China: Asia Pacific Newsletter - December 2014

Last Updated: 9 December 2014
Article by Clyde & Co LLP

Clyde & Co's APAC Employment Newsletter publishes recent employment related updates and information from across the region on a quarterly basis. In this issue, we have updates written by Clyde & Co's offices, associated offices and correspondent firms in China, Hong Kong, India, Japan, Mongolia and Thailand to provide you with an overview on various topical issues.


Written by Dr. Iris Duchetsmann, Lisa Li and Cynthia Zheng

Several production accidents have recently returned public attention to the issue of production safety. During China's prolonged period of rapid economic growth over the past decades, legislation has constantly developed to regulate and protect the workforce. Most recently, on 31 August 2014, China issued the amended Production Safety Law ("2014 Production Safety Law"). This would become the fundamental legislation for production safety, and has come into force on 1 December 2014.

Legal framework

The 2014 Safety Production Law is the central national level legislation outlining general aspects of safety production and which regulates companies' obligations. In addition, there are further laws addressing specific issues, including the Fire Protection Law and the Occupational Disease Prevention Law. All such national legislation is implemented by the different bodies within central government and local governments, which also formulate implementation regulations.

Beyond the above, companies must also comply with various national and industry standards which regulate working conditions, so as to ensure production safety, and protective clothing, amongst others. In addition, for certain industries (e.g., the chemical industry), companies must obtain special licenses permitting them to operate; meeting production safety requirements is one of the conditions authorities require to be demonstrated before granting such licenses.

Obligations of companies

Under the 2014 Production Safety Law, companies' obligations concern the following general aspects the facilities and equipment provided, their workforce and funds.

Employers must also assign responsibility for production safety to delegated members of staff.

Facilities and equipment

For companies to build new factories, their designs and construction plans must take into account production safety so as to ensure that the necessary facilities and equipment are in good condition, and ready for use when the project is completed. The same requirement applies in case of any modification of the initial construction project.

Once construction is completed and the plant is operational, companies must provide working conditions in compliance with the applicable national and industry-wide standards. They must conduct periodic internal inspections to ensure the facilities and equipment are functioning and take all necessary measures to minimise the risks of potential accidents occurring in a timely manner.

For companies in certain industries (e.g., offshore oil drilling), certain type of their working equipment may threaten the health of the workforce and, as such, there are additional national and industrial-wide standards which apply to this equipment and must be complied with.

Some companies provide dormitories for their employees. In such instances, the dormitory must be isolated and be in a safe distance away from the place where the workshop, warehouse or store is located and where any hazardous products are manufactured, stored or sold.

Employee protection

Companies are certainly under a direct obligation towards their employees. These obligations include, in general terms:

  • formulating and reviewing internal production safety regulations and operational rules to ensure they effectively implement the applicable laws and regulations as well as national and industry-wide standards;
  • formulating an accident response plan and undertaking regular drills;
  • providing necessary protective articles to the employees;
  • informing the employees of any dangerous aspects in their workplace or any relating to their positions and ensuring that they are aware of measures to prevent accidents and the accident response plan;
  • educating and training their workforce (including dispatched employees and interns) in respect of the statutory rules, internal production safety regulations and operational rules.

In addition to the above general obligations, companies are under further obligations towards those employees who are exposed to hazardous operations which may cause occupational diseases. In defining occupational diseases, there is a national catalogue which provides a comprehensive list.

These further obligations include:

  • informing new employees of the possible occupational hazards and consequences and the prevention measures, etc. before they sign the employment contract. The same applies to employees who change roles to positions which may cause occupational diseases;
  • arranging health checks at a medical institution approved by the government for employees who will perform operations which may cause occupational diseases. Again this would include both new employees and employees transferred from other positions;
  • arranging regular health checks at an approved medical institution for employees who perform operations which may cause occupational diseases;
  • arranging health checks at an approved medical institution before termination of the employment relationship to confirm whether the employee suffers from any occupational diseases.

Companies are specifically prohibited from hiring or arranging for employees under age of 18 to perform operations which may cause occupational diseases, or arranging for employees to conduct hazardous operations if they are more vulnerable to suffer occupational diseases generally or suffer from diseases caused by the specific hazardous operations.

If an employee is diagnosed with an occupational disease, then their employer must release them from the work and make proper arrangements on their behalf. These would include arranging medical treatment and transferring them to other positions upon recovery. Suffering from occupational diseases constitutes a work-related injury and the respective employee is further entitled to benefits and treatment (for example statutory subsidies and protection from termination) as provided by the relevant work-related injury laws and regulations.


Companies are further required to allocate and maintain necessary funds to provide the necessary working conditions in compliance with law. According to the specific industry such as machinery manufacturing, mines, etc., administrative regulations set minimum amount of the funds. The amount of allocated funds is generally linked to business income or the production volume of the relevant companies, and could amount to millions of Renminbi.

Delegated staff and top management

Depend on their industrial sector and scale, companies are required to either assign staff or set up a department to implement the statutory rules and requirements and manage the production safety matters. These delegated production safety personnel are responsible for:

  • formulating internal rules concerning production safety. For example this would include: production safety management rules, operation rules, emergency plans, etc.;
  • organising production safety training;
  • organising drills; and
  • supervising and ensuring compliance with the statutory and internal rules.

In addition to the delegated personnel, companies' top management is also laid general managerial and supervisory responsibilities in relation to production safety.


Companies may face civil, administrative or even criminal liabilities for non-compliance. Civil liabilities will include compensation to the employees for losses suffered. Administrative liabilities could include, for example, administrative fines, confiscation of income and an order to cease production. Finally, where a failure in production safety causes an accident, criminal liabilities may also be imposed on a company's top management and its delegated production safety personnel. This liability could extend to imprisonment for up to 7 years.


Written by Dr. Iris Duchetsmann and Cynthia Zheng

As of 1 September 2014, the new judicial opinion of the China's Supreme People's Court concerning work-related injuries (the "Opinion") came into force. This Opinion mainly clarifies the scope of work-related injuries, to support the implementation of the Regulations on Work-Related Injury Insurance (the "Regulations").

General framework of work-related injuries

The Regulations define the general framework of work-related injury matters, including the scope of work-related injuries, verification of the injury, and obligations and liabilities of employers, amongst other aspects.

Under the Regulations, work-related injuries include the following cases, where:

  • an employee is injured as a result of an accident occurred due to his/her work within working hours and at his/her place of work;
  • an employee is injured as a result of an accident within their place of work, before or after normal working hours, whilst preparing for or finishing work related to his job;
  • an employee suffers from violence or another unexpected injury during working hours, at their place of work, whilst performing his/her duties;
  • an employee suffers from an occupational disease;
  • an employee's whereabouts are unknown due to an injury or accident that occurred whilst he/she was travelling beyond the workplace in performance of his/ her duties (the "Business Trip Period"); or
  • an employee is injured in a traffic accident for which he is not principally responsible, or during urban rail transit, in passenger ferry or rail accident on his/her way to or from work ("Commuting Accidents").

Within the above scope, whether an injury constitutes a work-related injury or not is subject to assessment and verification by local labour authorities. Once confirmed that it is so, and depending on the severity of the injury, an injured employee will be entitled to statutory benefits, including coverage of medical expenses and provisions of statutory subsidies by the statutory work-related injury fund.

His/her employer also has obligations. The employer must continue to pay the employee's full monthly salary during the medical treatment period (which is generally up to 12 months, and may last for 24 months in severe cases subject to approval by the local labour authorities).

Following medical treatment, the employer's liability depends on the disability and injury grade (from 1 (the most severe one) to 10), as evaluated by the local labour authorities. Liabilities generally include arranging appropriate work, providing compensation or paying subsidies according to local standards. Employment must be maintained if the grade of disability and injury is verified as 1 to 4.

Clarifications provided by the Opinion

The Regulations provide the general definition of work-related injuries, but challenges remain for implementation. To guide practice in implementation, the Opinion provides helpful clarifications.

The Opinion clarifies that the following cases also constitute work-related injuries, where:

  • the injury occurs during working hours and at the place of work, and where the employer or the labour authority can provide no evidence that the injury is due to a non-work-related reason;
  • the employee is injured during an activity organized by the employer, or by another entity but at which the employee's attendance is required by the employer;
  • within working hours and whilst travelling between several working locations in the course of carrying out his/her work duties, there occurs an injury to the employee whilst within a reasonable proximity of these locations; and
  • whatever the injury suffered by the employee, it occurred during working hours and within a reasonable proximity to the work place, which is relevant to his/her work.

The Opinion considers the following period as the "Business Trip Period":

  • when, as assigned by his/her employer or required by his/her work, the employee travels beyond their place of work to undertake activities which are related to his/her job duties;
  • when the employee is receiving training or attending a meeting as assigned by the employer;
  • when the employee travels beyond their place of work to conduct activities as required by his/her work.

As to Commuting Accidents, the Opinion upholds an accident as a Commuting Accident if it occurs within a reasonable time period on a reasonable route the employee takes for the purpose of commuting between his/her work place and:

  • his/her domicile, habitual residence or dormitory;
  • the residence of his/her spouse, parents or children;
  • the place where he/she performs those activities necessary for earning a living.

If it occurs within a reasonable time period whilst on any other reasonable route that the employee takes whilst commuting, the accident will also be upheld as a Commuting Accident.


Written by Dr. Iris Duchetsmann and Cynthia Zheng

Following a seminar held between local judges in October 2014, the highest level local court, the Shanghai High People's Court (the "Court") issued internal guidelines summarising its discussions and detailing the current prevailing opinions in relation to popular labour disputes. The following update highlights the key issues from those guidelines.

Employment relationship

It is not uncommon for domestic private companies to handle social insurance contributions for some non-employee individuals; this can be for a variety of reasons. The Court has held that handling social insurance formalities, or making contributions, do not necessarily lead to the constitution of an employment relationship. Instead it is one of the factors which a court will take into consideration. Other factors which the Court will assess include:

  1. whether both parties have reached a consensus on establishing an employment relationship;
  2. whether the individual is subject to the company's management, including whether s/he takes and follows instructions; and
  3. whether labour provided by the individual is part of the business of the company.


The Court confirmed that a de facto employment relationship receives the full scope of protection provided by Chinese labour laws. Therefore, termination must comply with the 2008 Labour Contract Law ("LCL"). The same liabilities for an employer – double severance or reinstatement (it being the employee's right to claim either remedy) – apply to a wrongful dismissal.

The Court further clarified that if an employer has performed its obligation of honest consultation but no written agreement could be reached in relation to the requisite clauses, the employer may terminate the employment relationship and pay severance.

Additionally, the Court has provided guidance on how to handle difficult situations. In practice, an employer will need to adjust an employee's position according to its production and operational needs. Generally, such adjustments constitute a contractual amendment which requires both parties' consent. However, it is quite common that an employee might request time to consider the amendment. Rather than expressly providing a rejection, the employee might not report for the new job or the original position. Following this, the employer would dismiss him/her due to absence.

The Court generally upholds an employer's right to make a reasonable and lawful adjustment to an employee's position where it modifies its production structure or scope of business due to a change in the external market environment. An employee should cooperate in such a situation. If the employee disagrees, s/he should settle the dispute via consultation and should not resist or fight the adjustment through inappropriate means. Therefore, where an employee's absence resulting from a refusal to work in the new position or the original position constitutes a material breach of the internal rules and regulations of the employer, the employer may lawfully dismiss the employee.

Foreign employment

In general, foreigners must obtain a work permit for them to work in China legally, and the employing company will be named on the work permit. The Court has clarified that, if a foreign individual's actual employer is different from that which is recorded on his or her work permit, there will be no employment relationship between the individual and the actual employer.

A different rule applies to holders of a permanent residence permit. The Court has confirmed that an employment relationship may still be established, even where they do not obtain a work permit.

With regard to the termination of employment for foreign employees, it is widely accepted among the courts of other cities and provinces that the restricted dismissal situations provided by the LCL apply equally to foreign employees and that any contractual agreement deviating from the statutory rules is invalid.

However, Shanghai takes a different approach. In accordance with long-existing local legislation, companies and foreign employees may agree on termination situations which deviate from the LCL rules. Under such local regulations, an employment contract with a foreign employee may agree on the application of termination conditions as provided by the LCL. In some situations, the contract may keep silent on the consequences for the employer of any termination which is in violation of the terms of the agreement.

The Court confirms that a claim for reinstatement following a dismissal in violation of such a contractual agreement will not be upheld. The key consideration for the Court is whether or not reinstatement is practically possible. If an employer agrees on reinstatement, it can be ruled. However, if the employer disagrees, reinstatement should not be ruled on the basis of the practical difficulty in enforcing the judgment where the employer de-registers the work permit with the labour authority.

As a different case, a contract may agree that the employer shall bear liabilities for its termination in violation of contractual agreement but is silent on the detailed rules about compensation (i.e., no agreement on the calculation method or the amount). In such case, the Court will uphold a claim for compensation of actual losses.

To read this Newsletter in full, please click here.

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.

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