China: Clyde & Co Employment "In A Nutshell" Guides - People’s Republic Of China

Last Updated: 18 January 2013
Article by Clyde & Co LLP

The employment laws of the People's Republic of China ("China" or "PRC") are based on statutory law system. There is no system of binding case-law precedent and also no requirement for the reporting of cases. There are primary pieces of national legislation, such as the Labour Contract Law 2008, and also local legislation at provincial or municipal level, as well as varying local practices. In general, PRC employment laws are very protective of employees. In particular, employers can only terminate contracts unilaterally if a specific ground prescribed by law exists and these grounds are limited. For example, there is no ground to terminate for under-performance, unless this can be categorized as incompetence.

Against this general background, it is important to take great care in structuring and managing employment relationships and to think strategically about the issues that arise.

Issues arising on hiring individuals

Immigration and foreign nationals

Foreign nationals must obtain a work permit and residence visa to work in China for more than three months, whether employed directly by or seconded to work for an entity in China. Foreign nationals are subject to PRC individual income tax whether employed directly by or seconded to work for an entity in China. Social insurance obligations now also apply to foreign nationals, whether employed directly by or seconded to work for an entity in China (a few exemptions apply – e.g. German nationals).

Employment structuring and documentation

Chinese nationals working as full-time employees in China must have a written Chinese language employment contract governed by PRC law – penalties apply for failure to do so. A subsidiary English version is permissible.

PRC law contracts can be for a fixed term or open term – employers tend to use fixed terms (1 – 3 years) because termination opportunities are limited, although there is a limit on the number of consecutive fixed term contracts.

Foreign nationals can be employed directly by an entity in China (with a PRC law governed contract) or can be employed overseas and seconded to the entity in China. Representative offices of foreign companies cannot employ any staff directly – for Chinese nationals a staffing agency must be used to hire staff; for foreign nationals secondment is normally used.

Implementation of handbooks, rules and policies are subject to a consultation process with employees.

It is not possible to contract out of mandatory provisions of PRC employment laws. In addition to national level laws and regulations, local regulations also apply (mainly provincial and municipal).

Finally, part-time employees (less than four hours per day / 24 hours per week) are not covered by many of the statutory protections – most issues (including termination) can be agreed by contract.

Issues arising during the employment relationship

Wages, leave and working time

Minimum wage requirements apply and the exact amount, which is reviewed annually) varies by location – in Shanghai (from April 2012) this is RMB 1,450 per month.

Employees in principle are entitled to paid overtime (or in some cases time off in lieu) after 40 hours per week – some exemption schemes apply for specific categories of employee such as management staff, transport employees, travelling sales people and security personnel. It is also common, but not mandatory, to pay a 13th month salary as a form of bonus.

In terms of working time, employees are entitled to a minimum of one day's rest per week. After one year's work (during their career) full-time employees are entitled to a minimum annual leave entitlement of 5-15 days per year – the exact amount varies according to total years worked.

Medical treatment leave applies – exact entitlements vary by location and years of work, although salary can be reduced during medical leave. Maternity leave also applies – the basic minimum is three months with extensions in specific circumstances. Further, female employees are exempt from termination (except summary dismissal) from pregnancy to one year after birth of child. Finally, marriage leave applies (three or ten consecutive days, including weekends) depending on the age of employee.

Labour unions

Employees can require their employer to establish a labour union within the company (or branch) and union representatives must attend board meetings on HR related matters and can generally represent employees. Unions must be registered with the All China Federation of Trade Unions. Industrial action is neither expressly permitted nor forbidden, but increasingly an issue or risk in practice.

Tax and social insurance

Employees have an obligation to pay individual income tax on their remuneration on a monthly basis. Employers have a separate independent obligation to withhold and pay this to the tax authorities on a monthly basis.

Employer and employee have statutory obligations to make contributions to various social insurance and welfare funds. The exact funds and calculation of contributions varies by location, but typically include: housing, medical, pension, unemployment, work-injury and maternity.

Whistleblowers

Employees have a right and obligation to report unlawful activities to relevant authorities.

Issues arising on termination of the employment relationship

Business transfers

There is no automatic transfer of employees with a transfer of business or assets – employees must terminate their employment with the seller and enter into a new contract with the buyer.

Discrimination

There is no statutory definition of discrimination, but discrimination on the grounds of nationality, race, sex, religious belief, disability and infectious disease is recognized and prohibited. Sexual harassment of women is also prohibited.

This area of law is not sophisticated but claims are increasing.

Terminating employment

During the probation period an employer can terminate without notice (if an employee fails to fulfill recruitment criteria) and an employee can terminate with three days' notice. Thereafter, employees can resign at any time by giving notice (normally 30 days). Employers can only terminate for specific grounds prescribed by law, which are limited – for example, there is no ground for under-performance. Permitted grounds without notice or severance include: serious breach of employer rules and policies; serious dereliction of duty or graft causing substantial harm to the employer; and criminal prosecution. Permitted grounds with notice and severance include: incompetence (after training and/or re-assignment of duties); failure to return to work after statutory medical treatment leave for non-work related injury or illness; and major changes in circumstances which render the contract unperformable.

Redundancy can only apply in specific "mass lay-off" circumstances (minimum 20 employees) when the employer faces financial or operational problems – consultation with employees and severance apply.

The statutory severance referred to above is one month's salary per year of employment, although a cap applies to salary periods of employment from 2008 onwards. The remedy for unfair dismissal is either double severance (per above calculation) or reinstatement of the employment – the employee is entitled to request his/her preferred remedy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions