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.
According to the PRC Employment Contract Law (“Employment Contract Law”), there are three types of employment contract terms:
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:
For full-time employees, there are three types of working hour systems, under which different rules for working hours apply.
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 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.
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).
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).
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.
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.
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.
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
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:
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 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:
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.
PI processors who violate the PIPL in their PI processing will be subject to the following legal liabilities.
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:
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:
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:
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:
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.
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:
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.
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:
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.
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:
Unilateral termination by the employee
If any of the following circumstances occurs, an employee may terminate the employment contract immediately:
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.
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:
Before the layoffs, the employer has to follow the procedural requirements as stipulated in the Employment Contract Law as follows:
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.
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.
Procedural Requirements for Termination
The requirements to be observed include:
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 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):
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:
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:
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.
In the context of the post-COVID era, economic activities are gradually regaining vitality in China, and there has been a new focus on certain areas of PRC laws and regulations. For instance, personal information protection has been treated with more and more importance, interest in and awareness of human rights issues and protection from discrimination have also increased in recent years, and there has been a number of legislative developments in these areas. In addition, as the mobility and activity pick up in the labour market, non-compete issues continue to draw the attention of employers, and judicial practice has evolved to respond to these changes.
In light of the new trends and developments in law and practice, this article aims to share the authors’ insights regarding the following employment law-related areas: outbound transfer of employees’ personal information, requirements for employers under the newly amended PRC Law on the Protection of Women's Rights and Interests, and trends in judicial practice for non-compete labour disputes.
Outbound Transfer of Employees’ Personal Information
China’s legislative and regulatory regime for data compliance and personal information protection has been continuously evolving and systematising in recent years. As the first law targeted at regulating the area of personal information (PI) in the PRC, the PRC Personal Information Protection Law (PIPL) came into effect on 1 November 2021, and has come into play in various scenarios involving PI processing, including employment-related scenarios where employers, as PI processors, deal with employees’ PI in the entire lifecycle of employee management.
The PIPL has set out comprehensive and systematic rules on the processing and protection of PI. In particular, in the employment context, compliance with the outbound transfer of employees’ PI has drawn the attention of employers, especially multinationals sharing employees’ PI within the global management system. Further to the rules provided by the PIPL regarding outbound transfer of PI, in 2023, the Cyberspace Administration of China (CAC), as one of the main national supervisory authorities of data protection in China, released specific rules and guidelines on PI outbound transfer. This section will first briefly recap the legal requirements for the outbound transfer of PI under the PIPL and then outline the authors’ observations of one particular PI outbound transfer mechanism commonly adopted by PI processors (referred to as the Standard Contract mechanism), together with the practice.
Legal requirements for the outbound transfer of PI under the PIPL
The PIPL provides three mechanisms for PI processors that are subject to the PIPL to legally transfer PI outside mainland China (“Outbound Transfer Mechanisms”):
PI processors may choose one of the three Outbound Transfer Mechanisms listed above, except where the Security Assessment is mandatory under the following circumstances in accordance with PRC laws:
Except for the above circumstances where the Security Assessment must be performed, the Standard Contract mechanism is a more common choice in practice, considering the relatively clear procedures and requirements. The key points and practical takeaways of the Standard Contract mechanism are set out in the next section.
In addition to adopting one of the Outbound Transfers Mechanisms pursuant to the requirements, to legally carry out PI outbound transfer, the PIPL also requires that PI processors shall:
Standard Contract mechanism and practice
On 24 February 2023, the Measures on the Standard Contract for Outbound Transfer of Personal Information (“Standard Contract Measures”) were issued by the CAC together with a template of the Standard Contract for Outbound Transfer of Personal Information (SCC) as its annex, which came into effect on 1 June 2023. In addition, as a supporting guidance on the process of outbound transfer through the Standard Contract mechanism, Guidelines for the Filing of the Standard Contract for Outbound Transfer of Personal Information (“SCC Filing Guidelines”) were issued by the CAC on 30 May 2023, providing more guidance on adopting the Standard Contract mechanism and filing the SCC. Further, on 2 June, 2023, the Beijing Cyberspace Administration released local filing guidance (“Beijing Guidance”) to provide more clarity and direction on completing the SCC filing with the Beijing Cyberspace Administration. The Standard Contract Measures, SCC Filing Guidelines and the Beijing Guidance have provided useful clarifications and guidance on the implementation of the Standard Contract mechanism.
Based on the above rules and guidelines, the key points of the Standard Contract mechanism can be summarised as follows.
The following conditions shall be met by the PI processor simultaneously in applying the Standard Contract mechanism for PI outbound transfer:
For the PI outbound transfer that took place prior to the implementation of the Standard Contract Measures, rectification shall be completed within six months upon the effective date of the Standard Contract Measures, ie, by 30 November 2023.
Contents of the SCC
The SCC shall be concluded in strict accordance with the SCC template attached to the Standard Contract Measures, which may be adjusted by the CAC in light of the actual circumstances. The main body of the terms in the SCC template cannot be changed, but the PI processors and the recipients may agree on other terms, provided that such terms do not conflict with the terms in the SCC template.
The SCC Filing Guidelines provide a PIPIA report template in the annex, including the structure and key points of the PIPIA report. To date, the appropriate granularity of the PIPIA report has not been determined, but it can be expected to take substantial time and resources to map out the PI outbound transferring activities and prepare the PIPIA report accordingly. The PIPIA report must be filed with the provincial Cyberspace Administration within three months after being prepared without any material changes.
Within ten working days of the effective date of the SCC, a PI processor shall conduct filing with the provincial Cyberspace Administration. The filing process for SCC includes the following steps.
Beijing Guidance provides that if multiple outbound PI transferors are members of the same corporate group, the group company is permitted to initiate the filing process on behalf of other outbound PI transfers, provided that the Standard Contract mechanism is applicable to all the outbound PI transferors involved. However, the Beijing Guidance only applies to outbound PI transferors located in Beijing. Companies should pay close attention to the rules released by local Cyberspace Administration in different provinces/municipalities as well as the developments of local Cyberspace Administration practice.
In light of the above, companies that meet the conditions to adopt the Standard Contract Mechanism should consider the following key actions:
Requirements for Employers Under the Newly Amended PRC Law on the Protection of Women՚s Rights and Interests
The PRC Law on the Protection of Women՚s Rights and Interests was amended for the third time in October 2022 and came into effect on 1 January 2023 (the "Amended Law"). It sets out more specific requirements for employers, mainly in relation to the prevention of sexual harassment and equal employment, reflecting an overall improvement in the protection of women’s rights and interests.
Prevention of sexual harassment
The Amended Law provides that it is prohibited to commit sexual harassment against women by means of words, texts, images, physical acts and other forms. These changes address the lack of definition for sexual harassment in the previous version of the law and echo the stipulations on anti-sexual harassment in the PRC Civil Code.
Furthermore, the Amended Law explicitly requires that employers take the following measures to prevent and stop sexual harassment against women:
Employers who fail to follow these rules may be subject to civil liabilities and administrative penalties. In addition, the Amended Law explicitly provides that where employers fail to take reasonable measures to prevent sexual harassment resulting in the infringement of women’s rights or adverse social conditions, procuratorates are authorised to initiate public interest litigations against those employers. Moreover, employers who fail to take the necessary measures to prevent sexual harassment may be ordered by the authorities to take corrective actions, and, if corrective actions are not taken or in other severe circumstances, the personnel in charge and other responsible personnel may be personally subject to administrative sanctions.
Workplace sexual harassment disputes and practice
There have been only been a small number of infringement disputes against employers for failure to prevent workplace sexual harassment. In a model case released by Guangzhou Intermediate People’s Court in 2019, an employee accused a colleague of conducting sexual harassment towards her in the workplace and requested both the colleague and the employer to be jointly liable for compensation for damages. The court ruled that the employer was not liable for the alleged sexual harassment because it has created an appropriate environment for employees (including adopting an open-plan office with transparent design), had the necessary reporting and investigation procedures to prevent sexual harassment in place, and also took measures to deal with the employee’s complaint in a timely manner. This case highlighted the importance of having effective policies in place to deal with workplace sexual harassment.
Another type of dispute more frequently seen against the employer is unlawful termination related to sexual harassment. In guiding case No 181 released by the PRC Supreme Court in 2022, where the management personnel fails to take reasonable measures to handle the complaints of employees who are sexually harassed, or even hinders or interferes in the sexual harassment investigation, the court held that the employer can legally dismiss the management personnel for their failure to perform their job and for gross misconduct in accordance with the employer’s internal policies.
Employers are therefore recommended to establish clear and effective internal policies to prevent workplace sexual harassment, including compliance in investigation procedures, parties taking responsible action and relevant disciplinary action.
The Amended Law provides specific requirements for employers to avoid employment discrimination and fully implement the principle of equal employment.
Unless otherwise provided by law, employers shall not perform any of the following acts in the course of recruitment:
Employers violating the equal employment requirements can be ordered by the authorities to take corrective actions; fines can also be imposed if corrective actions are not taken or in other severe circumstances.
In light of the Amended Law, employers should avoid gender discrimination in the course of recruitment, and establish/update internal policies on the prevention of workplace sexual harassment (including stipulating prohibited sexual harassment conduct, investigation procedures, training sessions, and relevant disciplinary actions) that are adequate and effective under PRC laws and create a safe and equal working environment.
Trends in Judicial Practice for Non-compete Labour Disputes
Driven by the increasingly fierce climate of market competition, employers are paying more attention to enforcing employees’ post-termination non-compete covenants, while employees are also becoming more aware of their possible legal defences to protect themselves from claims, leading to a more complicated dynamic in non-compete labour disputes.
There was a high-profile case (the “Case”) in 2023 between a leading Chinese quantitative hedge fund company (the “Employer”) and its former trading strategist (the “Ex-employee”), which sparked heated discussion in the industry. The Ex-employee initiated a labour dispute against the Employer requesting unpaid non-compete compensation for the period he alleged to have fulfilled the non-compete covenants. The Employer counter-claimed against the Ex-employee alleging the Ex-employee’s breach of non-compete covenants, including requesting liquidated damages for breaching non-compete obligations in an amount over RMB4 million. In the final judgment, the court found that the non-compete covenants had been terminated due to the Employer’s failure to pay non-compete compensation for more than three months, and it therefore did not support the Employer’s claim of Ex-employee’s breach of non-compete covenants. Based on the focus of the dispute in the Case, two points are particularly noteworthy for employers, as highlighted in the sections below.
Obligation to report employment status
It is common for employers to stipulate in non-compete covenants that an employee is obligated to report their employment status to the ex-employer during the non-compete period (“Reporting Obligation”). However, in practice, it is disputable whether failure to fulfil the Reporting Obligation equates to a breach of non-compete obligations. Moreover, it can be risky for employers to stop payment of non-compete compensation only based on an ex-employee’s failure to fulfil the Reporting Obligation.
In the Case, the Reporting Obligation was agreed by the Employer and the Ex-employee, but the Ex-employee did not fulfil such obligation during the non-compete period. The Employer stopped payment of non-compete compensation from the second month of the non-compete period, and the Ex-employee later notified the Employer of the termination of non-compete covenants due to its failure to pay non-compete compensation for more than three months.
The opinions of the Labour Arbitration Commission, the first-instance court and the second-instance court in the Case are divided.
The above second-instance court’s opinion is not an exception. It is commonly seen that courts view that an employee’s failure to fulfil the Reporting Obligation alone does not equate to a breach of the non-compete obligation, and thus if the employer stops paying non-compete compensation for three months or more on this basis, the employee can request the termination of the non-compete covenants, and, as a result, the employer would be unable to claim a breach of the non-compete obligation after this termination.
Substantive review of competitive relationships
In recent non-compete labour disputes, the courts tend to review the competitive relationship substantively going beyond the scope of business in the business licence and taking more factors into consideration, including actual business, target customers, the employee’s job with the new employer and industry practice.
In the Case, despite the scope of business of the Ex-employee's new employer (IT development) not overlapping with that of the Employer (investment management), the first instance court found there was a competitive relationship taking into account the following factors.
Similar logic can also been seen in guiding case No 190, released by the PRC Supreme Court in 2022, where the court does not limit its examination to the overlap of the registered scope of business of the ex-employer and the new employer, but also considers the overlap of their actual business activities, customers/potential customers and the corresponding market.
It is beneficial to have the Reporting Obligation stipulated in the non-compete covenants to help track the employees’ performance of non-compete obligations after termination, yet employers should be cautious to stop payment of non-compete compensation only based on an employee’s failure to fulfil Reporting Obligation as it may result in the employee’s termination of the non-compete covenants. It is also worth noting that the judicial authorities will conduct a substantive review of competitive relationships going beyond the scope of business set out in the business licence and taking more factors (including actual business, audiences of product/service, employee’s job with the new employer and industry practice) into consideration; employers therefore need to prepare comprehensively in this regard in case there is a dispute.
The topics summarised in this article are only a small example of the trends and developments in PRC employment law and practice. Employers are advised to pay attention to the points outlined above and also keep a close watch on relevant developments.