Employment and employee benefits in China: overview

A Q&A guide to employment and employee benefits law in China.

The Q&A gives a high level overview of the key practical issues including: employment status; background checks; permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; intellectual property; restraint of trade agreements and proposals for reform.

To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits: Country Q&A tool.

The Q&A is part of the global guide to employment and employee benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-guide.

Contents

Scope of employment regulation

1. Do the main laws that regulate the employment relationship apply to:
  • Foreign nationals working in your jurisdiction?

  • Nationals of your jurisdiction working abroad?

Laws applicable to foreign nationals

There are two ways foreign nationals can work in the People's Republic of China (PRC):

  • The foreign national is directly employed by a PRC entity, which acts as the legal employer of that foreign national (direct hiring).

  • The foreign national is employed by a foreign entity and then seconded to work in a PRC entity (secondment).

Under direct hiring, the employment of foreign nationals is subject to all aspects of PRC employment laws, including terms concerning (but not limited to):

  • Execution of the employment contract.

  • Rest and vacation.

  • Social insurance.

  • Termination.

Under secondment, PRC employment laws are not generally applicable. However, the following matters must still comply with PRC employment law:

  • Minimum wages.

  • Working hours.

  • Holiday entitlement.

  • Labour safety and hygiene.

  • Work permits and social insurance.

Laws applicable to nationals working abroad

When a PRC national is seconded to work abroad by a PRC employer, both the individual and the PRC employer are subject to PRC labour laws.

However, the employment relationship between a PRC national working abroad and a foreign employer is not governed by PRC employment laws.

 

Employment status

2. Does the law distinguish between different categories of worker? If so, what are the requirements to fall into each category, the material differences in entitlement to statutory employment rights and are there any maximum time periods for which each category of worker can be engaged?

Categories of worker

Under PRC laws, personal services provided by the following persons are categorised as labour services:

  • Retired persons.

  • Foreign nationals without a work permit.

  • Student interns.

  • Freelancers.

Unlike an employment relationship, labour services are not governed by the PRC Labour Law, Employment Contract Law, Social Security Law and other employment-related regulations.

The disputes arising between an employer and a personal labour services provider are not heard by labour arbitration committees as they are not regarded as labour and employment issues.

However, the law does not classify individuals into employees, workers, self-employed and independent contractors.

Unlike an employee under an employment relationship, a labour services provider is not entitled to:

  • Severance pay.

  • Social security benefits.

  • Overtime pay.

  • Statutory working hours limitations.

  • Statutory paid annual leave.

  • Other employment contract-related rights and benefits.

The termination conditions of a labour services contract can be freely negotiated by the parties, which is not allowed under an employment contract. A labour services contract can take any form: the law does not provide that it must be in writing or made orally.

Time periods

As the labour services contract is governed by contract law only, its duration can be agreed freely by the parties.

The length of an employment contract can be determined based on the completion of a certain task. On the completion of the task, the underlying employment contract expires.

The law does not prescribe a maximum legal duration for any type of employment relationship.

 

Recruitment

3. Are any grants or incentives available for employing people? Does any information/paperwork need to be filed with the authorities or given to new employees when employing people?

Grants or incentives

The government provides hiring employers with tax preferences or special subsidies to encourage the employment of certain groups of people (for example, disabled people or unemployed people).

Tax preferences. Certain tax deductions for VAT, business tax and income tax are available for employers hiring disabled employees. Employers must apply to the competent local tax authority with supporting documentation evidencing the employment of disabled people to claim the preferential tax treatment.

Employers in certain industries (for example, trading enterprises, service enterprises and so on) can enjoy tax deductions within prescribed limits for business tax, urban maintenance and construction tax, and educational surtax when they recruit persons holding an Unemployment Registration Certificate (usually held by people who have been laid off or registered as unemployed). Local regulations provide different requirements for the application of tax deductions and the respective amounts.

Special subsidies. These are granted by the government and are available to employers hiring disabled people. The subsidiary payments available vary in amount from region to region.

A variety of other subsidies are also available for employing certain other groups of people. These groups, and the amount of the subsidies available, vary from region to region, for example:

  • In Shenzhen, a subsidy is available to local employers hiring local residents who have had difficulty in finding employment.

  • In Xiamen, a subsidy is available to employers hiring migrant workers from other cities to work in local factories.

Filings and other requirements

Employers must file evidence of the employee's recruitment to receive tax preferences or special subsidies (see above, Grants or incentives).

In addition, the following documents must usually be submitted to, and reviewed by, the government authorities:

  • Employment contracts executed with disabled employees.

  • Records of paying social insurance for disabled employees.

  • Records of paying salary to disabled employees.

An original copy of the written employment contract must be given to the employee.

 

Background checks

4. Are there any restrictions or prohibitions on carrying out background checks in relation to applicants?

PRC laws and regulations expressly prohibit employers from testing applicants for hepatitis B.

The employer is prohibited from requiring its employees to provide test reports for hepatitis B or asking its employees to confirm whether they are hepatitis B surface antigen carriers.

The PRC Employment Contract Law states that employers have the right to obtain basic information from employees that directly relates to the employment contract. Employers must follow the legal requirements regarding personal data processing and protection when obtaining basic employee information.

There is no law specifically addressing what kind of personal information is "directly related to the employment contract". In practice, information such as an employee's age, education, language skills and work experience are usually deemed necessary to perform an employment contract and therefore directly related to performing it.

 

Permission to work

5. What prior approvals do foreign nationals require to work in your country? What information/paperwork needs to be kept or filed with the authorities when they start work?

Visa - Z visa

Procedure for obtaining approval. Generally, the PRC entity must apply for an employment licence and obtain an official Z visa invitation letter for the foreign national before the foreign national enters the PRC.

After obtaining the employment licence and the Z visa invitation letter, the foreign national must apply for a Z visa at a PRC embassy or consulate in their home country. Usually, the foreign national must undertake a medical examination before entering the PRC.

After obtaining the Z visa, the foreign national can enter the PRC. The foreign national must then apply for a residence permit from the local public security bureau within 30 days after entering the PRC. The duration of the foreign national's stay in the PRC will be dictated by the residence permit. The foreign national can leave or enter China multiple times within the approved period indicated on the residence permit.

Cost. The government filing fee for obtaining an employment licence varies from region to region, although its issuance is usually free of charge.

The government filing fee for a Z visa varies depending on the nationality of the person obtaining the visa.

Time frame. When correctly completed applications are received by government authorities, the following time frames usually apply (although this can vary from region to region):

  • It generally takes approximately ten working days to issue an employment licence.

  • It generally takes four to six weeks to issue a Z visa.

Sanctions. Foreign nationals entering China must present their passport or other international travel document and visa to the border inspection authorities. Foreign nationals who do not hold a valid Z visa must not be allowed to work in China.

Visa - R visa

As the Administrative Regulations of the People's Republic of China on Entry and Exit of Foreigners came into force on 1 September 2013, a new type of visa has been added for "talent introduction". The corresponding visa type is the R visa, issued to high-level foreign national talents and specialised talents sought by China in urgent matters.

As the R visa is a new type of work visa, the authorities have yet to provide a detailed procedure for obtaining one.

Off-campus work and internship of foreign national students

When a foreign national holding a study residence permit needs to undertake off-campus work or internships, upon obtaining consent from their school, they must apply to the entry/exit administration of a competent public security authority to have their residence permit changed to reflect the place and period of the work or internship.

Permits - Z visa

Procedure for obtaining approval. After obtaining the employment licence and the Z visa, the PRC entity must apply for a work permit within 15 days after the foreign national enters the PRC. Usually, the employment licence, the employment contract and the foreign national's valid passport are required for the application.

The foreign national holding a work permit must apply to the local public security bureau for a residence permit within 30 days after entering the PRC. The length of an employment residence permit is between 90 days and five years.

When the work permit is about to expire, the PRC entity can apply for an extension with the local labour administrative department 30 days prior to the expiry date. When the work permit is extended, the foreign national's residence permit usually needs to be extended accordingly.

Cost. The government filing fee for obtaining the work permit varies from region to region, although its issuance is usually free of charge. The application fee for a residence permit depends on its duration. For those granted for one year or less, the fee is RMB400. The fee increases if the residence permit is granted for longer than one year.

There is usually no charge to extend a work permit, although a charge for extension of a residence permit as is charged for its issuance may apply, depending on the length of the extension.

Time frame. Processing time varies from region to region, but generally the following time frames apply:

  • Obtaining a work permit takes between five and seven working days.

  • Obtaining a residence permit takes approximately five working days.

  • Extending a work permit takes approximately three working days.

  • Extending a residence permit takes between five and ten working days.

Sanctions. Employment of foreign nationals without a work permit and a residence permit is regarded as illegal. The offending employees:

  • May be repatriated and forbidden from entering China for one to five years from the date of repatriation.

  • Are subject to a fine ranging from RMB5,000 to RMB20,000.

  • When the case is serious, will be detained for a period of more than five days but less than 15 days and be subject to the fine above.  

Permits - R visa

As the R visa is a new type of work visa, the authorities have yet to provide a detailed procedure to obtain one.

Other

The process for obtaining prior approvals for a foreign national who works with a PRC representative office of a foreign company is slightly different.

Procedure for obtaining approval. The foreign national must be registered with the local administration for industry and commerce as the representative office's representative or chief representative and obtain a Representative Certificate.

The representative office must also apply to a competent local labour administrative department for an official Z visa invitation letter.

After obtaining the Representative Certificate and the Z visa invitation letter, the foreign national must apply for a Z visa at a PRC embassy or consulate in their home country.

The foreign national can enter the PRC with the Z visa and must then apply for an employment permit. The foreign national must also apply for a residence permit at the local public security bureau.

A medical examination is usually required before a foreign national can enter the PRC.

Cost. See above, Visa: Cost.

Time frame. See above, Visa: Time frame.

Sanctions. See above, Permit: Sanctions.

 

Restrictions on managers and directors

6. Are there any restrictions on who can be a manager or company director?

Age restrictions

There is no special restriction on the age of managers or directors, although managers are generally considered to be the company's employees so are subject to the usual restrictions on retirement age (60 years for men, 55 years for women). A person serving as a director on a company's board of directors is not generally regarded as an employee and is therefore not subject to the retirement age restrictions.

Nationality restrictions

There are no nationality restrictions, but foreign nationals working as managers or directors must follow any legal requirements concerning work permits (see Question 5).

Other restrictions

Under PRC company law, the following persons cannot be senior managers of a company or directors on a company's board:

  • Persons with limited or no capacity for civil conduct (for example, minors or mentally ill persons).

  • Persons sentenced to prison for certain crimes (for example, bribery or embezzlement) or deprived of political rights as a result of a criminal conviction, where five years have not elapsed since any penalty was imposed in connection with that sentence or a criminal conviction was completed.

  • Persons who have served as a general manager or director of a company that went into bankruptcy liquidation, as a result of mismanagement for which that person was personally responsible, and the company liquidation was less than three years ago.

  • Persons who have served as the legal representative of a company or enterprise whose business licence was revoked due to a violation of the law, where that person was personally responsible for the revocation and it occurred less than three years previous.

  • Persons in default of a significant amount of personal debt.

 

Regulation of the employment relationship

7. How is the employment relationship governed and regulated?

Written employment contract

A written employment contract must be executed between the employee and the employer when a full-time employee is recruited. The following matters must be included in the employment contract:

  • The name, domicile and legal representative or main person in charge of the employer.

  • The employee's name, domicile and ID number (or other valid documentary evidence of identity).

  • The term of the employment contract.

  • The job description and the place of work.

  • Working hours, rest and leave.

  • Remuneration.

  • Social insurance.

  • Labour protection, working conditions and protection against occupational hazards.

  • Any other matters that are legally required to be included in employment contracts under applicable laws and regulations.

Implied terms

Certain legal requirements are implied into the employment relationship, irrespective of whether they are covered in the written contract, including (but not limited to):

  • Grounds for employment termination.

  • Minimum wages.

  • Calculation of statutory severance.

Collective agreements

Currently, collective agreements are more common in enterprises in the manufacturing and retail industries. Recently, the use of collective agreements has been encouraged for all types of enterprises. The PRC Government and the All China Federation of Trade Unions (ACFTU) jointly published a "Rainbow Plan", which sets the goal of having all companies that have set up an enterprise-level trade union covered by a collective agreement by the end of year 2012.

Currently, most collective agreements are negotiated at company level between the company's management and its employees. To enhance employees' bargaining power, the ACFTU and the Government have promoted the establishment of enterprise-level trade unions, because enterprise-level trade unions can represent employees in collective bargaining.

Although the latest official report and statistics from the ACFTU on the progress of the Rainbow Plan have not been made available, it is a common consideration that this plan is not strictly being carried out.

 
8. What are the main points to consider if an employer wants to unilaterally change the terms and conditions of employment?

Generally, an employer cannot unilaterally change the terms and conditions of employment without the employee's written consent. However, an employer can unilaterally change an employee's job position if either:

  • The employee is incompetent in performing their role.

  • The employee is unable to perform their role after a statutory period of medical treatment has expired (see Question 12).

 

Minimum wage

9. Is there a national (or regional) minimum wage?

The local government of each region announces its local minimum wage, which is normally updated at least every two years and applies to all employees, regardless of their age, position and experience. The minimum wage generally includes a monthly minimum wage and an hourly minimum wage. The monthly minimum wage applies to all full-time employees, while the hourly minimum wage applies to all part-time employees.

 

Restrictions on working time

10. Are there restrictions on working hours? Can an employee opt out on either an individual or collective basis?

Working hours

Full-time employees. There are three types of working hours systems applicable to full-time employees:

  • Standard working hours system.

  • Comprehensively calculated working hours system.

  • Flexible working hours system.

Under the standard working hours system, an employee should work no more than eight hours per day and 40 hours per week. The employee is entitled to at least one rest day every week. If the employee is required to work over the above limits, they will be entitled to overtime pay to be calculated as follows:

  • For overtime worked on a working day, the employee is entitled to 150% of their normal salary for the overtime worked.

  • For overtime worked on a rest day (normally Saturday and Sunday), the employee is entitled to alternative rest time, or 200% of their normal salary for the overtime worked if the alternative rest time cannot be arranged by the employer.

  • For overtime worked on a public holiday, the employee is entitled to 300% of their normal salary for the overtime worked.

Under the comprehensively calculated working hours system, working hours are within a certain calculation period (for example, a month, a quarter or a year). The average daily working hours and the average weekly working hours must not exceed the statutory maximum (no more than eight hours a day and no more than 40 hours a week). The comprehensively calculated working hours system is generally applicable to certain special industries requiring long shifts (for example, employees in transportation, airlines, fishery industry, offshore oil exploration and so on). The employees working under this working hours system usually work intensively for one period and then take continuous days of rest. The employer must obtain approval from the competent authorities before adopting the comprehensively calculated working hours system.

Under the flexible working hours system, an employee can perform their duties on a flexible schedule, provided that they properly complete the work assignment in a timely manner. The flexible working hours system is only applicable to certain job positions (for example, executives, sales personnel, taxi drivers and so on). Similarly, the employer must obtain approval from the competent authorities before adopting the flexible working hours system.

Part-time employees. An employee who works with an employer for no more than four hours per day on average and no more than 24 hours per week in total is considered to be a part-time employee.

Rest breaks

There are no specific legal requirements concerning rest breaks during a working day, although it is common practice to give employees working under the standard working hours system a one-hour lunch break.

Shift workers

Shift workers are subject to the same regulation of working hours as full-time employees (see above, Working hours). Additionally, in some cities (for example, Shanghai and Tianjin) the employer must pay an additional allowance for employees working on a night shift.

 

Holiday entitlement

11. Is there a minimum paid holiday entitlement?

Minimum paid holiday entitlement

An employee who has worked continuously for more than 12 months is entitled to statutory paid annual leave. The amount of statutory paid annual leave is determined by the employee's cumulative working years (which are calculated using the employee's length of time in work as a whole, not just for the employer with whom the employee is currently working) and is as follows:

  • One year or more but less than ten years' working time: five working days' statutory paid annual leave.

  • Ten years or more but less than 20 years' working time: ten working days' statutory paid annual leave.

  • 20 years or more working time: 15 working days' statutory paid annual leave.

Public holidays

There are 11 public holidays in total, as follows:

  • A one-day holiday for New Year's Day (1 January).

  • A three-day holiday for the Spring Festival (New Year's Day of the lunar year, and the second and third days of the first month of the lunar year).

  • A one-day holiday for the Tomb-sweeping Festival (the lunar Tomb-sweeping Day).

  • A one-day holiday for Labour Day (1 May).

  • A one-day holiday for the Dragon Boat Festival (the Dragon Boat Day of the lunar year).

  • A one-day holiday for the Mid-Autumn Festival (the Mid-Autumn Day of the lunar year).

  • A three-day holiday for National Day (1, 2 and 3 October).

The public holidays are not included in the statutory paid annual leave.

 

Illness and injury of employees

12. What rights do employees have to time off in the case of illness or injury? Are they entitled to sick pay during this time off? Who pays the sick pay and, if the employer, can it recover any of the cost from the government?

Entitlement to paid time off

An employee who suffers a work-related injury or occupational disease is entitled to their normal salary and welfare benefits paid each month by the employer during their medical treatment period. The suspension-of-work-with-pay period should normally not exceed 12 months.

If the employee suffers from a disability after receiving medical treatment, the normal salary and welfare benefits will stop being paid once an appraisal has been made of the employee's disability. The employee will then be entitled to disability payments, including a one-off and/or monthly payments under the Provisions on Work-related Injury Insurance. Different payments are made for varying degrees of disability.

If the illness or injury is not work-related, the employee is entitled to sick pay during the medical treatment period under the employer's internal policy and the local regulations. A statutory minimum standard applies to sick pay, which varies from region to region.

An employee who needs medical treatment for an illness or non-work related injury can take a medical treatment period of leave, which ranges from three months to 24 months (depending on the employee's total working years and their years of service with their current employer).

During the medical treatment period, the employer cannot unilaterally dismiss the employee, unless the employee falls within one of the circumstances provided in Article 39 of the PRC Employment Contract Law (for example, the employee has committed severe misconduct).

Recovery of sick pay from the state

For work-related injuries or occupational diseases, the employer and the work-related injury insurance fund (operated by the government) assume their liabilities respectively under the Provisions on Work-related Injury Insurance. The costs incurred by the employer in this respect cannot be recovered from the government. Sick pay cannot be recovered if it has been paid for a non-work related illness or injury.

 

Statutory rights of parents and carers

13. What are the statutory rights of employees who are:
  • Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?

  • Carers (including those of disabled children and adult dependants)?

Maternity rights

Female employees are entitled to maternity leave of 98 days (which includes 15 days of antenatal leave). A reward of leave may be granted if a female employee is conforming to the family planning policy, and the standard of entitlement varies from region to region. An extra 15 days' maternity leave can be granted where there are complications during labour. Female employees who have more than one baby in a single pregnancy will be granted an extra 15 days' maternity leave for each additional baby born.

For one year after the child is born, the female employee is given a one-hour break each day for breastfeeding. Female employees who bear more than one baby in a single birth are granted an extra one-hour break for each additional baby born.

During the pregnancy, maternity and breastfeeding period, the female employee's salary must not be changed by the employer. Additionally, the employer cannot unilaterally terminate her employment during these periods, unless one of the circumstances provided in Article 39 of the PRC Employment Contract Law applies (for example, the employee's severe misconduct).

Paternity rights

Some local regulations provide that the father of a newly born child can enjoy a certain number of paid days' leave. There is no national provision covering paternity rights.

Surrogacy

There are no specific regulations concerning surrogacy in China's employment laws.

Adoption rights

There are no specific regulations concerning adoption rights in China's employment laws.

Parental rights

The parents of a child who dies are entitled to one to three days' paid bereavement leave.

Carers' rights

There are no specific regulations concerning carers' rights in China's employment laws.

 

Continuous periods of employment

14. Does a period of continuous employment create any statutory rights for employees? If an employee is transferred to a new entity, does that employee retain their period of continuous employment? If so, on what type of transfer?

Statutory rights created

A period of continuous employment has an impact on an employee's entitlement with regards to:

  • The medical treatment period.

  • Statutory paid annual leave.

  • Statutory severance.

The longer the period of continuous employment is, the more favourable these entitlements become.

Where an employee has been working with an employer for a consecutive period of ten years or more, they are entitled to an open-ended contract (an open-ended contract cannot be terminated by the employer on the expiration of a certain contract term, unlike a fixed-term contract). Where an employee has been working for the employer continuously for at least 15 years and is less than five years away from statutory retirement age, the employer cannot unilaterally dismiss the employee unless one of the circumstances provided in Article 39 of the PRC Employment Contract Law applies (for example, the employee's severe misconduct) (see Question 20).

Consequences of a transfer of employee

Where an employee is transferred to work for a new employer for reasons that are not attributable to the employee, their service period with the former employer also transfers and is counted as part of their years of service with the new employer. However, if the former employer made a severance payment to the employee at the time of transfer, the employee's service period with the former employer will not be taken into account when calculating any severance payments to be made by the new employer.

There are no statutory requirements regarding the method of transfers. The employer can agree with the employee to either:

  • Terminate the employment with the former employer and sign a new employment contract with the new employer.

  • Enter into a tripartite agreement to change the former employer to the new employer.

 

Fixed term, part-time and agency workers

15. To what extent are temporary and agency workers entitled to the same rights and benefits as permanent employees? To what extent are part-time workers entitled to the same rights and benefits as full-time workers?

Temporary workers

Under the PRC Employment Contract law, the employer and employee can execute a fixed-term employment contract on mutual agreement.

However, a permanent (open-ended) employment contract must be offered if:

  • The employee has been working for the employer for a consecutive period of more than ten years.

  • Prior to the renewal of the contract, a fixed-term employment contract had been executed on two consecutive occasions on and after 1 January 2008 with the same employer.

Additionally, when the employer fails to conclude a written employment contract with the employee within one year from the employee's first working day, a permanent employment contract will be implied, beginning on the day following the completion of the one-year period.

Temporary workers are entitled to the same statutory benefits as permanent employees (for example, social insurance and housing fund), and are entitled to the same statutory severance pay in the case of termination.

Agency workers

Agency workers are entitled to the same statutory benefits as permanent employees, and are entitled to the same statutory severance pay in the case of termination. They are also entitled to receive the same pay as permanent employees engaged in the same position.

Part-time workers

Part-time employees are paid by the hour and work not more than four hours per day for one employer. They can work for one or more employers and execute more than one employment contracts simultaneously. A written employment contract is not legally required between an employer and a part-time employee.

The employer cannot set out a probation period for part-time employees. The employment is at-will and both parties can unilaterally terminate the employment at any time, with or without cause. The employer is not required to pay severance after the termination of employment to its part-time employees. The hourly wages for part-time employees cannot be lower than the minimum hourly wage set by the local government (see Question 9).

The payment cycle to part-time employees cannot exceed 15 days.

 

Data protection

16. Are there any requirements protecting employee privacy or personal data? If so, what are an employer's obligations?

Employees' data protection rights

The Social Insurance Law provides that an employee's social insurance record must be kept confidential by the social insurance administrative centre. Only the employee and their current employer can view the employee's social insurance record.

Employers' data protection obligations

The Decision on Strengthening the Protection of Online Information (Decision) took effect at the end of 2012 and sets out rules for internet service providers and other entities to follow in relation to electronic personal information. The broad wording of some provisions in this Decision may also capture the relationship between employers and employees. Therefore, when employers collect, use and process employees' personal electronic data, the following rules should be kept in mind:

  • Collection and use. Employers collecting information from employees must expressly inform them about the purpose, method and scope of the information collection and obtain their consent.

  • Confidentiality. Employers must keep employees' personal data confidential. They cannot disclose, distort or damage data collected from employees, or sell or illegally provide such data to others.

Employers must keep employees' personal information confidential and obtain employees' written consent before publicising any of it (Article 13, Employment Service and Management Regulations).

 

Discrimination and harassment

17. What protection do employees have from discrimination or harassment, and on what grounds?

Protection from discrimination

Employees must not be discriminated against based on their:

  • Nationality.

  • Ethnicity.

  • Race.

  • Gender.

  • Religious belief.

There are also regulations prohibiting discrimination against:

  • Female employees.

  • Disabled employees.

  • Carriers of an infectious disease.

  • Immigrant employees from rural areas.

Protection from harassment

Employers must both prevent and prohibit sexual harassment of female employees in their workplaces. Women who suffer sexual harassment have the right to:

  • Bring a civil claim against the harasser.

  • Report the harasser to their employer.

  • Report the harasser to the relevant authorities.

As a general rule, the statute of limitations on a civil claim against the harasser is two years. If a female employee sues an employer for failure to provide protection from sexual harassment, the statute of limitations is generally one year.

 

Whistleblowers

18. Do whistleblowers have any protection?

Chinese laws and regulations impose requirements on enterprises concerning the establishment of the exposing and complaining system as well as relevant protection systems for whistleblowers. However, these requirements are mainly implemented among listed companies and not binding on foreign invested enterprises.

Whistleblowers who report their employer's violation of labour and employment laws are awarded grants by the labour administrative departments. Any employer who retaliates against a whistleblower can be subject to punitive measures issued by the labour administrative departments.

 

Termination of employment

19. What rights do employees have when their employment contract is terminated?

Notice periods

An employer who unilaterally dismisses an employee for any of the following reasons must give 30 days' prior written notice or one month's pay in lieu of notice to the employee:

  • The employee suffers from an illness or a non-work related injury and is unable to take up the original work (or any other work) assigned by the employer to them after the statutory medical treatment period expires.

  • The employee is incompetent in their job duties and remains incompetent after training or a change of job position.

  • A major change to the objective circumstances under which the employment contract was executed has occurred and rendered the contract impossible to perform, and the employer and employee fail to reach an agreement on amending the contract after consultation.

Under the national laws and regulations (excepting the circumstances above), the employer is under no obligation to give prior notice or payment in lieu of notice when dismissing an employee. However, some local regulations (such as those that apply in Beijing) require the employer to give prior notice or payment in lieu of notice when dismissing an employee on expiration of the employment contract.

Severance payments

Entitlement to severance. Under the Employment Contract Law (effective 1 January 2008), if the employment contract is terminated for any of the following reasons, the employee will be entitled to severance pay:

  • The employee resigns as a result of the employer's infringement of the employee's labour rights.

  • The employment contract expires.

  • The dismissal is agreed to between the employer and employee, and the employer initiates the dismissal.

  • The employer unilaterally terminates the employment (unless the termination is for one of the grounds stipulated in Article 39 of the Employment Contract Law, which includes the employee's severe misconduct; see Question 20).

  • The employment is terminated on the employer's bankruptcy.

  • The employment is terminated because the employer's business licence has been revoked, or the employer has been ordered to close down/deregister or has opted for voluntary liquidation.

Calculation of severance. Generally, statutory severance is one month's salary for every year of service. Since the Employment Contract Law took effect on 1 January 2008, severance pay must be calculated in two parts:

  • For the service period before 1 January 2008: severance pay will be calculated in accordance with the applicable laws and regulations before 1 January 2008 (these can vary from the calculations that apply after 1 January 2008).

  • For the service period after 1 January 2008, severance pay will be:

    • one month's salary for every year of service (a service period of at least six months but less than a year will be counted as one year);

    • half a month's salary for a service period of less than six months.

The one month's salary will be calculated based on the employee's average monthly salary during the 12 months prior to termination. However, in any event this amount is capped at three times the average monthly salary of local employees, as determined by the local government.

Unemployment insurance benefit

An employee who is left unemployed on the termination of the employment contract is entitled to unemployment insurance benefits, provided that they meet all the following conditions:

  • They have participated in the unemployment insurance scheme.

  • They have paid the unemployment insurance contributions for more than one year.

  • The termination was not within their control.

  • They have registered as unemployed and have been actively seeking work.

Procedural requirements for dismissal

Notifying the trade union of the reason for the termination. An employer unilaterally dismissing an employee must notify its trade union of the reason for the dismissal in advance. If the employer does not have an enterprise-level trade union, the employer must notify and deal with a higher-level trade union regarding the unilateral termination. If the employer fails to fulfil this obligation, the validity of the termination can be challenged and denied by the arbitrator or the judge.

Delivering the termination notice to the employee in the case of unilateral termination. A termination notice must be properly delivered to the employee. Both the factual basis and legal grounds for the termination must be clearly stated in the notice. If the employer fails to fulfil this obligation, the validity of the termination can be challenged and denied by the arbitrator or the judge.

Registering the termination with the authorities if the local regulation so requires. In certain cities (for example, Tianjin and Shanghai), there is a mandatory filing requirement when terminating/ending an employment relationship, and the employer must, within a specified time period, register with the local labour administrative authority to change the employee's status from "employed" to "unemployed". If the employer refuses to complete this registration without justification, the employee will be entitled to file for labour arbitration against the employer, requiring the employer to complete the registration. If the employer still refuses to do so, the employee can register the termination with the local authorities in person under the arbitral award.

Transferring the social insurance account, the housing fund account and the personnel file. On termination of the employment contract, the employer must transfer the employee's social insurance account, housing fund account and personnel file within 15 days under the PRC laws. Generally, the employer and the employee can only apply for unemployment insurance benefits once the employee's social insurance account and personnel file are successfully transferred to the agent designated by the local labour administrative authority. Where an employer delays or refuses to complete the transfer, and the employee loses unemployment benefits as a result, the employer must compensate the employee for the loss of benefits.

Issuing a separation certificate. The employee can require the employer to issue a separation certificate to them on termination of the employment contract, evidencing the termination of the employment contract. If the employer fails or refuses to issue the certificate, the employee can report the employer to the labour administrative authority, who can request that the employer rectify the matter. The employer may also have to compensate the employee for any loss suffered as a result.

 
20. What protection do employees have against dismissal? Are there any specific categories of protected employees?

Protection against dismissal

Limited statutory grounds for termination. As a general rule, the employer cannot dismiss an employee unless the reason for the termination falls into one of the statutory grounds, which include (Article 39, Employment Contract Law):

  • The employee fails to meet the recruitment requirements during the probation period.

  • The employee commits severe misconduct.

  • The employee commits a serious dereliction of duty or engages in corrupt practices, causing substantial damage to the employer's interests.

  • The employee is subject to criminal liabilities.

  • The employee uses means such as deception, coercion, or taking advantage of a vulnerable position, to cause the employer to enter into the employment contract or amend the employment contract contrary to the employer's true intent.

  • The employee suffers from an illness or non-work related injury and is unable to take up the original work or any other work assigned by the employer on the expiration of their medical treatment leave.

  • The employee is incompetent in their job duties and remains incompetent after training or a change of their job position.

  • A major change to the objective circumstances under which the employment contract was executed has occurred and rendered the contract impossible to perform, and the employer and employee have failed to reach an agreement on any amendment to the employment contract after consultation.

  • The employment contract expires.

  • The employee has commenced receiving their basic retirement pension under PRC law.

  • The employee dies, or is declared dead or missing by a Chinese court.

  • The employer is declared bankrupt.

  • The employer's business licence has been revoked, or the employer has been ordered to close down/deregister or has opted for voluntary liquidation.

In all other cases, the employer must negotiate with the employee and obtain their consent to terminate employment.

Supervision of the termination by trade unions. The trade union must be notified by the employer when they are intending to unilaterally terminate an employment contract. If the employer violates employment laws or the terms of the employment contract, the trade union can demand that the employer rectify the situation. The employer must consider the trade union's opinions and notify the trade union in writing of the final decision on the termination.

Legal remedy. An employee who considers that they have been wrongfully dismissed has the right to file labour arbitration against the employer, claiming either:

  • A double statutory severance payment.

  • Reinstatement.

To protect employees, it is national policy that:

  • The filing of a labour arbitration proceeding is free of charge.

  • The burden of proof to establish that a termination was legal and justified falls on the employer.

In addition, where the employee disagrees with the arbitral award and that award is not a final ruling, the employee can file a lawsuit with the competent first instance court within 15 days after the award is given. A further appeal can be made (within 15 days of the date the judgment is given) to the second instance court from the first instance court's decision. The second instance court decision is final.

Protected employees

An employer cannot unilaterally terminate the employment of employees in the following circumstances (unless termination is based on a ground within Article 39 of the Employment Contract Law, which includes the employee's severe misconduct):

  • The employee is engaged in operations that exposes them to occupational disease hazards and has not undergone a pre-departure occupational health check-up, or is suspected of having contracted an occupational disease and is being diagnosed or is under medical observation.

  • The employee has been confirmed as having lost (or partially lost) their capacity to work as a result of contracting an occupational disease or sustaining a work-related injury with their current employer.

  • The employee has contracted an illness or sustained a non-work-related injury, and the statutory medical period has not expired.

  • The employee is a female employee in her pregnancy, maternity or breastfeeding period.

  • The employee has been working for the employer continuously for at least 15 years and has less than five years before their statutory retirement age.

In addition, if an employee falls into any of the above categories when the term of their employment contract expires, the employer cannot terminate the employment at the end of the contract term. Instead, the employment contract must be extended until the relevant circumstance ceases to exist.

 

Redundancy/layoff

21. How are redundancies/layoffs defined, and what rules apply on redundancies/layoffs? Are there special rules relating to collective redundancies?

Definition of redundancy/layoff

Redundancy is defined as the situation where an employer reduces its workforce by 20 or more people, or by 10% or more of the total number of its employees, under any of the following circumstances:

  • The employer is restructuring under the Enterprise Bankruptcy Law.

  • The employer is experiencing serious difficulties in production and/or business operations.

  • The employer changes production techniques, introduces a major technological innovation or revises its business method, and, after amending existing employment contracts, still needs to reduce its workforce.

  • The employer is experiencing other major changes to the economic circumstances that originally formed the basis of the employment contracts at the time when they were executed.

National law does not cover the situation where less than 20 people, or less than 10% of the total workforce, are laid off. As a result, local practice varies in different cities.

Procedural requirements

Before the redundancies are conducted, the employer must complete the following procedures:

  • Explain the circumstances to its trade union or to all of its employees 30 days before making any redundancies.

  • Consider the opinions of the trade union or the employees.

  • Report the workforce reduction plan to the competent labour administrative authorities.

In addition, the following categories of employees must be retained with priority during the redundancies:

  • Those with long fixed-term employment contracts.

  • Those with open-term employment contracts.

  • Those who are the sole income earners in a family with dependent children or elderly people.

Redundancy/layoff pay

Employees who are made redundant must be paid statutory severance pay (see Question 19, Severance payments).

Collective redundancies

An employer that makes redundant 20 or more people, or 10% or more of the total number of its employees, must complete the statutory procedures (see above, Procedural requirements).

 

Employee representation and consultation

22. Are employees entitled to management representation (such as on the board of directors) or to be consulted about issues that affect them? What does consultation require? Is employee consultation or consent required for major transactions (such as acquisitions, disposals or joint ventures)?

Management representation

Board of directors. Limited liability companies invested in and established by two or more state-owned enterprises, or two or more state-owned investment entities, must include employee representatives on their board of directors. The board of directors of other limited liability companies can also include employee representatives. Companies limited by shares must also include employee representatives on their board of directors.

Employee representatives must be company employees who have been democratically elected by congress, assembly or some other similar body.

Board of supervisors. Limited liability companies and companies limited by shares must have a board of supervisors, comprised of at least three members. The board of supervisors must include shareholder representatives and employee representatives, and the employee representatives must comprise at least one third of the board's membership.

As with the board of directors, employee representatives must be company employees who have been democratically elected by congress, assembly or some other similar body.

Consultation

Under the Company Law (amended in 2013), companies must consult employee representatives to practise democratic management in accordance with the law. Companies must seek advice from their trade union when discussing and deciding on important issues concerning the restructuring or operation of the company, or formulating rules and regulations within the company. Employee representatives should also be used to seek advice and suggestions from employees in these circumstances.

The Employment Contract Law also explicitly specifies that employers must have discussions with employees (or the employee representatives) where they intend to formulate, revise or make decisions on internal rules or policies that will directly and substantially affect employees. These policies must be made through consultation with the trade union or the employee representatives.

Major transactions

Major transactions will be considered to be an important issue affecting the restructuring or operation of the company and will therefore require consultation (although the employees' or employee representatives' consent is not required).

 
23. What remedies are available if an employer fails to comply with its consultation duties? Can employees take action to prevent any proposals going ahead?

Remedies

There are no specific remedies for employees if their employer fails to comply with their consultation duties, and employees cannot veto the employer's major business/operational decisions. However, where there has been a failure to consult before implementing internal policies that are directly related to the employees' major interests, those policies are likely to be deemed invalid and not to constitute a legal basis for taking disciplinary action against the employees (for example, dismissal).

Employee action

Employees can challenge the validity of the employer's decisions that are made without consultation and concern major business/operational matters, although this is very rare in practice.

Where the employer has failed to consult on internal policies directly related to the employees' major interests, employees can challenge the validity of those policies in labour arbitration or litigation, which can result in the policies being declared invalid as a basis for enforcing disciplinary action against the employees (this is more commonly used).

 

Consequences of a business transfer

24. Is there any statutory protection of employees on a business transfer?

Automatic transfer of employees

In the event of company merger or division, the employees' existing employment contracts remain valid and will continue to be performed by the succeeding employer, who takes on the rights and obligations of the former employer. The employees are therefore automatically transferred to the new employer after the merger or division.

If the business transfer only involves a share transfer, the employer and employees remain the same and there is no automatic transfer of employees.

Protection against dismissal

Generally, on a business transfer (for example, a merger, division or share transfer) the employees are protected against dismissal.

However, a business transfer other than a merger, division or share transfer (for example, an asset transfer or a sale of a business division) can lead to a major change to the objective circumstances under which the employment contract was executed, rendering the employment contract unenforceable. In that instance, if, after consultations, the employer and the employees are unable to agree on amending the employment contract, the employer can unilaterally terminate the employees by giving 30 days' prior written notice, or one-month pay in lieu of notice. In that case, the terminated employees are entitled to statutory severance pay (see Question 19, Severance payments).

In addition, where a business transfer results in a redundancy situation (see Question 21), the employer can reduce its workforce by following the procedural requirements. Employees made redundant in this situation are entitled to receive statutory severance pay.

Harmonisation of employment terms

The new employer and the transferred employees can negotiate between themselves on harmonising the terms of employment with that of the new employer's existing employees.

 

Employer and parent company liability

25. Are there any circumstances in which:
  • An employer can be liable for the acts of its employees?

  • A parent company can be liable for the acts of a subsidiary company's employees?

Employer liability

The PRC Tort Law (effective as of 1 July 2010) explicitly states that employers are liable to third parties for any harm caused by their employees while performing employment activities. However, where an employee is dispatched to work for a third party employer, that third party employer will be liable for harm caused by the employee while performing their duties (unless the dispatching employer is also at fault, in which case there will be joint liability between the two employers).

"Employment activities" include (judicial interpretation of the Supreme Court, 1 May 2004):

  • Activities falling within the scope of employment.

  • Activities falling outside the scope of employment, where those activities can still be deemed to be employment activities or have a close relationship with employment activities.

Where harm arises from the employee's wilful misconduct or gross negligence, both the employee and the employer will be liable (although the employer can then seek an indemnity from the employee).

Employees acting outside of the scope of their authority (for example, in executing contracts with third parties) can also render their employers liable to perform that unauthorised contract where the employee had "apparent authority" and it was reasonable for the third party to believe that the employee had authority to execute that contract (Article 49, Contract Law).

Parent company liability

Generally, a parent company is not liable for either the acts of the company in which they invest (subsidiary) or the actions of the subsidiary's employees. The parent company only assumes liability for the subsidiary's employees under the following limited circumstances:

  • Where the subsidiary has not obtained a valid business licence or the subsidiary's business licence is revoked so that the subsidiary cannot be deemed an independent legal person, the parent company may potentially be regarded as a defendant to participate in arbitration or litigation proceedings, and may assume liability for the duties performed by subsidiary's employees.

  • Where the parent company, as the shareholder, makes a false capital contribution or unlawfully withdraws their capital contributions, it must assume joint and several liability with the subsidiary for the debts caused by the subsidiary's employees during the course of performing their duties.

 

Employer insolvency

26. What rights do employees have on the insolvency of their employer? Is there a state fund which guarantees repayment of certain employment debts?

Employee rights on insolvency

On the settlement of bankruptcy expenses and collective debts using the insolvent employer's assets, employees can request that the following expenses be repaid in the following order of priority:

  • Wages, medical subsidies, disability subsidies and compensation expenses owed to workers by the insolvent employer, in addition to any amount outstanding due to an underpayment in relation to the basic pension insurance and basic medical insurance (usually, the underpayment is caused when an incorrect base is used to calculate social insurance premiums, including basic pension insurance and basic medical insurance), and any compensation required to be paid to workers by law.

  • Social security expenses owed by the insolvent employer, other than those mentioned in the preceding item.

When the bankrupt's assets are insufficient for the repayment of different expenses with equal priority, distribution will be made on a pro rata basis.

State guarantee fund

In practice, if a state-owned enterprise fails to settle workers' claims due to the lack of sufficient assets, the local State Asset Committee will intervene to solve the problem.

 

Health and safety obligations

27. What are an employer's obligations regarding the health and safety of its employees?

The PRC laws impose strict workplace health and safety standards, and penalties for violating these legal requirements. This demonstrates the importance of ensuring compliance by implementing proper safety procedures and policies and providing employees with the necessary training, equipment and information to perform their duties safely.

The Law of Prevention and Control of Occupational Diseases, last amended on 2 July 2016, provides protection to workers to prevent and control work-related diseases, stating that the employer must take measures to prevent and control the risk of occupational diseases and protect the employees' legal rights and interests in accordance with the law.

There is special protection for female and underage workers:

  • It is prohibited to allow female workers, especially during menstruation, pregnancy or breastfeeding, to engage in certain types of work (for example, work that is high above the ground, under low temperatures or in cold water) or work involving physical labour beyond a certain intensity as stipulated by the government.

  • It is prohibited to allow minor workers to engage in:

    • work down the pit of mines;

    • work that is poisonous or harmful;

    • work with Grade IV physical labour intensity (as stipulated by the government);

    • other work that cannot be conducted by persons under a certain age.

The employer must also provide regular physical examinations to minor workers.

The Administrative Provisions for the Safety of Overseas Chinese-funded Enterprises and Personnel, effective as of 13 August 2010, extend the duty of care in relation to workplace health and safety to Chinese employees sent overseas. This duty is concurrently borne by the central and municipal governments and Chinese-funded enterprises, specifically referring to Chinese foreign investment joint ventures residing outside the PRC territory.

The PRC Mine Safety Law, amended on 27 August 2009, imposes specific health and safety standards for employees relating to particular work activities or risks, focusing on the duty of care in relation to workplace safety owed to employees of enterprises residing in China, including Chinese and non-Chinese nationals, as well as duties owed to employees sent overseas to work by overseas Chinese-funded enterprises.

 

Taxation of employment income

28. What is the basis of taxation of employment income for:
  • Foreign nationals working in your jurisdiction?

  • Nationals of your jurisdiction working abroad?

Foreign nationals

Determination of tax liability. The tax liability of foreign individuals who are not domiciled in China, but are working in China, is determined by both:

  • The duration of their residence.

  • Whether their income originates within or outside China in a tax year.

Foreign individuals will be liable to taxation on the following basis:

  • Where resident for no more than 90 or no more than 183 days:

    • income originating from within China that is paid by employers within China is subject to tax, and income paid by employers outside China is exempt from tax;

    • income originating from outside China that is paid by employers within China is not subject to tax, and income paid by employers outside China is not subject to tax.

  • Where resident for more than 90 or 183 days, but not more than one year:

    • income originating from within China paid by employers either within or outside China is subject to tax;

    • income originating from outside China paid by employers either within or outside China is not subject to tax.

  • Where resident for more than one year, but less than five years:

    • income originating from within China paid by employers either within or outside China is subject to tax;

    • income originating from outside China paid by employers within China is subject to tax, and income originating from outside China paid by employers outside China is exempt from tax.

  • Where resident for more than five years: all income, whether received inside or outside China, by employers inside or outside China, is subject to tax.

Determination of taxable income. Taxable income includes:

  • Wages.

  • Salaries.

  • Bonuses.

  • Year-end additional payments.

  • Profit shares.

  • Subsidies.

  • Allowances earned by individuals by virtue of the holding of any office or employment.

  • Other income earned by individuals relating to the holding of any office or employment.

The following deductions can be applied to income:

  • A total monthly deduction of CNY4,800, including CNY3,500 standard deduction applicable to PRC nationals, and an additional deduction of CNY1,300 for foreign nationals working in the PRC.

  • For a taxpayer who has obtained income outside the PRC, the amount of individual income tax already paid outside the PRC can be deducted from the tax amount payable (limited to the tax amount payable for foreign-origin income under PRC laws).

Nationals working abroad

PRC nationals working abroad are subject to PRC individual income tax on their worldwide income.

 
29. What is the rate of taxation on employment income? Are any social security contributions or similar taxes levied on employers and/or employees?

Rate of taxation on employment income

The rate of taxation on employment income depends on which bracket the employee's monthly taxable income falls into.

Under the individual tax law, part of an individual's employment income can enjoy a tax exemption, which is CNY3,500 for PRC nationals and CNY4,800 for foreign nationals. For those whose employment income does not exceed the above threshold, their income will not be taxed. For those whose employment income is more than the threshold, after deducting the above amount, the rest will be treated as taxable income and will be taxed at the rates prescribed by law. The corresponding tax rates for different portions of monthly taxable income vary from 3% to 45%, and apply (after the tax exempt income has been deducted) as follows:

  • Portion of monthly taxable income not exceeding CNY1,500: 3%.

  • Portion of monthly taxable income above CNY1,500 but not more than CNY4,500: 10%.

  • Portion of monthly taxable income above CNY4,500 but not more than CNY9,000: 20%.

  • Portion of monthly taxable income above CNY9,000 but not more than CNY35,000: 25%.

  • Portion of monthly taxable income above CNY35,000 but not more than CNY55,000: 30%.

  • Portion of monthly taxable income above CNY55,000 but not more than CNY80,000: 35%.

  • Portion of monthly taxable income above CNY80,000: 45%.

The sum of the different portions' tax is the total amount of tax on an individual's taxable income.

Social security contributions

Employers within the territory of the PRC and employees who are PRC nationals are subject to a mandatory PRC social security scheme, which includes payments for:

  • Pension insurance.

  • Medical insurance.

  • Work-related injury insurance.

  • Unemployment insurance.

  • Maternity insurance.

  • Housing fund.

Employers and employees make contributions under schedules determined by the local authorities. Except for maternity and work-related injury insurance contributions (which are only paid by employers), employers must withhold the employees' social security contributions. Contribution rates vary across different cities and are usually calculated on the basis of the employee's average monthly salary for the previous year (capped at three times the local average monthly salary for the previous year). For example, the rates for Beijing are currently as follows:

  • Pension insurance: employer contributes 19%, employee contributes 8%.

  • Medical insurance: employer contributes 10%, employee contributes 2% plus CNY3.

  • Work-related injury insurance: employer contributes between 0.2% and 1.9%, employee contributes 0%.

  • Unemployment insurance: employer contributes 0.8%, employee contributes 0.2%.

  • Maternity insurance: employer contributes 0.8%, employee contributes 0%.

  • Housing fund: employer contributes 12%, employee contributes 12%.

There are special rules applicable to foreign nationals working within the PRC. Foreign nationals from countries with bilateral or multilateral social insurance treaties with China are exempt from participating in the PRC social insurance scheme (at the time of writing, Germany and Korea are the two countries with such arrangements). Under a Regulation issued on 6 September 2011 by the PRC Ministry of Human Resources and Social Security, other foreign nationals are subject to mandatory participation in the PRC social insurance scheme (although implementation varies across cities and participation in certain cities remains optional). However, foreign nationals do not have to participate in the PRC housing fund scheme.

 

Bonuses

30. Is it common to reward employees through contractual or discretionary bonuses? Are there restrictions or guidelines on what bonuses can be awarded, whether generally or in particular sectors?

It is common for employers to reward employees through contractual or discretionary bonuses in China. For example, in many companies, employees are entitled to a "13th month salary" at the end of each full year they have worked for the employer. In addition, many companies provide their salespersons with commissions as an extra reward. In practice, employers tend to award employees bonuses based on the result of their performance review.

Generally, the provision of bonuses is solely at the employer's discretion. However, an internal guideline published by the government in September 2009 standardises the granting of performance bonuses to senior management of central state-owned enterprises (Guidance on Further Standardising the Remunerations of Central Enterprise Management, published in September 2009). Under the Guideline, the overall bonus paid in a given year must not be more than 15 times the previous year's average annual salary of all employees working at the enterprise. As the annual salary of the central state-owned enterprises' employees is calculated by the competent industry authorities, the enterprise must report the performance bonus to a competent authority in accordance with the regulations provided in the Guideline.

Additionally, an employer that promises to provide a certain bonus to the employee in the employment contract or the employer's internal policies will be bound by those provisions.

 

Intellectual property (IP)

31. If employees create IP rights in the course of their employment, who owns the rights?

Copyright

Generally, the copyright in a work created during the course of employment will belong to the employee, subject to the employer's priority right to exploit the work within the scope of its professional activities. The employee cannot, without the employer's consent, authorise a third party to exploit the work in the same manner that the employer exploits the work within two years of completing the work.

However, for the following copyrighted works, the employee will enjoy the right of authorship while the employer will enjoy all other rights associated with the copyrighted work:

  • Drawings of engineering designs.

  • Product designs.

  • Computer software.

  • Maps.

  • Works created in the course of employment mainly using the employer's material and technological resources.

  • Works created in the course of employment where the law or any contract stipulates that the employer owns the copyright.

The employer can compensate the employee (but is not obliged to do so) in these situations.

Patent right

The patent right in a work created by the employee in the course of employment mainly using the employer's materials and technological resources will be owned by the employer, although the employer must pay the employee reasonable compensation to exploit the patent right. However, if the employer and the employee have entered into a contract regarding the patent right, the terms of that contract will apply.

 

Restraint of trade

32. Is it possible to restrict an employee's activities during employment and after termination? If so, in what circumstances can this be done? Must an employer continue to pay the former employee while they are subject to post-employment restrictive covenants?

Restriction of activities

The employer can restrict an employee's activities both during employment and after termination (using, for example, non-compete, non-solicitation and confidentiality clauses), and these restrictions are usually incorporated into the employment contract. However, those restrictions must be reasonable.

Post-employment restrictive covenants

Non-compete clauses are subject to regulatory requirements, for example:

  • They cannot be for a time period of more than two years following termination.

  • The employer must pay the employee compensation on a monthly basis for complying with the covenant. In practice, 30% to 60% of the employee's average monthly salary is acceptable. The amount of the compensation should be specifically stipulated in the non-compete clause or agreement in advance. If it is not stipulated and the employee has already complied with the non-compete obligation, the court will support the employee's claim for compensation of 30% of the employee's average monthly salary in the 12 months preceding the termination.

 

Proposals for reform

33. Are there any proposals to reform employment law in your jurisdiction?

The Decision on Modification of PRC Employment Contract Law took effect on 1 July 2013 and its supporting regulation, the Interim Regulations on Labour Dispatch (Regulations) became effective on 1 March 2014 by order of the Ministry of Human Resources and Social Security.

The Regulations provide that the number of dispatched employees must not exceed 10% of the total number of the company's employees. Labour dispatch in China refers to the triangular employment relationship where the employee, hired by a labour dispatch agency (that is, the party who hires the employee with an employment contract and sends the employee to an accepting unit to work based on the commercial dispatch agreement with the providing unit) as the legal employer, actually provides service to another entity (accepting unit) that pays the employee's remuneration and benefits through the labour dispatch agency. The accepting unit has the right to select, train, control and manage the employee's performance. The "total number" is the sum of the number of directly-hired employees and the number of dispatched employees.

Additionally, if the dispatched employee suffers an injury at work, the labour dispatch agency must apply for the identification of a work-related injury and assume the work-related injury insurance liabilities. However, the labour dispatch agency can reach an agreement with the company for reimbursement. The company is responsible for matters relating to the occupational disease diagnosis and identification for the dispatched employee. The company provides necessary materials such as dispatched employee's history of occupation and exposure to occupational disease hazard, and the testing result of hazardous factors of occupational disease, while the labour dispatch agency provides other necessary materials.

 

Online resources

Central Government of the People's Republic of China

W www.gov.cn/flfg/index.htm

Description. The website links to the section entitled Laws and Regulations under the website of the PRC Central Government, which is maintained by the PRC Central Government and contains the official up-to-date PRC laws and regulations. The website is also available in English at: www.chinalaw.gov.cn/article/english. However, the English translations of laws are for reference only.



Contributor profiles

Junlu Jiang

King & Wood Mallesons

T +86 10 5878 5055
F +86 10 5878 5577
E jiangjunlu@cn.kwm.com
W www.kwm.com

Professional qualifications. China, 1994

Areas of practice. Employment; labour law; labour arbitration/litigation; social security.

Recent transactions

  • Participating in drafting the PRC Labour Law, the PRC Employment Contract Law, the PRC Labour Dispute Mediation and Arbitration Law, and the PRC Social Insurance Law, and the formulation of implementing regulations for such laws.
  • Advising numerous multinational companies and leading PRC state-owned enterprises on employment issues arising out of M&A transactions, restructuring, reorganisation, bankruptcy and stock listing.
  • Representing numerous state-owned enterprises, public-traded companies and multinational companies in labour arbitration/litigation and judicial appeals.

Xiaodan Xu

King & Wood Mallesons

T +86 10 5878 5028
F +86 10 5878 5577
E xuxiaodan@cn.kwm.com
W www.kwm.com

Professional qualifications. China, 2002

Areas of practice. Labour law; employment; labour arbitration/litigation; international dispute resolution.

Recent transactions

  • Advising a leading tourism company and a high-tech company on mass layoff due to the closure of their subsidiaries.
  • Advising a world-leading medicine company on employee transfer in a global acquisition transaction.
  • Representing numerous world-leading companies, including high-tech companies, insurance companies and real estate companies in labour arbitration and litigation.
  • Advising on daily labour and employment issues for numerous world-leading companies, including drafting and amending internal policies, agreements, incentive plans and other documents, providing opinions on daily inquiries and so on.

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