Quick Guide to Chinese Labor Law

Quick Guide to Chinese Labor Law

  • Posted by: Peter Pang
  • Category: Category: China 101
Guide to Chinese Labor Law

When the Opening Up process first began in China some three decades ago, the country had very little legislation on the books regarding employment standards for private industry. As the country’s economy moved further and further away from reliance on state-sponsored jobs and the old concept of “the iron rice bowl” (whereby every worker’s financial security – meager as it was – was guaranteed by the government) a clear need for labor laws emerged.

The most recent labor laws came into force in 2008. Here we present some of the key provisions of those laws.

Hiring

Generally speaking, employees are hired on the basis of a contract between themselves and the employer which must stipulate job responsibilities, job location, working time, rest and leave, pay, and working conditions, and will often also stipulate a probationary period, what training is to be provided, confidentiality obligations, as well as social and supplementary insurance. Contracts can be for a fixed term (most common), an indefinite term, or until a specified project is completed. Should an employee work for a year in the absence of a contract, then by law, it is understood that a contract of indefinite term is in effect.

Probationary periods are generally a function of the contract term:

Term Maximum Probationary Period
< 3 months N/A
3 – 12 months 1 month
1 – 3 years 2 months
> 3 years, or indefinite 6 months

 

Note that employers may pay employees a maximum of 20% less than their contract pay during the probationary period. Moreover, if an employer pays fees for employee training then the employee must generally work for the full agreed-upon term. Otherwise, the employer may seek repayment of those fees.

Upon executing an employment contract, the employer must go to an official job centre to report the employment formalities, buy social security for the employee from the Social Security Bureau; and open a public accumulation fund account for the employee.

Firing

Employment contracts can be terminated in several ways:

Mutual consent:

Terminate at any time without compensation.

Termination for cause:

Terminate without compensation in the event that employee fails to perform during the probationary period, or for serious violations of company policies or misconduct that causes the company significant loss or harm.

Special circumstances:

Special circumstances, particularly in terms of employees that have health issues, will complicate a termination process. In general, employees that are pregnant or breastfeeding cannot be terminated, and employees who have suffered injuries on or off the job cannot be terminated while they are under physician care. While unable to work, employees earn reduced wages at a rate and for a duration that is based on their length of service.

When employment involves the potential exposure to industrial hazards such as dust, radiation, toxins, carcinogens and so on, employers are advised to stipulate in the employment contract that employees must take relevant medical tests when their employment starts and ends. Labor laws related to medical benefits and termination for employees that deal with these workplace hazards are complex, and generally the most onerous in terms of termination procedures.

When a company terminates a labor contract, it should complete the formalities and cancel all aforementioned accounts accordingly and successively. When the terminated employee finds another job, the former employer is obliged to assist in the transfer of the accounts under the name of the new company.

Layoffs

If a company is subject to restructuring or financial crisis, changes the business it is engaged in, or changes its technology or management, and it is necessary to cut down more than 20 or 10% of the staff, the company is allowed to conduct a layoff. However, it should inform the labor union and/or all staff of the situation at least 30 days in advance, and secure approval from the relevant labor administrative department.

Summary

Compared to most western countries China’s labor laws are extremely favourable to employers. However, these laws continue to evolve, changes are frequent, and employees can lodge complaints with ease. Companies that fail to comply with the letter of the law are subject to prosecution and penalties. Foreign companies operating in China are therefore advised to hire a qualified human resources professional to ensure compliance, or alternatively, contact IPO Pang to discuss the labor-compliance resources that it can offer.

IPO PANG XINGPU, with headquarters in Shanghai China, we have been helping clients from all over the world with their legal matters since 1992. We are a group of dedicated attorneys and professionals with expertise and experience in a variety of legal disciplines.  Clients come to us “When Being Right Matters ®”.

Peter Pang
Author: Peter Pang
Peter C. Pang* is Chairman and Managing Partner of IPO PANG XINGPU LAW FIRM., His expertise includes corporate law and formation, franchising – inbound and outbound, mergers and acquisitions, real estate acquisitions, private placement, technology transfer, joint venture formation and business alliances, and trade secrets and intellectual property protection. Mr. Pang’s over 35 years of law practice in the People’s Republic of China and the United States places him amongst a handful of US-China lawyers with Asian International Expertise and in-depth appreciation for both the Western and Asian cultural and business differences and sensitivities. Mr. Pang is an attorney who “not only knows, but knows how” to close a deal, litigate vigorously and represent clients zealously. We don’t sell time, we sell solutions ™.

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