Employment Laws in China

mariblack3 Author:
Mariana Villa da Costa – Littler Mendelson

The Chinese labor environment has changed considerably over the past few years, to keep up with China’s shift towards capitalism and explosive economic growth.  The world’s attention is on China now, and in particular, the abuses of employees’ rights have caught the attention of the government and the international community, triggering new sets of laws that are being strictly enforced today.

Companies doing business in China must pay attention to these new laws and, in particular, HR practitioners need to understand the PRC’s employment laws to avoid conflicts in the country.

2008 PRC Employment Contract Law – A Very Liberal Piece of Legislation for Workers

The 2008 PRC Employment Contract Law (effective January 1, 2008) is a very generous law for workers, granting employees more protection than the old legislation.  For example, employers in China used to profit from using temporary workers; however, with the new law,  if employers keep using a temporary individual for more than one short-term contract period, this person would be viewed as a permanent employee, receiving all the benefits associated with permanent status.

 Even though employers had concerns about the legislation they knew it would be important to show more clarity in the employer – employee relationship.  This would, ultimately, send a message to the world about China’s willingness to adopt more transparent principles in support of positive employer-worker relations.

 Below are more details on provisions of the new law.

 2008 PRC Employment Contract Law – Mandatory Employment Contract

 This considerably new law does not replace 1995 Labor Law of the People’s Republic of China, but substitutes some of the chapters in individual employment contracts and also, details and adds other portions of the existing labor laws.

Before 2008, it was not very common for employees to have formal contracts with the Chinese companies, a  path to violations and abuses.  With this new law, a very detailed written employment contract is mandatory.  The contract must include details such as job description, working hours, and compensation, and it must be created during the first month of employment.

If the company fails to create the contract on time, then the employer is required to pay the worker twice his or her salary for every month that there is no contract.

More Protective Provisions

The law also has other interesting rules that increase the protection of employees in the workplace.  Some of them are:

  • Limitations of reasons for dismissal to serious issues such as incompetence or  rule breaking company rules
  • Determining that in mass layoffs some categories of employees are spared, such as sole family wage earners, and those who support a minor or an elderly person
  • Specifying actions and penalties for unlawful terminations
  • Prohibition of employers retaining employee’s documents and ID’s
  • Definition of what constitutes a fixed-term, an open and a specific contract
  • Stipulating grounds for termination that requires 30 days’ written notice or the payment of one month’s salary 

 Complying With the New Provisions:  Some Advice

Companies doing business in China are expected to comply with the new rules; therefore, it is important that HR practitioners bear in mind the following:

  • Use specialized legal counsel for interpretation of the new provisions
  • Establish a good relationship with the government authorities and with the trade unions
  • Complete the contracts in a timely manner and add all the specific provisions addressing the employee-employer relationship
  • Work along with the Chinese HR practioners to ensure a better understand of the cultural aspects
  • Create HR systems to manage the work relations
  • Carefully decide on termination of employees in China

 China, with its increasing economic power, has caused employers to focus more on operations there.  HR Professionals should pay careful attention to how business is conducted in China and especially, how labor and employee relations are managed.  Full compliance with the domestic laws will ultimately ensure the success of your operations in this fascinating land.

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One response to “Employment Laws in China

  1. Dear Mariana

    Interesting article, very helpful for any company dealing with China environmental.
    Based on the new law, let me add an information about legal requirements for Chinese companies to apply in any public auctions in Brazil to provide services or goods. Taking into consideration the new law, it is important to provide valid employment documents (such as duly executed employment contracts and proof of payment of social insurance and housing fund contributions) to prove that it established lawful employment relationships with the relevant employees, otherwise a company will not fulfill with the requirements to compete.
    Regards
    Nadia Demoliner Lacerda