China: The Challenges Of The New Supervision System

Last Updated: 19 December 2017
Article by Jeanette Yu

In China,  the Ministry of Human Resources and Social Security  (MOHRSS) and the Human Resources and Social Security Bureaus  are the competent labour administrative authorities  responsible for supervising the implementation of  PRC employment law at the state and local levels respectively. 

In a move to increase compliance with employment law, a new supervision system was introduced at the beginning of this year. Jeanette Yu, Counsel and Head of Employment & Pensions Practice Area Group, CMS, takes us through what it entails, and what foreign enterprises in China need to be aware of.

Starting from 1st January, 2017, the MOHRSS established a new supervisory system for enterprises for enforcement of the PRC employment law, which consists of a so-called ranking system, a random checking system and a 'name and shame' system.

Ranking system

This system was established according to the Methods on Ranking of Credits of Enterprises in Compliance of PRC Labour Law,1 issued by the MOHRSS on 25th July, 2017. Labour administrative authorities now divide enterprises into three different levels—A, B or C—subject to their relative compliance with PRC employment law. The ranking will be decided by the competent labour administrative authority every year, based on the information they obtain from daily random inspections or specific examination results, written documents submitted by the enterprises and any reports or complaints from employees, according to the following scenarios:

  • An enterprise that is in compliance with PRC labour law and has not been punished by the labour administrative authority will be ranked level A.
  • An enterprise that has been punished by the labour administrative authority but has not committed a severe offence will be ranked level B.
  • An enterprise that has been punished by the labour administrative authority for a severe offence of the law will be ranked level C.

Random checking system

Based on the Notice on Promotion of Making Random Inspections Relating to Human Resources and Social Security Matters for Supervision Purposes,2 issued by the MOHRSS on 1st August, 2016, all labour administrative authorities at the provincial level must set up: a check-up list stating the employment matters to be inspected by the authorities; a database containing the basic employment-related information of all enterprises; and a name list of supervisory officers holding supervisory certificates. Random inspections may be conducted by supervisory officers who are randomly selected from the name list by the competent labour administrative authority on enterprises that are also randomly chosen from the database.

'Name and shame' system

Based on the Methods on the Public Announcement of Severe Violations of PRC Labour Law,3 issued by the MOHRSS on 1st September, 2016, labour administrative authorities are authorised to publicly announce severe offences against PRC employment law that occur within their jurisdiction. These announcements can be made every season, or every half a year on the authorities' official website, or through other major public media such as newspapers or TV stations in the area.

Under this new supervisory system, enterprises ranked levels B or C will become major targets for supervision, and will likely encounter more regular random inspections, while enterprises ranked level A will expect fewer inspections. If a serious offence is uncovered during a random inspection, the competent labour authority may impose administrative punishments on the enterprise, and make a public announcement about the offence through the 'name and shame' system. Of course, the offence will affect the ranking of the enterprise in the following year under the ranking system.

Furthermore, the above ranking information, the information about the random inspection results of the enterprises and the 'name and shame' list will be shared among all related administrative authorities such as the Administration of Industry and Commerce, finance departments, tax authorities and trade unions. Any records of an enterprise with poor compliance with PRC employment law may affect its creditworthiness with other administrative authorities.

Challenges for enterprises

The establishment of the new supervision system is a clear signal that the Chinese Government is strengthening enforcement of PRC employment law. Enterprises must pay attention and remain compliant with PRC employment law in their daily work, especially with respect to: setting up internal rules and regulations; concluding written contracts with employees; following labour dispatch regulations; complying with the regulations on protecting female and juvenile employees; leave and rest; and duly and fully paying salaries and social insurance contributions, which is the major focus of the labour administrative authorities when evaluating the ranking of enterprises.

Enterprises should specifically avoid: being punished three or more times by the labour administrative authorities; conducting any illegal behaviour leading to mass disturbances; extreme events or other accidents with serious adverse social impacts; using child labour; refusing rectification upon receiving orders or administrative decisions from the labour administrative authorities; and unreasonably hindering or resisting supervisory inspections from the authorities. The occurrence of any of these circumstances will cause an enterprise to be ranked level C, and its responsible person may be called before the authorities. Furthermore, in the event of an enterprise deliberately deducting a large amount of remuneration from employees; delaying payments or even refusing to pay remunerations; not participating in the social insurance scheme or failing to pay social insurance contributions for its employees; breaching the regulations on the protection of female and juvenile employees; seriously abusing the regulations on rest and leave; or violating the regulations prohibiting the use of child labour, the enterprise might appear in the 'name and shame' list in the public media.

During an event held by the European Chamber on 12th January, Mr Song Zhihong, Head of the Labour Protection Supervision Administration Department of the Shanghai Human Resources and Social Security Bureau, explained that there are around 600 supervisory officers in charge of the inspection of all enterprises in Shanghai.

In order to avoid potential risks, enterprises should conduct an internal check of their compliance with PRC employment law and make adjustments on their internal employment policies if necessary. If an inspection is carried out by the authorities, the enterprise should actively cooperate with the supervisory officers, by answering questions and providing true information and necessary documentation. If the authorities request any rectification or make any order or decision, the enterprise should follow these requests unless otherwise indicated by law.

Under PRC law, for any administrative order or decision made by the labour administrative authority, such as making rectification within a prescribed time or paying penalties, if an enterprise is not satisfied with it, it must apply for administrative review at the People's Government at the same level, or the competent labour administrative authority at the upper level within 60 days.4 If the enterprise is not satisfied with the result of the administrative review, it may raise administrative litigation at the competent People's Court within 15 days.5 If an enterprise wishes to contend its appearance in the 'name and shame' list, it may apply for re-examination at the labour administrative authority responsible for making the decision. The respective authority should re-examine its decision within 15 working days and should rectify the issue within 10 working days if necessary.6 However, the ranking of an enterprise is fully subject to the decision of the labour administrative authority, and no complaint procedures can be adopted by enterprises if they are not satisfied with their ranking.

Jeanette Yu is Counsel and Head of Employment & Pensions Practice Area Group of CMS in China. She has more than 16 years' experience in advising clients on a wide range of PRC labor law issues.  Jeanette acts as the  Vice Chair of Human Resources Working Group of European Chamber. CMS  provides legal  advises to clients in the areas of corporate and M&A, distribution and commercial, employment, banking and finance, insurance, competition, real estate and construction, IP, dispute resolution as well as tax and customs. CMS has been active in China for several decades. 





4 PRC Administrative Review Law

5 PRC Administrative Litigation Law

6 Methods on Public Announcement of Severe Violations of PRC Labour Law

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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