employment law overview 2017 - l&e global knowledge centre · 2019-03-29 · prc tort law and...

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EmploymEnt law ovErviEw 2017

China

i. GEnEral 01ii. hirinG practicEs 04iii. EmploymEnt contracts 05iv. workinG conditions 07V. Anti-DiscriminAtion LAws 09vi. social mEdia and data privacy 10vii. authorizations for forEiGn EmployEEs 11 viii. tErmination of EmploymEnt contracts 12iX. rEstrictivE covEnants 16X. riGhts of EmployEEs in casE of a transfEr of undErtakinG 18Xi. tradE unions and EmployErs associations 20Xii. othEr typEs of EmployEE rEprEsEntativE BodiEs 23Xiii. social sEcurity / hEalthcarE / othEr rEquirEd BEnEfits 24

Table of contEnts

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Chinese employers cannot require employees to payliquidateddamagesexceptinlimitedsituations involvingnon-competitionandservice-period duties. Laborstrikesarenotpermittedunderthelaw butemployeesstillengageinstrikesthroughself- organization;thesestrikesaretypicallyunsupported bytradeunions,whichmayevenactivelyresist sucheffortsbyemployees.

3. legal framework

Chinese labor lawisnotcodified inasingularpieceoflegislationandactuallydrawsfromavarietyofsources.The main sources that comprise China’s labor laws are:

• theChineseConstitution;• nationallaws,inparticulartheLaborLawandthe LaborContractLaw;• administrativeregulationspromulgatedbythe StateCouncil;• regulationspromulgatedbytheMinistryofHuman ResourcesandSocialSecurity(the“MOHRSS”)and otherministriesandcommissionsoftheState Council;• localregulationsanddecreesofprovinces, autonomousregions,municipalitiesdirectlyunder thecentralgovernmentandotherlargecities;and• judicialinterpretationsreleasedbytheSupreme People’s Court and the Supreme People’s Procuratorate.

In addition, judicial documents from local courts andprocuratorates, rules and regulations of communitiesand industries, as well as customs and more can also serveasreferencesinlaborcases.

4. New Developments

In2015andearly2016,theStandingCommitteeoftheNationalPeople’sCongress(the“StandingCommittee”),theStateCouncil,variousgovernmentaldepartmentssuchastheMOHRSS,theprovincial,municipal and regional governments as well as the Supreme People’s Court and the Supreme People’s Procuratorate have promulgated many amendments tolaborlaw,rulesfortheimplementationoflaborlawandotherrelevantjudicialinterpretations.ThefollowingarenewdevelopmentsthatdeservespecialattentionforentitiesdoingbusinessinChina.


i. GEnEralChina, as one of the fastest-growing economiesand most populous countries, plays a critical rolein business, industry and politics. However, manyoutsidersencountersignificantdifficultyunderstandingChinese labor law and find themselves in challenginganduncomfortable situations.Thismaybedue to thelaw’sspecificityandscope,which formsa labyrinthofinterconnectedregulationsandrulesgoverningminutiaranging fromseveranceto tradeunions.Routinetasksinotherjurisdictionscanbemuchmoredramaticaffairsin China. This can be daunting, but our hope is thatafter reading this article, you will have the tools andfoundationtosuccessfullynavigateChineselaborlaw.

1. Introductory Paragraph

Labor lawgenerallyreferstotherulesandregulationsgoverning employment relationships and othersocial relationships that are closely connected withemploymentrelationships.Chinese labor law applies to all businesses, individual economic organizations, private non-profit entities,etc. in thePeople’sRepublicofChina (the“PRC”)andthe individuals who have employment relationshipswithsuchentities.Employment relationshipsbetweengovernmentoffices, institutionsand social groupsandtheir employees are also governed by Chinese labor law. Employersandemployees(exceptpart-timeemployees)are required to establish employment relationshipsby entering into written employment contracts.However,evenifthepartiesfailtoexecutevalidwrittenemploymentcontracts,anemploymentrelationshipcanstillbedeemedtoexistifthepartiesactasiftheyarebound by such a contract.

2. Key Points

InChina,laborrelationshipsmaybereinstated evenaftertermination–employersmaybeforced to re-hire terminated employees. Chineselaborlawisbasedoncontract,andoffer lettersororalcommitmentsareoftenlegally insufficienttoestablishlaborrelationships. Chineseseverancepaypracticesareunique,which can result in a senior manager’s severance being lowerthanajunioremployee’s.

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(1) EmpLoymEnt promotion

TheStandingCommitteepromulgatedthenewEmploymentPromotionLawofthePeople’sRepublicofChina(the“EmploymentPromotionLaw”)onApril24,2015.AccordingtotheEmploymentPromotionLaw,employeesshallbeentitledtoequalemploymentandnoindividualseekingemploymentshallsufferdiscriminationonthegroundsofethnicity,race,genderorreligiousbelief.Intheeventofanyemploymentdiscriminationinviolationofthislaw,therelevantworker(s)shallbeentitledtoinitiateproceedingsinthecourt.

InordertoimplementthenewEmploymentPromotionLaw,theMOHRSSamendedtheProvisionsonEmploymentServiceandEmploymentManagement(the“Provisions”)onApril30,2015.TheProvisionsfurtheremphasizeemployees’equalrightofemploymentandtheprincipleofanti-discriminationduring employment. The Provisions also provides thattheemployershallkeepconfidentialemployees’personal data and is not allowed to detain employees’ IDormoneyforanyguaranteepurpose.Furthermore,theProvisionsexpresslyforbiddiscriminationagainstfemaleemployees,disabledpeople,infectiouspathogen carriers, etc.

(2) work-sAfEty

OnMarch24,2015,theStateAdministrationofWorkSafetypromulgatedtheEightRegulationsonOccupationalHazardPreventionandControlbyEmployers(the“EightRegulations”).TheEightRegulationsprovidethatemployersmust(1)establishandimprovetheresponsibilitysystemforoccupationalhazardpreventionandcontrolandstrictlyprohibitillegalproductionwithoutresponsibilitydistribution;(2)ensuretheirworkplacesmeettheoccupationalhygiene standards and strictly prohibit employees fromworkingintheenvironmentwhereoccupationalhazardsexceedthelimitconcerned;(3)settheoccupationaldiseasepreventionfacilitiesandensuretheireffectiveoperation;(4)provideemployeeswithqualifiedprotectivearticles;(5)setwarningsignsattheworkplacesandoperationposts;(6)regularlyconductoccupationalhazardtesting;(7)conductoccupationalhealthtrainingforemployees;and(8)provideoccupationalhealthchecksandsetuphealthsurveillance archives.

Inaddition,theNationalHealthandFamilyPlanningCommissionpromulgatedtheAdministrativeMeasuresforOccupationalHealthChecks(the“Measures”)onMarch26,2015,whichtookeffectonMay1,2015.TheMeasuresfocusonregulatingtheoccupationalhealthcheckinstitutionsanddescribingtheoccupationalhealthinspectionstandards.

(3) mAtErnity LEAVE AnD mArriAgE LEAVE

OnDecember27,2015,theStandingCommitteeissuedthenewPopulationandFamilyPlanningLawofthePeople’sRepublicofChina(the“Law”)whichformallyabandons China’s decades-long one-child policy and allows all couples to have two children. according to the law, late marriage and late birth are no longer encouraged, and maternity leave may be extended by local rules.

Currently, most local governments have published their regulationsonthesaidmatters.Forinstance,followingtheamendmentoftheNationalPopulationandFamilyPlanningLaw,ShanghaihasamendeditsPopulationandFamilyPlanningRegulation(the“Regulation”)accordingly.TheRegulationexpresslypointsoutthatthe Chinese government advocates two children per couple.Inaddition,accordingtotheRegulation,femaleemployeesareentitledtoprolonged30days’maternity leave and male employees shall have 10-day paternity leave.

(4) work-rELAtED injury

OnMarch28,2016,theMOHRSSreleasedtheOpinionsonSeveralIssuesconcerningtheImplementationoftheRegulationsonWork-relatedInjuryInsurance(II)(the“Opinions”).TheOpinionsaddresscertainunclearissuesinpracticewhenimplementingtheRegulationsonWork-RelatedInjuryInsurance.Forinstance,considering many companies operate their business at differentplaces,theOpinionsprovidethatacompanycouldparticipateinthework-relatedinjuryinsuranceattheplaceofitsbusinessoperationifthecompanydoesnotparticipateinitattheplaceofregistration.Inaddition,theOpinionsemphasizethatifalabordispatch company dispatches an employee to a region where the labor dispatch company is not located, it shallcontributetothework-relatedinjuryinsuranceforthe dispatched employee at the place where the labor acceptingcompanyislocated.


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(5) sociAL insurAncEs

CurrentlyinChina,retiredcitizensdonotneedtocontributetomedicalinsurance.However,intheQ&APressBriefingheldbytheMOHRSSinthefourthquarterof2015,thepressspokesmanindicatedthatrelevantauthoritiesarenowresearchingandexploringtosetupmedicalinsurancesystemforretiredcitizens.OnJanuary3,2016,theStateCouncilissuedtheOpinionsoftheStateCouncilonIntegratingtheBasicMedicalInsuranceSystemforUrbanandRuralResidents(the“Opinions”)whichintegratethebasicmedicalinsuranceforurbanresidentsandthenewruralcooperativemedicalcaresystemtoestablishaunifiedbasicmedicalinsurancesystemforurbanandruralresidents.TheOpinionsprovidecoordinationpoliciesfortheissuesofinsurancecoverage,financingpolicy,securitybenefits,medicalinsurancecatalogofpharmaceuticalsandmedicalservices,managementoffixedmedicalinstitutionsandfundmanagement,etc.Inaddition,accordingtothe13thFive-YearPlanofChina, the government is now working to combine maternity insurance and basic medical insurance, whichreflectsthegovernment’stargetofloweringemployers’operationcost.ThismeansentitiesinChinamaynotberequiredtopaymaternityinsurancefortheiremployeesinthefuture.

Furthermore,onApril14,2016,theMOHRSSreleasedtheCircularoftheMinistryofHumanResourcesand Social Security on Periodically lowering Social InsurancePremiumRates(the“Circular”).TheCircularrequiresthatfromMay1,2016,ifemployers’pensioninsurancecontributionrateinanyprovince(city,district)isgreaterthan20%,itshallbereducedto20%,andifthesaidrateis20%andthecumulativebalanceofthepensioninsurancefundcouldaffordatleastninemonths’paymentinanyprovince(city,district),itmaybeperiodicallyreducedto19%intwoyears’term.Inaddition,fromMay1,2016,theunemploymentinsurancecontributionratemaybefurtherreducedperiodicallyto1%-1.5%intwoyears’term.Inthepastseveralmonths,manylocalgovernmentauthoritieshavereleasedinformationofloweringlocalsocialinsurancecontributionrates.Weareexpectingmoreprovinces,citiesordistrictstoreleasedetailedproposaltoimplementthemeasuresoftheCircular.

according to PRC labor Contract law, the employer is entitledtoknowanemployee’sbasicinformation,whichdirectly relates to the employment contract and the employeeisobligatedtoinformtheemployerofthesaidinformationtruthfully.However,thebackgroundchecksor application/interview questions shall not infringeemployees’privacyrightsorequalemploymentrights;otherwisetheemployercouldbe litigatedpursuanttoPRC Tort law and other applicable laws.

In addition, according to theDecisionof the StandingCommittee of the National People’s Congress onStrengthening Network Information Protection (the“Decision”), when collecting or using employees’personalelectronicinformationobtainedviabackgroundchecksorapplication/interviewquestions,theemployershallfollowtheprincipleoflawfulness,propernessandnecessity, and explicitly disclose the purposes, methods andscopesforcollectionanduseoftheinformation.furthermore, the Decision provides that the employer must keep in strict confidence thepersonal electronicinformation of citizens collected in their businessactivities. They shall not divulge, distort or damagesuchinformation,orsellorillegallyprovidethesametoothers.


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ii. hirinG practicEs


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1. MinimumRequirements

Under the Labor Contract Law, awritten employmentcontract is necessary to establish an employment relationship. However, a part-time employee, whoworks no more than 24 cumulative hours per weekand fouraveragehoursperday, is subject todifferentrequirements and may be employed under an oral contract.

The law gives a one-month grace period to employers thatcommencesupontheemployee’sfirstdayofwork.The employer must execute a written employmentcontract within this grace period or else it will owe double wages to the employee for each month ofemployment after this grace periodwithout awrittencontract. If an employer fails to execute a writtenemploymentcontractwithafull-timeemployeeforovera year, the employer and the employee shall be deemed to have executed an open-ended employment contract.The labor Contract law requires an employment contracttoincludethefollowingitems:

• name,domicileandlegalrepresentativeorperson inchargeoftheemployer;• name,domicileandIDcardnumberornumberof anothervalididentificationdocumentofthe employee;• contractterm;• jobcontentandplaceofwork;• workinghours,restandleave;• compensation;• socialinsurance;• workplaceprotection,workplaceconditionsand protectivemeasuresagainstoccupationalhazards; and• othermattersrequiredbylawsandadministrative regulations.

Inaddition,anemployerandanemployeemay,intheirsole discretion, agree on matters such as probation,training, confidentiality, supplementary insurance,welfare, other incentives and other matters in theemployment contract.

Usually,thecontentsofanemploymentcontractcanonlybemodifiedinwritingafterbothpartieshavereacheda consensus through mutual negotiation. However, averbalmodificationofanemploymentcontractmayalsobevalidifthemodificationhasactuallybeenperformedforlongerthanonemonthanddoesnotviolateanylaw,administrative regulation, state policy, public order orgood morals.

2. Fixed-term/Open-endedContracts

EmploymentcontractsinChinacanhavethreedifferenttypesofterms:fixed,open-endedortermsthatexpireuponcompletionofanassignment.

Under the LaborContract Law, if anemployeropts toenterintoafixed-termcontractwithanemployee,afterthecompletionoftwofixedterms,thatemployermustoffertheemployeeanopen-endedcontract.Sinceopen-ended contracts are inherently difficult to terminate,employersmaywanttousefixed-termcontractsfornewhires. This would give the employer a chance to evaluate its new employees. If the employee’s performance ispoor,afixed-termcontractprovidestheemployerwiththeoptionofdiscontinuingtheemploymentrelationshipattheendoftheterm.

3. Trial Period

In China, the employee trial period is also known as the probationaryperiod.

A probationary period is commonly included inemployment contracts. However, Chinese labor lawcontainsrestrictionsonthelengthoftheprobationaryperiod. Probationary periods must conform to thefollowingparameters:

• wherethetermofanemploymentcontractis between three months and one year, the probationaryperiodmaynotexceedonemonth;• wherethetermofanemploymentcontractis betweenoneandthreeyears,theprobationary periodmaynotexceedtwomonths;and

iii. EmploymEnt contracts


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• wherethetermofanemploymentcontractisthreeyears or more, or where the term is open-ended, the probationaryperiodmaynotexceedsixmonths.

Probationaryperiodsarenotpermittedforemploymentcontractsthatexpireuponcompletionofanassignmentor those with terms shorter than three months.

4. NoticePeriod

In China, an employee may unilaterally terminate his orheremploymentcontractbygivingawrittennotice30 days in advance or 3 days in advance during the probationaryperiod.

on the other hand, an employer may unilaterally terminateanemploymentcontractbygivingawrittennotice30daysinadvanceorprovidingonemonth’ssalaryinlieuofnoticeinanyofthefollowingcircumstances:

• theemployee,afterundergoingalegallyprescribedperiodofmedicaltreatmentforanillnessornon-work-related injury, can perform neither his or her originalwork nor other work arranged for him or her by theemployer;

• the employee is incompetent in performing theduties of his or her position and remains so afterundergoing training or an adjustment of his or herposition;

• a major change in the objective circumstancesrelieduponatthetimeofconclusionoftheemploymentcontract renders the contract non-performable and,after consultations, the employer and the employeeare unable to reach an agreement on amending the employment contract.

In addition, if the employer intends to reduce itsworkforceby20personsormoreorbyanumberthatislessthan20butaccountsfor10%ormoreofthetotalnumber of its employees, the employermust explainthesituationtothetradeunionorallemployees30daysinadvanceandproviderelevant informationregardingtheemployer’sproductionandoperationstatus.


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1. MinimumWorkingConditions

an employer should provide an employee with a clean and safe working environment in compliance with allapplicable laws and regulations regarding safety andhygiene.Theconditionsshouldalsocontainallrequiredprotections against any occupational hazards involvedin the employee’s position. An employer must alsoprovide an employeewith necessary labor protectionequipmentinaccordancewithrelevantlaw.Moreover,employeeswhosepositionsinvolvehandlingorcominginto contact with hazardous materials must undergo regularoccupationalhealthchecks.

2. Salary

Employersandemployeesshouldspecifysalariesintheiremployment contracts. Full-time employees shouldbe paid their salary at least once a month. employees’ monthly salaries should not be less than the minimum wage published by local governments. an employer should pay salaries to its employees in accordance with the law for official public holidays, marriage orbereavement leave and for any periods when theyparticipate in social activities such as exercising thestatutoryelectionrights.

Furthermore, employers may arrange compensationand bonus policies according to the law and their own needs. These policies may include performancebonuses,annualbonuses,stockoptions,etc.

Individual income taxes and other taxes payable by employees are the responsibility of employees.However, employers should withhold such amountsfrom any payments and pay such amounts to the taxauthorityonbehalfoftheiremployees.

3. MaximumWorkingWeek

The maximum standard working hours in China areeighthoursperdayand40hoursperweekforemployees working under the standard working hour system. an employer must ensure that every employee has at least one rest day each week.

4. Overtime

In some circumstances, an employer may extend the workinghoursofanemployeeafterconsultingwiththetradeunionandtheemployeeconcerned.Specifically,hours can be extended to accommodate changes in productionorbusinessoperations.Generallyhowever,overtime should be limited to one hour per day. Inspecial circumstances, theovertimeshouldbecappedat three hours per day, provided that the employee’s health is not affected and the totalmonthly overtimedoes not exceed 36 hours.

employers are required to pay increased wages to employeesinthefollowingcircumstances:

• 150%ofanemployee’snormalwageforextended workhoursonworkdays;• 200%ofanemployee’snormalwageforworkingon rest days (where the rest day cannot be postponed ordeferredtoanotherdate);• 300%ofanemployee’snormalwageforworkingon anofficialpublicholiday.

Employees working under the flexible working hoursystem are not entitled to overtime unless otherwiseprovidedbylocalgovernmentregulations.

5. Holidays

In the beginning of each year, the State Council willannounceaholidayschedulewhichindicates11nationalholidays,including1dayofNewYearHoliday,3daysofChineseNewYear,1dayofTombSweepingDay,1dayofLaborDay,1dayofDragonBoatDay,1dayofMid-AutumnDay,and3daysofNationalDay.

6. Employer’sObligationtoProvideaHealthyandSafeWorkplace

according to PRC labor law, an employer must establish a sound labor safety and hygiene system and strictlyimplementStaterulesandstandardsoflaborsafetyandhygiene, conduct labor safety and hygiene educationamong its employees, prevent accidents and reduce

iv. workinG conditions


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occupationalhazards.Theemployermustalsoprovideitsemployeeswithlaborsafetyandhygieneconditionsandnecessaryarticlesforlaborprotectioninconformitywith the regulations of the State, and organize itsemployees whose work involves occupationallyhazardoussubstancestoundertakeregularoccupationalhealthchecks.TheWorkSafetyLawofthePRCfurtherclarifiesemployers’work safetydutiesandobligationsunder the Labor Law, and enhances the penalties forviolatingworksafetylaws.

In addition, the Administration Norms of Employers’Notification and Warning of Occupational Hazards(the “Norms”) address issues such as notificationsand warnings of occupational hazards, preventionandcontrolofoccupationalhazardsandprotectionofemployees’ health. The Norms require employers to not only specify certain basic issues related to workplacesafety in their employment contracts (such as thepotential occupational hazards at their workplaces,the potential consequences thereof, the protectivemeasuresandrelevanttreatments{suchasjobsubsidyand work-related injury insurance}, etc.), but also toenableemployeestotrulyunderstandthisinformationby releasing public announcements, holding training seminars, etc. also, employers should use graphic signs, attention-grabbing lines,warnings and notices aswellas combined signs throughout the workplace to remind employees of occupational hazards and to encouragethemto takerelevantprotectivemeasures.Employerswho violate the Norms will be punished according to the Law on Prevention and Control of OccupationalDiseaseofthePRC,RegulationsontheSupervisionandAdministrationofOccupationalHygiene inWorkplacesandotherlawsandregulations.


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1. BriefDescriptionofAnti-DiscriminationLaws

Currently,therulesonanti-discriminationarescatteredthroughout various laws and regulations, such as theLabor Law of the People’s Republic of China, and theLawofthePeople’sRepublicofChinaonPromotionofEmployment. However, these rules are very generalandimpracticalanddonotspecifywhatdiscriminationis, how to determine its existence, how to allocate the burden of proof in establishing it and what liabilityshould be imposed.

2. ExtentofProtection

AccordingtotheLawofthePeople’sRepublicofChinaon Promotionof Employment and the Regulations onEmployment Service and Employment Managementnewly amended by the MOHRSS, employers, whenrecruitingnewemployees,shallnotdiscriminateagainstfemale employees, ethnic minority workers, disabledpeople, and rural workers. also, employers shall not refusetoemploya jobcandidateonthebasis thatheor she is a carrier of any infectious pathogen unlessotherwiseprovidedbylawsandregulations.Particularly,an employer is forbidden to include provisions in itslaborcontractsorinternalregulationsrestrictingfemaleemployees’ right tomarry and reproduce. If a femaleemployee believes her right to marry or give birth has been violated, the employeemay bring a case beforethecourtandevenseekcompensation.

3. ProtectionsAgainstHarassment

Harassment in China is mainly addressed as sexualharassment in our legislation. The 2005 Law of thePeople’sRepublicofChinaontheProtectionofWomen’sRights and Interests explicitly states that “sexual harassmentagainstwomenisbanned.Thevictimsshallbe entitled to complain to the entity or the relevantorgans.” The Special Rules on the Labor Protection offemale employees issued by the State Council in 2012 provides that “employers shall prevent and prohibit the

sexual harassment of female employees in theirworkplaces.” However, neither of the two laws includes aclear definition of “sexual harassment” nor containsspecificemployerdutiestopreventandprohibitsexualharassment.

4. Employer’sObligationtoProvideReasonableAccommodations

Under the Law of the People’s Republic of China onthe Protection of Disabled People, employers shallprovide disabled employees with appropriate working conditionsandlaborprotection,andmakeappropriatemodifications to the working place, equipment andlivingfacilities.

5. Remedies

Currently,employerswhoviolate lawsregulatingsexualharassment may only be punished under tort law or criminal law. In 2008, a human resource managerin Chengdu was sentenced to five months’ criminaldetentionforharassmentofafemaleemployee.Thiswasthefirstsexualharassmentcase,inwhichthedefendantreceivedcriminalsanctions.Comparedwithmanyothercountries, the harassment legislation in China is verynew. Apart from tort liabilities and criminal penalties,PRClawdoesnot imposeotherdutiesonemployersoremployees. Therefore, legal practitioners in Chinahaveurged for the establishment of amore comprehensiveanti-sexual harassment labor protection regime in thenearfuture.

CurrentlyinChina,employmentdiscriminationcouldbelitigated according to PRC Labor Law, PRC EmploymentPromotion Law and PRC Tort Liability Law. In 2015, inonegenderdiscriminationcase,thecompanywasfinallyruledtopaymentaldamagescompensationofRMB2000to the job candidate. However, actually employmentdiscrimination cases are rare in China because undercurrentlegislation,it isdifficulttoadduceevidenceandthere are no comprehensive remedies. also, the liability clausesregardingemploymentdiscriminationareunclear.

V. Anti-DiscriminAtion LAws


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1. Can the employer restrict the employee’suseofInternetandsocialmedia during working hours?

Under PRC Labor Contract Law, the employer couldformulate its internal policies in accordancewith law.If such policies involve the matters such as workinghours, work discipline, etc., which have a direct impact on employees’ immediate rights and interests, the said policies shall be discussed by the employee representative congress or all employees, and thendeterminedbytheemployerafterconsultationwiththelabor union or employee representatives. Therefore,if the employer’s restriction on employees’ use ofinternet and social media during working hours is a partof its internalpolicieswhichhaveundergone thesaid democratic process and been announced to allemployeesor informedtothespecificemployee,or isincorporated in the employee’s employment contract, it couldbevalidandenforceable.

2. Employee’suseofsocialmediatodisparage the employer or divulge confidentialinformation

AccordingtoonecaseruledbyBeijingNo.1IntermediateCourtin2014,ifanemployerterminatestheemploymentrelationshipwithanemployee for thereasonthat theemployee’s Weibo posts or other network speech have violatedthecompany’srulesandregulations, ithastoprove the Weibo post (network speech) was sent bythe employee and the employer does have relevant managementrules.Iftheemployer’sinternalrulesareunclear, it isdifficult for the judge to consider rightfultermination. Therefore, if the employer intends toprohibit employee’s use of social media to disparagetheemployeroranypersonneloftheemployer,itmusthave clear management rules which have undergone thedemocraticprocess.

Regardingtheconfidentialinformation,pursuanttoPRCLaborContractLaw,confidentialityobligationcouldbeagreed upon between the employer and employee in theemploymentcontract.Iftheemployeehasdivulgedconfidentialinformationtoanythirdparty,theemployercould claim any damage incurred thereof against theemployee.

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UnderPRClaw,expatriatesworkinginChinamustbeinpossessionofaworkpermitandaresidencepermit(foremploymentpurposes)otherwisetheiremploymentmaybeconsideredillegal.Incasesofillegalemployment,theemployerandtheforeignemployeemaybepenalizedbytheauthorities,andtheirrelationshipwillnotbeprotectedbylaborlaw.Toobtainaworkpermitandresidencepermitforaforeignemployee,anemployermustapplytothegovernmentforanemploymentlicenseandaninvitationletter(foremploymentpurposes)fortheforeigner.Withthesedocuments,theforeignermayapplyforaworkvisa.Afterobtainingtheworkvisa,theforeignershouldapplyforaworkpermitwithin15daysofenteringorreenteringChina.Withtheworkpermit,theforeignemployeeshouldapplyforaresidencepermitwithin30daysafterenteringorreenteringChina.

IftheforeignerfirstenteredChinaonanothertypeofvisa, such as a visit visa or tourist visa, he or she may go toHongKongtoobtainaworkvisa(afterobtainingtheemploymentlicenseandtheinvitationletter).However,occasionally,theforeignermayneedtoreturntohisorherhomecountryfortheworkvisaduetoChina’sfluctuatingimmigrationpolicies.Eligibleforeignersmayalsoapplyforaforeignexpertcertificateasasubstitutefortheworkpermit.Also,chiefrepresentativesandrepresentativesofrepresentativeofficesdonotneedtoapplyforemploymentlicenses,butcanuserepresentativecertificatesassubstitutes.

Workpermitsusuallyhaveatermofoneyearandneverexceedfiveyearsevenifcertainconditionsaresatisfied.Ifthetermofaworkpermitismorethanone year, the employer must apply to the government foranannualcheckoftheworkpermitatleast30daysbeforethetermreachesafullyear.Residencepermits usually have the same term as work permits. Iftheemployerintendstocontinuetoemploytheforeigneraftertheexpirationoftheworkpermitandtheresidencepermit,theemployermustapplyforarenewalofthepermits30daysbeforetheirexpiration.

Theemploymentrelationshipisautomaticallyterminatediftheworkpermitbecomesinvalidoriscancelled.

Inaddition,foreignerswhocometoChinatoperformspecialtasksintheareasoftechnology,scientificresearch, management or guidance with Chinese business partners or other reasons and stay in China lessthan90days(the“Short-termWork”)mustapplytotherelevantauthoritiesfortheiremploymentlicenses,approvalletters,certificatesofemployment,invitationlettersorconfirmationsofinvitationandworkvisas.IftheyintendtoperformtheShort-termWorkinChinainexcessof30days,theymustapplyforresidencepermits(foremploymentpurposes).However,foreignemployeeswhoaredispatchedtothebranches,subsidiariesandrepresentativeofficesinChinabyforeigncompaniesandstayinChinaforfewerthan90daysarenotconsideredtobe“performingShort-termWork”andmustapplyfortradevisas(Mvisas).

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1. GroundsforTermination

PRClaborlawgenerallyfavorsemployeesandthereforecontains many statutory provisions on termination ofemployment contracts that protect employees’ rights andinterests.Thestatutorygroundsforterminationareasfollows.

(1) tErminAtion by mutuAL AgrEEmEntemployers and employees may terminate their employment contracts at any time upon mutualagreement. Termination by mutual agreement isoften used by employers to encourage employees toleave,while reducing the riskof being sued for illegaltermination.

(2) tErminAtion by thE EmpLoyEEItisnotunusualforemployeestovoluntarilyterminatetheir employment. employees may terminate their employment by giving their employers 30 days’ prior written notice (or three days’ notice if the employeeis still within the probationary period). Where theemployer is at fault according to the law, such asfailing to provide labor protection or labor conditionspursuanttotheprovisionsoftheemploymentcontractor failing to promptly pay labor remuneration in full,theemployeeisentitledtoimmediatelyterminatetheemployment by giving the employer notice. Wherean employer uses means such as violence, threats or unauthorized detention to coerce an employee intoworking for the employer, gives orders in violation ofrules or forces an employee to engage in risky workthat endangers the employee’s personal safety, theemployee may immediately terminate the employment withoutinformingtheemployerinadvance.

(3) tErminAtion by thE EmpLoyErPRC labor law only permits an employer to immediately and unilaterally terminate an employment contract when the employee commits a misconduct listed in Article39ofthePRCLaborContractLaw.

an employer may also terminate an employee with one month’s prior written notice under the circumstances

viii. tErmination of EmploymEnt contracts

describedinArticle40ofthePRCLaborContractLaw.Insuchcases,iftheemployerwantstheemployeetoleaveimmediately, the employer may pay the employee one month’ssalaryinlieuofnotice.

An employer may also terminate an employee if itsatisfies the conditions for redundancy for economicreasons and completes the required procedures contained in applicable labor laws.

(4) AutomAtic tErminAtionUnder any of the following circumstances, theemployment contract should terminate automatically,unless otherwise provided by law:

• thetermoftheemploymentcontracthasexpired;• theemployeehasreachedthestatutoryretirement age;• theemployeehaspassedaway,orisdeclareddead orlostbythepeople’scourt;• theemployerisdeclaredbankruptaccordingtolaw;• theemployer’sbusinesslicenseisrevokedorthe employer is ordered to close down or de-register, or decidestodismissinadvance;or• othercircumstancesinwhichtheemployment contract should terminate according to the law or administrativeregulations.

Practitioners and courts in China interpret thesestatutoryterminationprovisionsasexhaustive.Inotherwords,employerscannotaddanyadditionalconditionsfor termination in its employment contract and usesuchadditionalconditionstoterminate itsemployees.The only way in which the termination provisions ofan employment contract may differ from statutorytermination conditions is by optional reference to anemployeehandbook(alsoknownasastaffhandbook).

2.CollectiveDismissals

Collective dismissals usually take place in the contextofredundancyforeconomicreasons,whichincludethefollowingcircumstances:


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• theemployerisrestructuringpursuanttothe EnterpriseBankruptcyLaw;• theemployerisexperiencingseriousdifficultiesin productionand/orbusinessoperations;• theemployerswitchesproduction,introducesa majortechnologicalinnovationorrevisesits businessmethod,and,afteramendmentof employmentcontracts,stillneedstoreduceits workforce;or• otherobjectiveeconomicsituationsonwhich the employment contract is based, have changed considerably,andtheemployerisunabletoperform the employment contract.

Under theLaborContract Law, if anemployer intendstoreduceitsworkforceby20personsormoreorbyanumberthat isfewerthan20butaccountsfor10%ormoreof its totalnumberofemployees for the reasonmentioned above, the employer must explain thesituationto itstradeunionorallof itsstaff30days inadvance.Theemployermustalsoseektheopinionofthetrade union or its employees and submit a redundancy reporttothelaboradministrativeauthorities.Onlythenmay it implement the redundancy.

Also, when reducing its workforce, an employer isrequired to give priority to retaining the followingemployees:

• thosewhohavefixed-termemploymentcontracts witharelativelylongterm;• thosewhohaveopen-endedemploymentcontracts; or• thosewhoarethesoleincomeearnerfortheir familiesandmustsupportelderlyorminors.

Furthermore, the following employees are protectedfromredundancyforeconomicreasons:

• thosewhoareengagedinworkinvolving occupationaldiseasehazardswhohavenot undergoneapre-departureoccupationalhealth exam,orwhoaresuspectedofhavingcontractedan occupationaldiseaseandarebeingdiagnosedor undermedicalobservation;• thosewhohavebeenconfirmedashavinglost orpartiallylosttheircapacitytoworkduetoan occupationaldiseaseorawork-relatedinjury sustainedwiththeemployer;• thosewhohavecontractedanillnessorsustaineda non-work-relatedinjury,andthesetperiodof medicalcarethereforehasnotexpired;

• femaleemployeesintheirpregnancy,maternity leaveorbreastfeedingperiod;and• thosewhohavebeenworkingcontinuouslyforthe employerfornotlessthan15yearsandareless thanfiveyearsawayfromlegalretirementage.

Even if a redundancy proposal has been reported tothe labor department and the employer proceeds to terminateitsemployees,suchterminationsmaystillbereversedbyalaborarbitrationcommissionoracourt.Onecommonreasonforsuchreversal isthattheemployerimproperly terminates an employee who should have been specially protected or fails to give priority toretainingthethreekindsofemployeesdiscussedabove.In order to avoid such mistakes, the employer needs to carefullycheckandinvestigateitsemployees’situationsbefore implementingtheredundancyplan,whichmaybenoteasy.Itmaybeespeciallydifficulttolearnwhichemployees are sole income earners and have elderly or minors to support.

3. Individual Dismissals

As mentioned above, an employer may unilaterallyterminate an employment contract immediately when theemployeecommitsanyofthefollowingmisconductscontainedinArticle39oftheLaborContractLaw:

• theemployeefailstosatisfytheemployment conditionsduringtheprobationaryperiod;• theemployeeseriouslyviolatesthelabordisciplines ortheemployer’srulesandregulations;• theemployeecausesseriousdamagetothe interestsoftheemployerduetohisorherserious neglectofduties,orhisorherengagementin malpracticeforpersonalgain;• theemployeehasestablishedanadditional employmentrelationshipwithanotheremployer, whichmateriallyaffectsthecompletionofhisor her tasks with the employer, or the employee refusestorectifythematterpertheemployer’s request;• theemploymentcontractisinvalidbecausethe employeeusedmeanssuchasdeceptionor coercion,ortookadvantageoftheemployer’s difficultiestocausetheemployertoconcludethe contract or to make an amendment thereto, which iscontrarytotheemployer’strueintent;• theemployeeisheldcriminallyliableunderthe law.


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furthermore, the employer may also terminate an employment contract by giving the employee 30 days’ priorwrittennoticeoronemonth’ssalaryinlieuofnoticeunderanyof the followingcircumstancesdescribed inArticle40oftheLaborContractLaw:

• theemployee,afterundergoingalegallyprescribed periodofmedicaltreatmentandrecuperationfor anillnessornon-work-relatedinjury,remains unabletoperformhisorheroriginaljobduties,and isalsounfitforanotherjobassignedbythe employer;• theemployeeisincompetentinfulfillinghisorher duties,andremainssoafterundergoingfurther trainingoranadjustmentofhisorherposition;• theemploymentcontractcannotbeperformeddue toanymajorchangesoftheobjectivecircumstances under which the contract was originally concluded, andtheemployerandtheemployeefailtoreach agreementonmodificationofthecontractafter mutualconsultation.

a. is sEvErancE pay rEquirEd?

UndertheLaborContractLaw,formutualterminationsproposed by the employer, unilateral terminationsby the employer according to Article 40 of the LaborContract Law, redundancy terminations for economicreasons, unilateral terminations by the employee fortheemployer’s faultorautomaticterminationsduetothe employer’s reasons, the employer is required to pay severancebasedontheemployee’syearsofservice.

Severanceiscalculatedatarateofonemonth’ssalary(the “Average Monthly Salary”) for each full year ofservice. Service periods greater than or equal to six monthsareroundeduptoafullyear,andperiodsfewerthansixmonthsareconsideredhalf-years(theemployerwouldoweahalfmonth’ssalary).TheAverageMonthlySalarymeanstheaveragemonthlywageoftheemployeeoverthe12monthspriortohisorherterminationdate.Iftheemployee’sAverageMonthlySalaryismorethanthreetimesthelocalaveragemonthlywageaccordingtothe local government, severance will be calculated using threetimes this local averagemonthlywage. Inotherwords, threetimesthe localaveragemonthlysalary isthecapforseverancecalculations,andinthiscase,theseverance shall not exceed 12 months.

4. SeparationAgreements

a. is a sEparation aGrEEmEnt rEquirEd or considErEd BEst practicE?

A Separation Agreement is required in the event ofmutual termination.Asmentionedabove, terminationby mutual agreement is often used by employers toreduce the risk of being sued for illegal termination.Therefore, a Separation Agreement is also consideredas the best practice when the employer decides toterminate employees.

B. what arE thE standard provisions of a sEparation aGrEEmEnt?

The lawdoesnot specify the standardprovisions in aSeparation Agreement. But in practice a SeparationAgreementformutualterminationtypicallyincludesthelast working day, severance amount and payment date, lastmonthsalarypayment,paymentofsocialinsuranceandhousingreservefund,theemployee’sobligationstohandoverworkandreturntheemployer’sproperties,waiverandrelease,confidentiality,etc.

c. doEs thE aGE of thE EmployEE makE a diffErEncE?

According toPRCLaborContractLaw, if theemployeehasbeenworkingwiththeemployerformorethan15yearsanditislessthan5yearsforhimorhertoreachthe retirementage, theemployer shall not layhimorheroff foreconomic reasonsorunilaterally terminatehis or her employment contract unless the employee hasmisconducts contained in Article 39 of the LaborContract law.

However, in the event of mutual termination, theemployerisalsoabletoreachaSeparationAgreementwith theagedemployees.Due to the legal protectionofagedemployees,theemployermayneedtopayex-gratiaseveranceinadditiontothemandatoryseveranceprovidedintheLaborContractLawinexchangeoftheemployee’ssigningoftheSeparationAgreement.


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d. arE thErE additional provisions to considEr?

If the employer and the employee have agreementon post-employment non-competition obligation, theSeparation Agreement shall have a clause to specifywhethertheemployerreleasestheemployeefromthepost-employment non-competition obligation or not.In addition, the Separation Agreement may includeprovisions about non-solicitation, non-disparagement,non-interference, etc. when necessary, especially forsenior employees.

5. Remediesforemployeeseekingtochallengewrongfultermination

Employeesmayinitiatelaborarbitrationsinresponsetoanyunilateralterminationbytheiremployers.Eithertheemployeeoremployermayappealalaborarbitration’sdecision to the court if dissatisfied with its decision.Duringthelaborarbitrationorlitigation,theemployermustprovidesolidevidencetosupporttheterminationand assume the burden of proof. If the unilateralterminationbytheemployerisfinallyjudgedasillegal,theemployeemayrequesttheemployertocontinuetoperform the employment contract (i.e. reinstatementof employment) and provide back pay. Where theemployee does not request continuous performanceof the employment contract or the performance ofthe employment contract cannot be continued, theemployermustpaytheemployeecompensationequaltodoubletheseverancefornormaltermination.Duetothehighriskofunilateraltermination,employersshouldviewunilateralterminationasalastresort.


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iX. rEstrictivE covEnants

1. DefinitionofRestrictiveCovenants

InPRCLaborContractLaw,thereisnoexpressdefinitionofrestrictivecovenants.However,restrictivecovenantsare commonly used in practice. For example, anemploymentcontractandaSeparationAgreementmayincludeobligationofnotviolatingtheconflictofinterestspolicy, confidentiality obligation, non-disparagementobligation,non-solicitationobligationandnon-competeobligation.

2. TypesofRestrictiveCovenants

(i) non-compEtE cLAusEsaccording to PRC labor Contract law, an employer and an employee may add a post-termination non-compete clause in a labor contract or confidentialityagreement. Employees who may be subject to non-competeobligationincludeseniormanagement,seniortechnicalpersonnelandotherswhohaveconfidentialityobligations.Themaximumnon-competitiontermis24months.Theemployerisobligedtopaycompensationto employees who observe non-compete obligationsafterterminationofemployment.

Theregulationsandpracticalrulesforpost-employmentnon-competition usually vary by region. However,the Interpretations of the Supreme People’s Court onSeveral Issues Relating to Laws Applicable for Trial ofLabor Dispute Cases (IV), which was promulgated in2013,containsseveraluniformrulesaboutnon-competeobligations. The following three rulesdeserve specialattention: (1) if the compensation for abiding by thenon-compete obligations is not stipulated in the non-competeclause,thenon-competeclauseisstillvalidandthemonthlycompensationwillbe30%oftheemployee’saveragemonthlysalaryforthetwelvemonthspriortohis or her termination; (2) if an employer fails to paysuch compensation for three months, the employeeis entitled to request rescission of the non-competeclause; (3) an employermay request rescissionof thenon-compete clause during the restricted period, but it mustpaythreeadditionalmonths’ofcompensationtothe employee .

(ii) non-soLicitAtion of customErsAlthough non-solicitation obligation is not expresslyincorporated into PRC labor Contract law, normally in the employment contract or specific non-competitionand non-solicitation agreement, the employer willrequest that during the employment period and for a certain period of time after termination of theemploymentrelationship,theemployeeshallnotsolicitany customer, consultants, agents, representatives,vendors,etc.oftheemployeroritsaffiliates.

(iii) non-soLicitAtion of EmpLoyEEsIn addition to the obligation of non-solicitation ofcustomers, non-solicitation of employees is alsorequestedbymostemployersinpractice.Forinstance,the employer will request that during the employment periodandforacertainperiodoftimeafterterminationoftheemploymentrelationship,theemployeeshallnotdirectly or indirectly solicit, induce, recruit or encourage anyemployeesoranyothermemberoftheemployertoleave their employment.

3. EnforcementofRestrictiveCovenants—process and remedies

If an employer has non-compete agreement withan employee, but does not want to enforce suchagreement, the employer should expressly waive the non-competition duties before the terminationof employment. Otherwise once the employment isterminated, the employer will be obliged to pay the non-competition compensation on a monthly basis,or would need to pay three additional months’ non-compete compensation if it intends to rescinds thenon-compete agreement. Under PRC Labor Contractlaw, the employee may be required to pay liquidated damages to the employer only under two circumstances, oneofwhichistheviolationofhisorhernon-competeobligation.Inotherwords,iftheemployeehasviolatedhis or her non-competeobligation, theemployermayclaim liquidated damage against him or her.

For non-solicitation obligation, the employer mayenforce relevant clauses in the employment contract,etc.andclaimdamageifanylossincurredthereof.


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4. UseandLimitationsofGardenleave

Althoughgardenleaveisnotmentionedinthelaborlaw,itisverysimilartotheperiodofbreakingawayfromsecretsunderPRClaws.AccordingtotheCircularoftheLaborDepartmentonCertainIssuesaboutEnterpriseEmployeeMovement,theemployerandemployeecouldagreethatforacertainperiod(nolongerthan6months)beforetheemploymentcontractexpires or the employee terminates the employment, theemployercouldadjusttheemployee’spositionandmodifytheemploymentcontractaccordingly.Thisistheperiodofbreakingawayfromsecretsandisaimedatprotectingemployers’confidentialinformation,trade secrets, etc.

Thisperiodofbreakingawayfromsecretsisacknowledged and applicable in many provinces includingShanghai,Jiangsu,etc.


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X. riGhts of EmployEEs in casE of a transfEr of undErtakinG1. employees’ Rights

Under the Labor Contract Law, when an employerdecidesmajorcompanymattersthatdirectly implicatethe interests of employees, the employer shoulddiscusssuchmatterswiththeemployeerepresentativecongress or its entire staff. It should only make adecision after consulting with the trade union oremployeerepresentatives.Theconsultationprocedureis designed to give the trade union and employees a chance to express their opinions, but the employer has theauthoritytomakethefinaldecision.

Atransferofundertakingmayincludemanyscenarios,such as mergers and acquisitions. The key issue iswhethersuchtransferwillmateriallyaffecttheinterestsofsomeorallemployees.UnderPRClaw,ifthetransferonlyinvolvesachangeofshareholderswiththeemployerremainingunchanged,theperformanceofemploymentcontractswillnotbeaffected.Furthermore,incaseofamerger, the original employment contracts may remain validandthesurvivingpartywillcontinuetorecognizeand perform the employment contracts. In both ofthesescenarios, theconsultationobligationwouldnotbe triggered because the employees’ interests are not materially affected (there are different requirementsfor the restructuring of state-owned enterprises).Another scenario is the acquisition of assets, whichmaybedefinedbythe labor lawasamaterialchangein the objective conditions onwhich the employmentcontracts were based. Such change would usually result inashiftofemploymentrelationshipsorredundancies.Accordingly, the consultation obligation would betriggedandtheemployeesaffectedhavetheoptionoftransferringtotheacquiringparty.

2. RequirementsforPredecessorandSuccessorParties

As discussed, a change of shareholders and amergerwould not affect the performance of employmentcontractsand thereforeneither the transferornor theacquiring party is obliged to pay severance to employees. However, in practice, employees often demand

severance and even collectively oppose such transfer,because they misconstrue a change of shareholdersas a termination of employment or they worry thattheir rights and interests will be impaired after thetransfer.Therefore,toappeasetheseemployees,someacquiringpartiesmaypromisethattheywillnotreduceemployees’compensationorbenefitsafterthetransferand may even undertake to refrain from collectivelayoffsforacertainperiod(suchastwoyears)followingtheconsummationofthetransferofundertaking.

Intheeventoftheacquisitionofassets,theacquiringparty is not legally obliged to employ the employees ofthetargetcompany,unlessboththeacquiringpartyand theemployeeagree to continue theemploymentrelationship. If both the acquiring party and theemployee agree on the transfer of employment, theymay enter into a tri-party agreement together with the transferor to stipulate that the transferor and theemployee will terminate their employment contract and that the transferee and the employee will signnew employment contracts with compensation andbenefits equal to or better than those of the originalemploymentcontract.Thisraisestheissueofseverance.Accordingtothelaw,thetransferormaypayemployeesseverance due to the termination of the originalemployment or it may let the acquiring party assume the employees’ seniority. In other words, any seniority of transferred employees may be carried over to theacquiringpartyafter theacquisitionandnoseveranceispaiduntiltheemployeeisactuallyterminatedduringthe employmentwith the acquiring party. This optionis themorecommonpractice.When theemploymentcontract between the acquiring party and the employee is finally terminated, the employee may be entitledto receive severance according to law. At that time,the continuous seniority with the transferor will beconsidered (hisorher senioritywith the transferor aswellashisorhersenioritywiththeacquiringpartyaftertheacquisition).However,someemployeesmayfirmlyrequest severance even when they agree to transfertheir employment relationship to the acquiring party.Thismakesthepaymentofseverancedifficulttoavoid.If the employee does not want to transfer to theacquiring party or the acquiring party does not want

tohireanemployee,thetransferormayterminatetheemployment contract with the employee by a mutual terminationagreement.Iftheemployeerefusestosignthemutualterminationagreement,thetransferormayoffertoamendtheemploymentcontractforthereasonthattheobjectivesituationhasmateriallychangedandthen unilaterally terminate the employment contract, bygivingtheemployee30days’priorwrittennoticeoronemonth’ssalaryinlieuofnotice,whenthepartiesfailto reach an agreement on the amended employment contract.


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Xi. tradE unions and EmployErs associations1. BriefDescriptionofEmployeesandEmployersOrganizations

(1) trADE unionsInChina,alltradeunionsmustbeaffiliatedwiththeAll-ChinaFederationofTradeUnion(hereafterreferredtoas“ACFTU”)andtherearenoindependenttradeunionsin China. ACFTU is a national-level organization thatreports directly to the Chinese Communist Party and has branches at the provincial, city, and district levels. Technically speaking, an enterprise does not need to take positiveactiontoestablishatradeunion.However,ifitsemployeesrequesttheestablishmentofatradeunion,theenterprisemaynotobstructtheprocess.Inpractice,localACFTUbrancheshavebeenincreasinglypressuringenterprises tosetuptradeunions fromthetoptown.Also,inthecaseofWal-Martin2006,theACFTU,forthefirsttimeever,usedgrassrootstechniquestoestablishunionsfromthebottomup.

(2) EmpLoyErs’ orgAnizAtionsTheChinaEnterpriseConfederation(originallyknownasthe “China Enterprise Management Association”) andChinaEnterpriseDirectorsAssociation(the“CEC/ECDA”)arenon-profitnationalorganizations thatare registeredwithandapprovedbytheMinistryofCivilAffairsofthePRC.Thegovernmentdepartment responsible foroverseeingtheCEC/ECDAistheState-ownedAssetsSupervisionandAdministrationCommissionoftheStateCouncil.TheCEC/eCDa have legal person status and are created to promote reforms within enterprises, improve managementwithin enterprises, act as a liaison between enterprises and governments and protect the legitimate rights andinterests of enterprises and entrepreneurs. CEC is thesole representative from Chinawithin the InternationalOrganization of Employers. Currently, 30 provinces,autonomousregionsandmunicipalities,whicharedirectlyunder the central government, 28 national industrydepartments,260industrialcitiesandtensofthousandsoflargeandmedium-sizedbusinesshaveestablishedtheirown enterprise management associations. The numberof enterprises with such management associationshas reached hundreds of thousands. These variousassociationscompriseaninterconnectednationalsystemofmanagementassociations.

2. RightsandImportanceofTradeUnions

The fundamental rights and responsibility of tradeunions is to safeguard the legal rights and interestsof employees. Specifically, trade unions should (1)harmonize employment relationships and safeguardthe rights and interests of employees by conductingequalnegotiationsforemployeesandformingcollectivecontracts; (2) organize and coordinate employeeparticipationindemocraticdecisionmaking,democraticmanagement and democratic supervision accordingto relevant law and via the employee representativecongress or other channels; and (3) maintain closecontact with employees, listen to and forward theirviewsanddemandstomanagement,exhibitconcernfortheirdailylives,helpthemresolvedifficulties,andservethem wholeheartedly.

Anenterprisemayformcollectivecontractswithitstradeunion (or its elected employee representatives if theenterprisehasnotradeunion).Ifaunionoranelectedemployee representative submits awritten request toengageincollectivebargaining,theemployergenerallycannot refusewithout just cause. Collective contractsarebindingon theemployerandallof itsemployees.accordingly, individual employment contracts cannot includestandardsthatarelowerthanthosesetforthinthe collective contracts.However, it is possible touseterms in individual employment contracts that are more favorable to the employees than what the collectivecontracts provide.

3. TypesofRepresentations

(1) EmpLoyEE congrEss / EmpLoyEE rEprEsEntativEs conGrEssThetradeunionistheoperatingorganoftheemployeecongressandemployee representatives’ congress (the“EC/ERC”) and is responsible for carrying out theirroutine activities. In China, state-owned enterprisesmust establish a trade union and EC/ERC, and privatebusinesses are also encouraged by the government to aestablishtradeunionandEC/ERC.Inpractice,private


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businesses, if they would like to have a trade union,usuallyestablishatradeunionandorganizetheEC/ERConly when necessary. Where an enterprise is required orneedstoorganizetheEC/ERCwhilethetotalnumberofitsemployeesisfewerthan50,theenterprisemustorganize an EC instead of an ERC. Enterprises that donot have a trade union must report to the high-level trade union in the event that it intends to organize an EC/ERCandmustperformall relevantworkunder theguidanceandsupervisionofthathigh-levelunion.Localgovernments in various regions of China may havedifferentprovisionsonEC/ERCprocedures.

When an enterprise creates or revises internal policies ormakesotherdecisionsonmajormattersthatdirectlyaffect employees’ interests such as issues related toremuneration, working hours, rest periods and offdays, work safety and health, insurance and welfare,stafftraining,labordisciplineandetc.,itshoulddiscusssuch matters with the ERC or all its staff. Employeesshould be given the opportunity to make proposals and provide their opinions in this process, and the employer should hold fair negotiations with the trade union oremployeerepresentativesbeforefinalizinganydecision.Duringtheimplementationofanyregulationsormajordecisions, the trade union or the employees have the right to raise their concerns with their employer on any inappropriate issues. Such issues will be corrected andaddressed throughnegotiation. Employers shouldannounceornotifytheiremployeesofanydecisionsonregulations and major matters that directly implicatetheinterestsofemployees.

(2) gEnErAL AssEmbLy of union mEmbErship / union mEmBEr rEprEsEntativE conGrEssThegeneralassemblyofunionmembershiportheunionmemberrepresentativecongress(the“GAUM/UMRC”)oversees grassroots trade unions. The functions andpowers of the GAUM/UMRC include reviewing andapproving work reports and financial reports fromtradeunioncommittees(the“TUC”)andworkreportsfromfinancescrutinycommittees(the“FSC”).Theyarealso responsible for electing themembers of the TUCandFSC.Grassroots tradeunionswith fewerthan100membersshouldestablishaGAUM.

(3) trADE union committEE (“tuc”)TUCsarethepermanentbodyofandanswerabletotheGAUM/UMRC.They,electedbyeithertheGAUMortheUMRC, should report theirwork to the GAUM/UMRCandaresubjecttotheirsupervision.

a trade union with more than 25 members should establishaTUC.Atradeunionwithfewerthan25unionmembersmayestablishaTUCbyitself,jointlyestablishaTUCwithothertradeunions,orelectonepersonasa union organizer to coordinate union members in the performanceofunionactivities. Ifatradeunionhasalargenumberoffemalemembers,afemaletradeunioncommittee can also be established in addition to thenormalTUC.Ifatradeunionhasfewfemalemembers,theTUCcanreservespotsforfemalememberstoensurethat they are represented.

(4) finAncE scrutiny committEE (“fsc”)Trade unions should set up a system of scrutinizingand monitoring their budgets, financial accounts andfundsaccording to independentaccountingprinciples.UnionsofalllevelsshouldestablishFSCs.FSCmembersare elected by theGAUM/UMRC. The election resultsshouldbesubmittedtothehigh-levelunionforapproval.TheFSCwillberesponsibleforreviewingtheexpensesandincomeoftheunions.TheresultsofthesereviewsshouldbeperiodicallyreportedtotheGAUM/UMRCformonitoringpurposes.TheGAUM/UMRChastherighttopresenttheirviewsabouttheuseofunionfundsandifnecessary implement changes or amendments.

Unionsreceivetheir funding fromavarietyofsourcesincluding (1) union fees paid by union members; (2)fees allocated to unions by enterprises, institutionalorganizationsandgovernmentauthorities,whichhaveestablished trade unions (they are typically required to set aside 2% of the total employeewages permonthto theunion); (3)a certainpercentageofprofits fromtheunion’senterpriseor institutionalorganization; (4)subsidiesfromthegovernment;and(5)other income.Unionfundsaretypicallyusedtoserveemployeesorforunionactivities.

(5) trADE union prEsiDEnt, DEputy prEsiDEnt and committEE mEmBErThe trade union president or deputy president is elected either by theGAUM/UMRCdirectly or by theTUC. Dismissal of the president or deputy presidentrequires convening the GAUM/UMRC for discussion.Thedismissalmustbe supportedbyamajorityof theGAUM/UMRCmemberstopass.

enterprise trade unions with more than 200 employees canappointafulltimetradeunionpresident.Thelaborcontract terms of full time trade union presidents,deputy presidents or committee members areautomaticallyextendedonthedatetheytakeoffice.The

lengthoftheextensionisequaltothetermofoffice.Ifanon-fulltimetradeunionpresident,deputypresidentor committee member’s outstanding employmentduration is shorter than their period of office, thedurationwill be automatically extended to the expirydateofthetermofoffice.Theseextensionsdonotapplywhere the president, deputy president or committeemember commits a serious misconduct or reaches the legalretirementage.

4. NumberofRepresentatives

EmployeerepresentativesshallbeelectedfortheERC.Thenumberofemployeerepresentativesisdeterminedbasedonthepercentageoftotalemployees,butthereshould be at least 30.

5. AppointmentofRepresentatives

Employee representatives should be elected throughdemocratic process. According to the Regulations ofShanghai Municipality on Employee RepresentativesCongresses, the voting process of employeerepresentatives shallbeheldwhenat least two thirdsofthetotalemployeesintheelectorate(determinedbydifferent branches, department, etc.) are present andthecandidateshallatleasthaveamajorityvotingintheelectoratetobetherepresentative.

Itisalsorequiredthatemployees’representativesshallbecomposedmainlyofgrassrootsemployeesand thenumber of senior management generally shall notbe greater than 20% of the total representatives. Inaddition, the number of female representatives shallbeinlinewiththenumberoffemaleemployeesinthecompany.

6. TasksandObligationsofRepresentatives

According to theRegulationsofShanghaiMunicipalityon Employee Representatives Congresses, employeerepresentatives shall (1) learn and propagate amongemployees relevant laws, regulations and policies,reinforcing the ability of participating in democraticmanagement and performing duties properly; (2)communicate with employees in the electorates, listening to employees’ opinions and suggestions andexpressing employees’ requests; (3) implement ECresolutions and properly complete all work assigned

bytheEC;(4)promptlycirculateinformationabouttheperformanceoftheirdutiesandtheirparticipationinECactivities, and accept the assessment and supervisionbyemployees;and(5)observetheemployer’srulesandkeeptheemployer’stradesecretconfidential.

7. Employees’RepresentationinManagement

according to PRC Company law, limited liability companies invested and incorporated by two or more state-owned enterprises or other entities with state-ownedinvestmentshallhaveemployeerepresentativesin their board of directors. Other limited liabilitycompanies or companies limited by shares may have employee representatives in their board of directors.Employees’ representatives who sit on the board ofdirectors shall be appointed by company employees via anERCorECorotherformsofdemocraticelection.

Inaddition,accordingtoPRCCompanyLaw,theboardofsupervisors shall includeshareholders’ representativesand an appropriate number of employees’representatives;theratioofemployees’representativesshallnotbelessthanone-third,andsuchratioshallbestipulatedbythearticlesofassociationofthecompany.Employees’ representatives sitting on the board ofsupervisors shall be appointed by company employees viaanERCorECorotherformsofdemocraticelection.


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Apart from the abovementioned employeerepresentative bodies, grassroots Chinese CommunistParty (“CCP”) organizations could also organizeemployees, know theappealsofemployees, andhelpsolve disputes between employers and employees in order to establish and maintain harmonious employment relationships.

According to the CCP Constitution, any employerwith more than three CCP members shall establish a grassrootsCCPorganization.Inaddition,PRCCompanylaw provides that employers shall provide the necessary conditionstofacilitatetheCCPactivities.

Xii. othEr typEs of EmployEE rEprEsEntativE BodiEs


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1. legal framework

The Chinese government has set up social security systems such as basic pension insurance, basic medical insurance,work-relatedinjuryinsurance,unemploymentinsurance, maternity insurance, etc. to protect the basic rightsofcitizens.ThesesystemsenableChinesecitizensto obtain assistance from the state (according andsubjecttocertainconditionsandprocedures)inspecialcircumstancessuchaswhentheyreacholdage,suffercertain illnesses, suffer a work-related injury, becomeunemployed, undergo maternity, etc. Additionally,employersandemployeesbothparticipateinaseparatehousingprovidentfundsysteminaccordancewiththelaw.

Generally,employersinChinacontributesocialsecuritypremiums and housing provident funds for theiremployees pursuant to the law. employees themselves also contribute their own social security premiums and housingprovidentfundspursuanttothelaw.Employerstypicallywithholdaportionoftheiremployees’monthlysalaries to help them complete their social insurance andhousingfundcontributions.

expatriate employees hired by Chinese employers are alsorequiredtoparticipateinthesocialsecuritysystemwhen they complete the employment formalitiesrequiredbylaw.However,expatriateemployeesmaybeexemptfromsocialsecuritycontributionsunderatreatyor convention. Expatriate employees are not requiredto participate in the housing fund system. However,those with permanent resident status may choose to contributetothehousingfundsattheirowndiscretion.employers and employees are required by law to contributetotheirrespectivesocialsecuritypremiumsandhousingprovidentfundsandcannotbeexemptbyspecial agreement or arrangement.

2. RequiredContributions

(1) bAsic pEnsion insurAncEemployers and employees must both contribute basic pension insurancepremiumspursuant tonationalandlocal law.

Where an employee has contributed basic pension insurancefor15cumulativeyearsandhasreachedthestatutory retirement age, he or shemay collect basicpensionbenefitsonamonthlybasis.Theexactamountofsuchbenefitsisdeterminedaccordingtofactorssuchashisorhercumulativecontributionperiod,hisorherwage, the average wage of employees in his or herlocality, the total amount in his or her pension account, theaveragelifeexpectancyoftheurbanpopulation,etc.

(2) bAsic mEDicAL insurAncEemployers and employees both must contribute basic medical insurancepremiumspursuant tonationalandlocal law.

The costs of employees’ prescription drugs, medicaltreatments,medicalservicesanduseofotherhealthcarefacilities for emergencies or rescue operationswill becoveredby thebasicmedical insurance fundpursuantto national and local laws, as long as such costs areconsistent with basic medical insurance policies and incurredatapprovedmedicalinstitutions.

(3) work-rELAtED injury insurAncEEmployersarerequiredtocontributework-relatedinjuryinsurance premiums according to the combined wages ofalloftheiremployeesandafeeratedeterminedbythe social security agency. employees do not need to contributetowork-relatedinjuryinsurance.

Employeeswhosufferanaccidental injuryor contractan occupational illness in the course of work will beentitledtowork-relatedinjuryinsurancebenefitsiftheinjuryorillnessisverifiedasworkrelated.Thosewhoseinjuries are verified andwhohave lost their ability toworkwillalsobeentitledtodisabilitybenefits.

(4) unEmpLoymEnt insurAncEemployers and employees must both contribute unemployment insurance premiums pursuant to nationalandlocallaw.

an unemployed person who has contributed unemployment insurance premiums for at least oneyearbeforebecomingunemployed,andhascompleted

Xiii. social sEcurity / hEalthcarE / othEr rEquirEd BEnEfits


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unemploymentregistration,maycollectunemploymentinsurance benefits from the unemployment insurancefund.

(5) mAtErnity insurAncEemployers are required to contribute maternity insurancepremiumspursuanttonationalandlocallaw.Employeesarenotrequiredtomakesuchcontributions.Maternityinsurancebenefitscoverthemedicalcostsforchildbirth and provide a maternity allowance.

However, thegovernment is nowworking to combinematernity insurance and basic medical insurance, which reflectsthegovernment’stargetofloweringemployers’operationcost.ThismeansprivatebusinessesinChinamaynotberequiredtopaymaternityinsurancefortheiremployeesinthefuture.

Eachfemaleemployeeisentitledtoa98-daymaternityleave for childbirth, including 15 days that may betaken before childbirth. Thematernity leavemay alsobe prolonged according to local regulations. In casesofdifficultbirth,thematernityleavemaybeextendedforanadditional15days.Intheeventofmultiplebirths(suchastwins),maternityleavewillbeextendedby15daysforeachadditionalchildbirth.

In the event that a female employee undergoes anabortionwithinthefirstfourmonthsofpregnancy,shewillbeentitledtoa14-daymaternityleave.Intheeventthatafemaleemployeeundergoesanabortionafterthefirst fourmonthsofpregnancy, shewill beentitled toa 42-day maternity leave. local governments may have differentregulationsregardingmaternityleave.

(6) housing funDemployers and employees both must contribute to the housingprovident fundpursuant tonationaland locallaw.

The housing provident fund is used for employeesto purchase, construct, renovate or rebuild personal dwellings.

Nationallaborlegislationgiveslocalgovernmentsbroadflexibilityinimplementinglaborlaw,whichmeansexactcontribution requirements may vary across differentprovincesorregionsinChina.Therefore,itisimportanttoconfirmtheexactcontributionratesrequiredbylocalgovernmentsforsocialsecurityandhousingfundsintheplacewheretheemploymentagreementisperformed.

3. Insurances

Apartfromtheabovementionedmandatoryinsurances,employers are free to purchase supplementarycommercialinsurancefortheiremployeesattheirowndiscretion. For example, some employers provide acomprehensive health insurance plan (including medical, dental and accidental death and dismemberment)for employees and their dependents. However, this isentirelyoptional.

4. RequiredMaternity/Sickness/Disability/AnnualLeaves

(1) mAtErnity OnDecember 27, 2015, the PRC Standing Committeeof the National People’s Congress issued the newPopulation and Family Planning Law of the People’sRepublicofChina(the“Law”)whichformallyabandonsChina’s decades-long one-child policy and allows all couples to have two children. according to the law, late marriage and late birth are no longer encouraged, and maternity leave may be extended by local rules.

(2) sicknEss During an employee’s sick leave period, his or her salary willbedeterminedandpaidbasedonthestandardofsickpayandsickbenefitsduringthemedicaltreatmentperiodaccordingtostatelawsandlocalregulations.

Ifanemployeesuffersfromanon-workrelatedillnessorinjuryandneedstostopworkingasaresultofmedicaltreatment, a medical leave between 3 and 24 months will be granted according to local regulations in theplace where the employee works and based on the employee’syearsofservice.

Ifanemployeecannotperformhisorheroriginalworkorotherworkarrangedbytheemployerafterhisorherperiod ofmedical care expires, the employer has theright to terminate the employment contract and pay severance upon giving the employee a 30 days’ advance writtennoticeoronemonth’spaymentinlieuofnotice.Inaddition,theemployermustpaymedicaltreatmentsubsidies equivalent to 6 to 12 months of his or hersalarybasedontheseriousnessofhisorhersickness.

(3) DisAbiLity Disabilitycouldbecausedbynon-work-relatedinjuryorwork-relatedinjury.Iftheemployee’sdisabilityiscausedbyanon-work-relatedinjury,theemployeecouldenjoy

thesamebenefits(sickpay,medicalleaveandmedicaltreatmentsubsidies)asintheeventofillness.

Ifanemployeeneedstosuspendhisorherworkinorderto receivemedical treatment forawork-related injuryoranoccupationaldisease,hisorheroriginalwageandwelfare benefits shall remain unchanged during thesuspension period. The suspension period is generally no longer than 12 months.

Where the work-related injury is severe or thecircumstanceisexceptional,afterbeingassessedbythelocal work capability assessment committee, the saidsuspension period could be extended by no longer than 12months.Afterthedisabilitygrade isdeterminedbythe local work capability assessment committee, theemployee shall not be entitled to his or her originalwageandwelfarebenefits,butcanenjoythefollowingdisabilitybenefits:

• If an employee is assessed as having a disabilitybetween grade one and grade four, the laborrelationshipshallremainunchanged,andtheemployeeshallwithdraw fromhis or post and enjoy (1) a lumpsumdisabilityallowancepaidbythework-relatedinjuryinsurancefundsaccordingtohisorherdisabilitygrade;and (2)amonthlydisability subsidypaidby thework-related injury insurance funds according to his or herdisability grade.

• If an employee is assessed as having a disabilitybetween gradefive and grade six, the employee shall(1) enjoya lump sumdisability allowancepaidby thework-related injury insurance funds according to hisorherdisabilitygrade;and(2)retaintheemploymentrelationship,orenjoyamonthlydisabilitysubsidypaidby the employer according to his or her disability grade, which shall be no lower than the local minimum salary. Iftheemployeedecidestoterminatetheemploymentrelationship, he or she shall enjoy a lump sumwork-related injury medical allowance paid by the work-relatedinjuryinsurancefundsandalumpsumdisabilityemployment allowance paid by the employer based on the standards prescribed by the local governments.

• If an employee is assessed as having a disabilitybetween grade seven and grade ten, the employee shall enjoy a lump sum disability allowance paid bythe work-related injury insurance funds according tohis or her disability grade; and (2) if the employmentcontract expires or the employee decides to terminate the employment contract, a lump sum work-related

injurymedicalallowancepaidbythework-relatedinjuryinsurancefundsandalumpsumdisabilityemploymentallowance paid by the employer based on the standards prescribed by the local governments.

If an employee with a work-related injury has beenassessedashavingadisabilitygradeandconfirmedbytheworkcapabilityassessmentcommitteeasrequiringdailylifecare,expensesincurredfordailylifecareshallbe paidmonthly by thework-related injury insurancefunds.

(4) AnnuAL LEAVEsAccordingtothegovernmentRegulationsonPaidAnnualLeave of Employees, employees who have workedbetweenoneandtencumulativeyearsareentitledtofivedaysofannualleave.Employeeswhohaveworkedbetweentenand20cumulativeyearsareentitledtotendaysofannual leave.Employeeswhohaveworkedformorethan20cumulativeyearsareentitledto15daysofannualleave.

If the employer fails to arrange annual leave foremployees due to business reasons, the employer must payanencashmenttoemployeesforsuchaccruedbutuntaken annual leave. This encashment should total 300% (100% has been included in themonthly salaryandthereforeonly200%needstobeadditionallypaid)ofanemployee’sdailynormalsalary foreachaccruedbutuntakendayofannualleave.

5. MandatoryandTypicallyProvidedPensions

Currently in China, mandatory and typically provided pensions only include the basic pension insurance. Recently, the government decides to reduce the employer’s pension insurance contribution rate tolower the cost of private businesses. The Circular oftheMinistryofHumanResourceandSocialSecurityonPeriodically lowering Social Insurance Premium Rate requeststhatfromMay1,2016,ifemployers’pensioninsurance contribution rate in any province (city,district)isgreaterthan20%,itshallbereducedto20%,andifthesaidrateis20%andthecumulativebalanceofthepensioninsurancefundcouldaffordatleastninemonths’paymentinanyprovince(city,district),itmayperiodicallybereducedto19%intwoyears’term.


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Zhong Lun Law Firm (“Zhong Lun”) is a top-tier full-service lawfirminChinathatprovidescomprehensivelegal support for all of its clients’ business activities.Zhong lun has approximately 220 partners and 1,000 lawyers with offices throughout Mainland China andHongKong,plusseveralinternationaloffices.

TheLabor&EmploymentPracticeGrouphasextensiveexpertise in all aspects of PRC labor and employmentlaw including litigation, labor relations, employment-relatedaspectsofdataprotectionandthefullspectrumofworkplacelawcounselingandadvice.Theyareadeptat handling cross-border labor and employment issues and consistently deliver optimal solutions for theirclients.

Zhong Lun and our attorneys frequently receiveaccolades fromfamous legal journalsandpublicationsincluding Chambers asia, which awarded Zhong lun “PRC Law Firm of the Year” in 2014, Asian BusinessLaw, theChinaBusinessLawJournalandChinaLaw&Practice,whichnamedZhongLun“Labor&EmploymentFirmoftheYear2016(China)”.

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