Minimum statutory terms
Termination of employment
Discrimination and harassment
Occupational health and safety
Regulation of outsourcing and contracting
Industrial relations

Acknowledgment

This Guide was prepared by the Workplace Law & Advisory – Asia practice of Freehills International Lawyers, with assistance from the following firms:

Contacts:

George Cooper
Practice Leader
+65 6236 9941 begin_of_the_skype_highlighting              +65 6236 9941 
george.cooper@freehills.com

Celia Yuen
Senior Associate
+65 6236 9972 begin_of_the_skype_highlighting              +65 6236 9972 
celia.yuen@freehills.com

Note:     This Guide:

• is current to 31 March 2010;
• contains general introductory information only, without an assumption of a duty of care by Freehills or the other firms listed;
• does not contain legal advice; and
• is not intended to be, nor should it be relied on as, a substitute for legal or other professional advice.

If employers have workplace relations issues or requirements in particular jurisdictions, then Freehills Workplace Law & Advisory - Asia can assist, working with local counsel.

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Minimum statutory terms

Key statutes
The key statutes governing employment relationships in the People’s Republic of China are the Labour Law and the Employment Contract Law.

Historically, many employers in China have failed to put in place written contracts with employees, and have heavily utilised fixed-term contracts, especially those with shorter contract terms, in an endeavour to avoid certain employment obligations, in particular those relating to termination of employment and severance pay.

The Employment Contract Law is largely aimed at dealing with such practices. There is now a clear obligation to put in place written employment contracts and disincentives to using fixed-term arrangements. For example, employees have a right to an open-ended employment contract where they propose to renew, following two prior consecutive fixed-term contracts. Moreover, severance is now payable where the employment comes to an end due to the expiry of a fixed-term contract.
Other significant statutes include the:

• Implementation Regulation of the Employment Contract Law
• Labour Disputes Mediation and Arbitration Law
• Trade Union Law, and
• Law on the Prevention and Treatment of Occupational Diseases.

Governments at the provincial and municipal level have power to issue rules, regulations and notices at the local level.

Employer work rules
The Employment Contract Law requires an employer to establish internal regulations dealing with matters including employment contract management, wage administration, social security and benefits, working hours, paid vacation, employee awards and penalties. The employer is required to consult with employees or their representatives in relation to the establishment or change of any policies that have a direct bearing on the interests of the employees.

Probationary period
Probationary periods are governed by the Employment Contract Law, which sets out the maximum probationary period depending on the length of the contract:

• one month for a contract for more than three months but less than one year
• two months for a contract for more than one year but less than three years, and
• six months for a contract of three years or more, or for an open-ended contract.

No probationary period may be set for a contract for less than three months or a task-based contract which will expire upon completion of the task.

The probationary period forms part of the contract term. During the probationary period, the employee’s wages must not be less than 80% of the minimum wage level for the same position with the employer, nor less than 80% of the wage agreed upon in the employment contract to apply after the probationary period, and must also be not less than the local minimum wage standard of the place where the employer is located.

If the employee does not satisfy the conditions for employment during the probationary period, the employer may terminate the employment contract without compensation, but must explain the reasons for termination to the employee.

Minimum wage
Minimum wages are set by the governments of provinces, autonomous regions or municipalities directly under the control of the central government. Minimum monthly wages apply to full-time jobs and minimum hourly wages apply to part-time jobs.

Remuneration structure
For full-time employees, wages must be paid at least monthly.

For part-time employees, the wage payment period must not exceed 15 days.

There are no mandated bonuses required by law, however it is common in practice to pay a year-end bonus or an incentive bonus.

Working hours

Hours of work— The maximum working time prescribed by legislation is eight hours per day and 40 hours per week.

Where an employer wishes to extend employee working hours due to production requirements, it may only do so after consultation with the trade union and the employees. The work hours can generally not be extended by any more than one additional hour per day, except in certain confined circumstances.

Pursuant to the Labour Law, if an enterprise cannot meet these maximum working time requirements due to the nature of the work, the enterprise may implement other arrangements upon the approval of the labour administration authorities. This is referred to as a non-fixed working hours system or a comprehensive working hours system.

Rest periods— Employees are entitled to at least one rest day per week.

Overtime— For employees working on a standard working hours system, in circumstances where the employer has lawfully arranged for working time to be extended (that is, has met the consultation requirements), overtime work on a usual working day must be paid at the rate of 150% of the normal wages, overtime work on a rest day must be paid at 200% of the normal wages if no supplementary rest day can be arranged, and overtime work on a statutory holiday must be paid at 300% of the normal wages.

According to the national regulations, the above overtime payment prescriptions do not apply to employers who have obtained government approval for a non-fixed working hours system in their enterprise. However, local practice in this respect may be different. (For example, in Shanghai, for employees working on a non-fixed working hours system, overtime work on a statutory holiday must also be paid at 300% of the normal wages.)

Public holidays
Employees are entitled to time off with pay on the following public holidays:

• Spring Festival (three days)
• New Year’s Day (one day)
• Qingming Festival (one day)
• International Labour Day (one day)
• Dragon Boat Festival (one day)
• Mid-Autumn Festival (one day), and
• National Day (three days).

Women are entitled to a half-day holiday on Women’s Day and persons between 14–28 years are entitled to a half-day holiday on Youth Day. 

The government may adjust the prescribed public holidays from time to time.

Paid annual leave
In China, the quantum of the mandatory annual leave entitlement depends on the length of time for which the employee has been engaged in continuous work, but not necessarily with the same employer. For example, if an employer works for nine years with Employer A and one year with Employer B, then Employer B will be required to recognise 10 years service for annual leave purposes, and hence the entitlement will be 10 days annual leave.
The minimum standards are:

• five days for an employee who has cumulatively worked for 1–10 years
• 10 days for an employee who has cumulatively worked for 10–20 years, and
• 15 days for an employee who has cumulatively worked for 20 years or more.

Accrued but untaken annual leave at the time of termination of employment must be paid out at the rate of 300% of the employee’s daily wage.

Other types of leave

Maternity leave—Female employees are entitled to 90 days maternity leave, including antenatal leave, which must be at least 15 days.

Medical treatment period—If an employee is unable to attend work due to illness or non-work related injury, they are entitled to a statutory medical treatment period, up to a maximum of between 3–24 months, depending on their length of service. During the medical treatment period, the employer must pay the employee in accordance with the provisions of local regulations.

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Termination of employment

Legal requirements
Subject to the satisfaction of relevant requirements stipulated in the Employment Contract Law, an employment contract may be terminated by the employer or the employee or automatically.

Termination by the employer without prior notice
The only circumstances in which an employer may terminate an employment contract without notice are where the employee:

• proves, during the probationary period, to be unable to meet the employment conditions
• has seriously violated the employer’s rules and regulations
• has committed gross misfeasance, causing great damage to the employer
• has established a concurrent employment relationship with another employer, and has seriously affected the completion of work with the original employer, or refuses to rectify the situation after requested by the original employer
• has caused the employer to conclude or amend the employment contract against its true intention by means of deception or coercion or taking advantage of the employer’s difficulties, and has thus made the employment contract invalid, or
• is convicted of a crime.

Termination by the employer with prior notice
The employer may terminate an employment contract upon 30 days prior written notice, or payment of one month’s wage in lieu of notice, in the following circumstances:

• the employee is sick or sustains a non-work related injury, and after expiration of the statutory medical treatment period, the employee cannot perform their work duties or other work duties arranged by the employer
• the employee is unable to satisfactorily fulfil the job requirements and, after training and adjustment of their working position, the employee is still unable to fulfil the job requirements, or
• a major change in the objective circumstances relied upon at the time of conclusion of the employment contract renders it unperformable and, after consultations, the employer and the employee are unable to reach agreement on amending the employment contract.

When an employer proposes to terminate an employment contract unilaterally (with or without notice), it is required to give the labour union advance notice of the reasons for the proposed termination. The employer is required to have regard to any opinions put forward by the labour union, and must notify the labour union of the outcome of the matter.

Termination by the employee without prior notice
The circumstances in which an employee may terminate an employment contract without notice include:

• the employer fails to provide labour protection or work conditions as stipulated in the labour contract
• the employer fails to pay the wage in full and in time
• the employer fails to pay social security premiums
• the internal rules and policies of the employer are in violation of any law or regulation and infringe the rights and interests of the employee
• the employer has caused the employee to conclude or amend the employment contract against his/her true intention by means of deception or coercion or taking advantage of the employee’s difficulties, and has thus made the employment contract invalid
• the employer compels the employee to work by using violence or threats or unlawfully restricting the employee’s personal freedom
• the employer’s work instruction is in violation of rules and regulations, or the employer peremptorily orders the employee to perform dangerous operations which threaten the employee’s personal safety, or
• any other circumstances specified by law or administrative regulation.

Termination by the employee with prior notice
The employee may terminate an employment contract by giving 30 days prior notice to the employer. During the probationary period, the employee may terminate an employment contract by giving three days prior notice to the employer.

Termination by mutual consent
An employment contract may be terminated by mutual consent between the employer and the employee.
Automatic termination
The employment of an employee with an employer will automatically terminate if:

• the term of the employment contract expires
• the employee has reached his/her statutory retirement age
• the employee dies, or is declared dead or missing by a court
• the employer is declared bankrupt
• the employer’s business license is revoked, or the employer is ordered to close or is closed down, or the employer decides on an early dissolution, or
• any other circumstances specified by law or administrative regulation.

Restrictions on the employer’s ability to terminate employment
As set out above, the circumstances in which an employment contract may be terminated with or without notice are prescribed by the Employment Contract Law. However, even where those circumstances apply (except where the employee is in any of the circumstances described in ‘Termination by the employer without prior notice’ above), the employer is prohibited from terminating any employee who:

• is engaged in operations exposing him to occupational hazards and has not undergone a pre-departure occupational health check-up, or is suspected of having contracted an occupational disease and is being diagnosed or under medical observation
• has been confirmed as having lost or partially lost his/her capacity to work due to an occupational disease or a work-related injury
• has contracted an illness or sustained an injury, and is still in the statutory medical treatment period
• is a female employee in her pregnancy, confinement or nursing period
• has been working for the employer continuously for not less than 15 years and is less than five years away from his/her legal retirement age, or
• is in other circumstances that may be prescribed by law or administrative regulation.

Remedies
Potential remedies for wrongful dismissal include:

• reinstatement, if so requested by the employee, or
• compensatory damages calculated at twice the rate of the statutory severance payment, if the employee does not request reinstatement.

Severance payments
In general, severance is payable in most cases of termination of employment. Severance payments are calculated based on the length of service of the employee, and consist of two components:

• payment in respect of service rendered after 1 January 2008, and
• payment in respect of service rendered prior to 1 January 2008 (only applicable if the employee commenced working for the employer prior to this date).

Payments in respect of post-1 January 2008 service are governed by the Employment Contract Law which came into effect on that date.

• The basic formula is one month’s wages per year of service.
• Additional rules to be applied in calculating the payment are: 
  
  (i)    A part year of service less than six months is regarded as a half year of service, corresponding to a half month’s wages in severance pay.
  (ii)   A part year of service greater than six months is regarded as a full year of service.
  (iii)  The monthly pay rate is capped at three times the monthly average wage of the municipality in which the employee works. Where this cap applies, the number of years to be used in the calculation is also capped, at 12 years.

Payments in respect of pre-1 January 2008 service are governed by the national and local rules that applied prior to the commencement of the Employment Contract Law, in the area where the employee is based. The national rules include the Measures on Economic Compensation for Termination or Violation of Employment Contract, which stipulates the method of calculating severance payment.

• The basic formula is one month’s wage per year of service, and any service period less than one year is regarded as one year.
• There is no cap for the monthly pay rate.
• In either of the following two circumstances, the number of years to be used in the calculation is capped at 12 years:
  
  (i)    The employer proposes to terminate the employment contract through mutual negotiation and reaches a termination agreement with the employee.
  (ii)   The employer terminates the employment contract for the reason that the employee is unable to fulfil the job requirements and, after training and adjustment of the position, the employee is still unable to fulfil the job requirements.

Most local jurisdictions adopt the same basic formula as that stipulated by these national rules, though the treatment of part years and the applicability of caps varies among jurisdictions.

Specific requirements applicable to redundancy
An employer effecting redundancies will rely on the statutory circumstance of there having been a ‘major change in the objective circumstances relied upon at the time of conclusion of the employment contract’, which renders the contract unperformable.
Additional rules (including labour union consultation obligations) apply to mass redundancy situations (that is, where 20 or more employees or 10% or more of the workforce face retrenchment).
In summary:

• The employer may only effect such redundancies if the circumstances described in the legislation apply, that is, the employer is:
  
  (i)    initiating reorganisation process in accordance with the bankruptcy law
  (ii)   facing serious production and/or business operation difficulties
  (iii)  switching production, adopting a major technological innovation or revising the business mode, and, after amendment of employment contracts, still needs to reduce its workforce, or 
  (iv)  having a major change in objective economic circumstances rendering employment contracts unperformable.

• The employer must notify all employees or the labour union 30 days in advance of the redundancies, and also notify the relevant labour administration department.
• The employer is required to give priority to retaining certain types of employees, including:
  
  (i)    employees on longer term or open-ended employment contracts, and
  (ii)   employees who are sole breadwinners with senior and/or minor dependants.

• If the employer hires new employees within six months of the redundancies, the retrenched employees must be notified and given preference for re-hire.

The employer is prohibited from terminating the employment of an employee who is in any of the circumstances described in ‘Restrictions on the employer’s ability to terminate employment’ above, including on the grounds of redundancy.

Additional obligations may also apply pursuant to rules imposed at the local level. It is important that these local rules are carefully checked.

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Discrimination and harassment
The Labour Law and the Employment Promotion Law prohibit discrimination in employment on the grounds of ethnic group, race, sex, physical disability or religious belief. Women are protected from sexual harassment under the Law on Protection of Rights and Interests of Women.

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Occupational health and safety
The Production Safety Law sets out general workplace safety requirements. The Production Safety Law requires employers to establish safe systems of work, prevent the occurrence of work accidents, educate employees in work safety and health and minimise work hazards. This is supplemented by a raft of laws, rules and regulations that apply at the industry or local level.

Regulation of outsourcing and contracting

Outsourcing
The Employment Contract Law specifically regulates the engagement and placement of employees by staffing firms. The placement of employees by staffing firms may generally only be done for temporary, auxiliary or substitute positions. Note however that the only way in which a representative office can engage local staff in China is through a staffing firm.

Staffing firms are responsible for the employment-related obligations to their employees. The enterprise with which the employee is placed also has specific obligations, including:

implementing the national labour standards and providing corresponding working conditions and labour protection measures informing the placed employees of the working requirements and wages paying overtime payments and performance bonuses, and providing welfare in connection with the working position providing training that is necessary for the working position, and if continuously using the placed employees, implementing a regular wage adjustment mechanism.

A contract between a staffing firm and its employee must specify where the employee will be placed, their position and the term of the placement.

When placing employees, the staffing firm is required to enter into a staffing agreement with the enterprise with which the employees will be placed. The staffing agreements must specify the job positions in which employees are placed, the number of persons placed, the term of placement, the amounts and methods of payments of labour compensation and social insurance premiums, and the liability for breach of the agreement. Neither the staffing firm nor the employer may charge fees to the placed employees.

The legislation specifically requires companies to determine the term of the placements based on the actual requirements of the job position. The use of several short-term placement agreements to cover a continuous term of work is prohibited.

Placed employees are entitled to join the labour union of either the staffing firm or the enterprise in which they are placed. Placed employees are also entitled to equal pay for equal work, as compared with employees engaged directly by the enterprise to perform work in the same or a similar position.

The legislation prescribes specific circumstances in which the enterprise may return a placed employee to the staffing firm, enabling the staffing firm to terminate the employment contract. Note that the enterprise cannot rely on ‘major change in objective circumstances’ to return a placed employee to the staffing firm.

Contracting
A genuine independent contractor relationship will be governed by the Civil Law and the Contract Law rather than employment-related laws. However, if a service contract for an independent contractor is used to avoid the protections that are afforded to employees, the contract may be considered void.

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Industrial relations

Legislation in brief
The key pieces of legislation governing industrial relations in China are the Trade Union Law, the Labour Law and the Labour Disputes Mediation and Arbitration Law.

Role of trade unions and collective agreements
The Trade Union Law provides for the formation of trade unions in all enterprises, regardless of the number of employees working in the enterprise. The All-China Federation of Trade Unions is a quasi-governmental body responsible for assisting the establishment of enterprise-level trade unions. Trade unions can be an important tool for labour authorities to resolve labour problems. In addition, employers are required to consult with trade unions in many circumstances (for example, formulation and amendment of certain policies, large scale retrenchments, unilateral termination of employment contract, extension of working hours etc).

Following the introduction of the Employment Contract Law, there are particularly onerous consultation obligations with regard to workplace rules and regulations and other matters affecting employees. Employers are required to consult with the employee representative congress or all the employees in the first instance, followed by consultation with the labour union (if in place). 

Collective agreements are written agreements which address overall terms of employment for employees at a particular enterprise. The trade union of a particular enterprise is empowered to sign the agreement on behalf of employees. Collective agreements may be comprehensive or they may only deal with specific issues. They operate alongside the individual employment contract. It is not mandatory for an employer to sign a collective agreement with employees.

Industrial action and disputes
Employees are not expressly permitted by law to strike in the People’s Republic of China, although it is not expressly prohibited by law either. 

Industrial disputes may be resolved through mediation, arbitration or litigation. The Labour Disputes Mediation and Arbitration Law prescribes the relevant processes that apply. This law, which came into effect on 1 May 2008, sought to streamline the previous labour dispute regime, to lower costs and provide for the resolution of labour disputes in a fair and timely manner. Under the legislation, mediation is a mandatory requirement before arbitration. In case the mediation fails, labour dispute arbitration may be further initiated, and an arbitral award will be given. An arbitral award for the following types of disputes will be final and binding upon the employer:

• disputes in relation to claims for remuneration, medical fees for work-related injury, severance pay or damages in an amount not exceeding 12 months local minimum monthly wage, and
• disputes arising from implementation of the national labour standards, such as working hours, leave entitlements and vacation, and social insurance.

For all other types of disputes leading to an arbitral award, if they are not satisfied with the arbitral award, either the employer or the employee may then file a lawsuit with the court.

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