-party PI processor independently determines the processing purpose and processing method.

When entrusting a third-party agent to process PI on behalf of the employer, an agreement should be entered into between the employer and the entrusted agent to specify the purposes, duration and means of processing, the categories of PI and protection measures, as well as the rights and obligations of both parties, etc.

When sharing an employee’s PI with a third-party PI processor, the employer shall inform the employee of the recipient's name, contact information, purposes and methods of processing, and the categories of PI being shared. The employer must also obtain the employee’s separate consent.

Moreover, the employer is required to conduct a personal information protection impact assessment (PIPIA) beforehand and keep a record of the handling.

Processing sensitive PI

Employers may need to process employees' sensitive PI during employment, for example when employers use fingerprints or facial identity information for daily check-in or collect employees’ health-related information for insurance purposes.

According to the PIPL, when processing sensitive PI, the employer should also explicitly inform its employees of the above-mentioned Requisite Matters, as well as the necessity of the processing and the impacts on their rights and interests, and obtain the employee’s separate consent. Also, the employer should complete a PIPIA beforehand.

Cross-border transferring of PI

For multinational companies, employees’ PI is likely to be shared with the global management team outside the territory of China. The PIPL thus sets out detailed requirements for such cross-border transfer of PI, including the following.

  • It must satisfy any of the following conditions:
    1. passing the security evaluation organised by the Cyberspace Administration of China (CAC);
    2. having been certified by a specialised agency for protection of PI in accordance with the provisions of the CAC; or
    3. entering into a contract with the overseas recipient with the standard contractual clauses formulated by the CAC.
  • Necessary measures must be taken to ensure that the activities involving the processing of PI by the overseas recipient meet the standards for protection of PI as prescribed under the PIPL.
  • The employee must be informed of the name of the overseas recipient, the recipient's contact information, the purpose and method of processing, the type of PI and the method and procedure by which the individual can exercise the rights stipulated in the PIPL against the overseas recipient, and the employee's separate consent must be obtained.
  • A PIPIA must be conducted.

In addition to the above, the overseas recipient who processes the employees’ PI outside China should establish a special agency or designate a representative within China to be responsible for handling matters relating to PI protection, and submit the name and contact information of such agency or representative to the governmental authorities.

Legal liability

PI processors who violate the PIPL may be subject to civil liability, administrative liability and/or criminal liability.

  • Civil liability ‒ Individuals can file PI infringement lawsuits against PI processors in accordance with the Civil Code of the PRC. Where the individual’s claims are supported by the courts, the PI processor should bear the liability of breach, such as cessation of infringement, elimination of adverse effects, rehabilitation of reputation and compensation for damages.
  • Administrative liability ‒ Competent PI protection authorities can issue orders for rectification and warnings, and can confiscate unlawful income from a PI processor for its violation of the PIPL. In the case of failure to rectify, fines can also be imposed on the PI processor as well as on the person who is directly responsible for the violation of the PIPL.
  • Criminal liability ‒ According to Criminal Law of the PRC, fines and/or up to seven years of imprisonment can be imposed for illegally acquiring PI, or for selling or providing PI to third parties.

Summary

The concepts and requirements under the PIPL are high-level and general and it can be expected that some further details will be provided in regulations and practical guidance in the near future. That said, it is still important for employers to prepare to amend their existing personal data-related policies and practices to ensure that their processing of employees’ PI is compliant with the PIPL requirements. In the meanwhile, employers are also advised to pay close attention to the upcoming implementation rules and guidance for possible further adjustments.

Conclusion

The above trends and developments concerning the dynamics of new forms of employment, trends in social insurance enrolment and contribution, and the PIPL are a few of the noteworthy developments in the area of employment law in the PRC over the past year. Both employers and employees are advised to pay attention to the summarised points above and also to keep track of relevant developments.

King & Wood Mallesons

18th Floor, East Tower, World Financial Center,
1 Dongsanhuan Zhonglu,
Chaoyang District, Beijing,
100020 P. R. China

+86 010 5878 5161

+86 010 5878 5599

linda.liang@cn.kwm.com www.kwm.com
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Law and Practice

Authors



Zhong Lun Law Firm was founded in 1993 and is one of the largest full-service law firms in China, with over 390 partners and more than 2,400 professionals working in 12 domestic offices across China and six overseas offices in Tokyo, London, New York, Los Angeles, San Francisco and Almaty. Zhong Lun has built a diversified and far-reaching global platform to provide comprehensive, one-stop legal services to clients more effectively. The labour and employment team handles both contentious and non-contentious matters for clients. It deals with domestic labour and employment issues as well as cross-border employment issues. Zhong Lun’s clients include large and medium-sized multinational and domestic enterprises, as well as small start-up companies.

Trends and Development

Authors



King & Wood Mallesons is a leading law firm with exceptional legal expertise and depth of knowledge. It provides comprehensive one-stop-shop legal solutions to clients in China as well as internationally. The labour and employment department has six partners and more than 20 attorneys and assistants based in Beijing, Shanghai, Shenzhen, Guangzhou and Suzhou which enables it to quickly and effectively resolve labour law issues across mainland China. It has provided legal services to more than 300 Fortune 500 companies, multinational companies, large state-owned enterprises and well-known domestic enterprises. Its extensive experience in handling both adversarial and non-adversarial matters as well as direct participation in legislation facilitates a deep and accurate understanding of the complicated and rapid changes in PRC labour and employment law and policies, as well as the latest practices in HR, management and employment issues.

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