employment law overview china 2021-2022

| 1 employment law overview

2021-2022 / chinaan alliance of employers’ counsel worldwide www.leglobal.org

employment law overview china 2021-2022Zhong Lun Law Firm / Proud Member of L&E GLOBAL

http://www.leglobal.org


2021-2022 / chinaan alliance of employers’ counsel worldwide

table of contents.

i. General overview 03ii. HirinG praCtiCeS 06iii. employment ContraCtS 08iv. workinG ConditionS 10V. Anti-DiscriminAtion LAws 13vi. pay eQUity lawS 15vii. SoCial media and data privaCy 16 viii. termination of employment ContraCtS 18iX. reStriCtive CovenantS 22X. tranSfer of UndertakinGS 24Xi. trade UnionS and employerS aSSoCiationS 26Xii. employee BenefitS 30

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i. general overview

2. Key Points•Employers must sign the employment contractwith full-time employees or the employer shallpaydoublethemonthlywagetotheemployees,foratleast11to12months.

•Probation periods shall not be longer thanwhat is permitted by law and one employeecan only have one probation period, otherwisethe employer shall pay compensation to theemployeefor theexceededprobationperiodorthe second probation period performed by theemployee.

•Amendinganemploymentcontract(e.g.jobtitle)mustbeagreedbybothemployerandemployeeinwrittenform.

•Internal rules which may affect employees’personal interests must fulfill the consultationprocess,ortheywillnottakeeffect(e.g.theywillnotapplytotheemployees).

•In China, termination must be based on thegroundspermittedbylaw.Otherwise,thelabourrelationship may be reinstated, even aftertermination (e.g. employers may be forced tore-hire terminated employees or pay doubleseverance).

•Chinese severance pay practices are unique, inthatahighlypaidemployee’sseveranceiscapped,whichcanresultinaseniormanager’sseverancebeinglowerthanthatofajunioremployee.

•Chinese employers cannot require employeesto pay liquidated damages, except in limitedsituationsinvolvingnon-competitionandservice-periodduties.

•Employees are not entitled to organise labourstrikes under Chinese law.However, employeeswill still engage in self-organised strikes; thesestrikesarenotlegallysupportedbytradeunions.

China,asoneofthefastest-growingeconomiesandmostpopulouscountries,playsacriticalroleinbusiness,industryandpolitics.However,manyoutsidersencountersignificantdifficultyunderstandingChineselabourlawandfindthemselvesinchallenginganduncomfortablesituations.Thismaybeduetothelaw’sspecificityandscope,whichformsalabyrinthofinterconnectedregulationsandrulesgoverningminutiarangingfromseverancetotradeunions.RoutinetasksinotherjurisdictionscanbemuchmoredramaticaffairsinChina.Thiscanbedaunting,butourhopeisthatafterreadingthisarticle,youwillhavethetoolsandfoundationtosuccessfullynavigateChineselabourlaw.

1. introductionLabourlawgenerallyreferstotherulesandregulationsgoverningemploymentrelationshipsandothersocialrelationships thatarecloselyconnectedwithemployment relationships.Chinese labour lawapplies toallbusinesses,individualeconomicorganisations,privatenon-profitentities,etc.inthePeople’sRepublicofChina(the“PRC”)andthe individualswhohaveemploymentrelationshipswithsuchentitiesandorganisations.Employment relationships between government offices, public institutions and social groups and theiremployeesarealsogovernedbyChineselabourlaw.Employersandemployees(exceptpart-timeemployees)arerequiredtoestablishemploymentrelationshipsbyenteringintowrittenemploymentcontracts.However,evenifthepartiesfailtoexecutevalidwrittenemploymentcontracts,anemploymentrelationshipcanstillbedeemedtoexistifthepartiesactasiftheyareboundbysuchacontract.



3. legal frameworKChineselabourlawisnotcodifiedinasingularpieceof legislationandactuallydrawsfromavarietyofsources. Themain sources that comprise China’slabourlawsare:

•theChineseConstitution;•national laws, in particular the Labour LawandtheLabourContractLaw;

•administrative regulations promulgated by theStateCouncil;

•regulationspromulgatedbytheMinistryofHumanResources and Social Security (the “MOHRSS”)and other ministries and commissions of theStateCouncil;

•judicialinterpretationsreleasedbytheSupremePeople’s Court and the Supreme People’sProcuratorate;and

•local regulations and decrees of provinces,autonomous regions, municipalities directlyunder the central government and other largecities.

In addition, judicial documents from local courtsand procuratorates, rules and regulations ofcommunitiesandindustries,aswellascustomsandmorecanalsoserveasreferencesinlabourcases.

4. new develoPments In2019andlate2020,variousChinesegovernmentaldepartments enacted new regulations on a widerange of employment law matters, of which thefollowing deserve special attention by entitiesdoingbusinessinChina.

a. perSonal information proteCtion

The Third Session of the 13th National People’sCongress of the PRC voted and passed the CivilCode,whichenteredintoforceon1January2021.TheCivilCodeincludesnewrulesontheprotectionofan individual’sprivacyaswellastheirpersonalinformation. According to the Civil Code, theprocessingofpersonalinformationshallrespectthefollowingprincipleswiththeaimtobelegitimate,just,necessaryandnotexcessive. Inaddition,theCivil Code also requires that the processing ofpersonal informationmustmeetcertainstatutory

conditions, such as (i) the processing of personalinformation shall be subject to consent of theindividual;(ii)therulesforinformationprocessingshallbemadepublic;and(iii)thepurpose,methodand scope of the information processed shall beexplicitlystated.Inthecontextofanemploymentrelationship,itisimportantforemployerstoabideby the Civil Code when handling an employee’spersonalinformation,duringboththerecruitmentprocessand theperformanceof theemploymentcontract.

B. trade SeCretS

China has taken a series of legislative actions tostrengthen itsprotectionoftradesecrets. InApril2019, the Standing Committee of the NationalPeople’s Congress decided to amend the PRCAnti-unfair Competition Law and provide betterprotection for trade secrets. According to thisamendment, in the event of a serious,maliciousand unlawful infringement of trade secrets by acommercial entity, the people’s courts in Chinamay impose punitive damages on the infringer.Furthermore, the courts can exercise theirdiscretionary power and award compensation inthe(maximum)amountofRMB5million,ifthelosssufferedbythetradesecretowner,orthebenefitobtainedbytheinfringer,isdifficulttodetermine.

In September 2020, the Supreme People’s CourtreleasedtheProvisionsonSeveralIssuesConcerningtheLawApplicationinTrialofCivilCasesonTradeSecrets Infringement (the “Provisions”). TheProvisionsexplicitly listdifferentmeasuresfortheprotectionoftradesecrets.Theconditiongrantingemployers the option to provide training to theiremployees, as an effective protective measureto safeguard trade secrets, is confirmed by theProvisions.Furthermore,theProvisionsalsoincludemore detailed rules concerning the identificationof trade secrets, findings of infringement, civilliabilitiesforinfringement,etc.

C. SoCial inSUranCe

In November 2019, the Ministry of HumanResources and Social Security and the NationalHealthcare Security Administration jointly issuedthe InterimMeasures forHongKong,MacaoandTaiwanResidentstoParticipateinSocialInsuranceinMainland China (the “InterimMeasures”). The



Interim Measures has been in effect since thebeginningof2020andexplicitlyrequireemployersinmainlandChinatocontributetoallfivetypesofsocial insurance for employees from Hong Kong,MacaoandTaiwan.TheInterimMeasureshavealsoclarifiedtheprocessonregisteringsocialinsurancefor the employees from Hong Kong, Macao andTaiwan and confirmed that said employees shallbe entitled to the corresponding social insurancebenefitsinmainlandChina.

d. travel Ban

TheoutbreakoftheCOVID-19pandemichascausedseveredifficultiestonumerousemployersinChina.To control the pandemic, theMinistry of ForeignAffairsandtheNationalImmigrationAdministrationBureau jointly released the Announcement onTemporary Suspension of the Entries by ForeignNationalsBearingValidChineseVisaandResidencePermit(the“Announcement”)inMarch2020.

Pursuant to theAnnouncement, foreign nationalswhoholdavisaorresidencepermitotherthanthediplomatic,official,courtesyorCategoryCvisasarerestrictedfromenteringChina;ifforeignnationalsplan to engage in necessary economic, trade,scientific or technological activities or to fulfillemergenthumanitarianneeds inChina, theymayapplyforavisaattheChineseembassyorconsulateandmayenterChinawithavisagrantedaftertheAnnouncement.

InSeptember2020,theMinistryofForeignAffairsandtheNationalImmigrationBureaureleasedtheAnnouncementonAllowingThreeKindsofForeignNationals with Valid Residence Permit to EnterChina.Thisnewannouncementrelieves,toacertainextent,thetravelbanimposedbytheMarch2020announcement and allows foreign nationals whohold a valid residence permit for work, personalaffairsorreunionpurposes,toenterChina.



ii. hiring Practices 1. requirement for foreign emPloyees to worK UnderPRClaw,expatriatesworkinginChinamustbeinpossessionofaworkpermitandaresidencepermit(foremploymentpurposes)otherwisetheiremploymentmaybeconsideredillegal.Incasesofillegalemployment,theemployerandtheforeignemployeemaybepenalisedbytheauthorities,andtheir relationshipwill not beprotectedby labourlaw.

Toobtainaworkpermitandresidencepermitforaforeignemployee,anemployermustapplytothegovernment for thenotificationof aworkpermitfortheforeigner.Withthenotificationoftheworkpermit, the foreigner may apply for a work visa.Afterobtainingtheworkvisa,theforeignershouldapplyforaworkpermitwithin15daysofenteringor reentering China. With the work permit, theforeign employee should apply for a residencepermitwithin30daysafterenteringorreenteringChina.

IftheforeignerfirstenteredChinaonanothertypeofvisa,suchasavisitvisaortouristvisa,heorshemaygotoHongKongtoobtainaworkvisa(afterobtaining the notification of the work permit).However,occasionally, the foreignermayneed toreturntohisorherhomecountryfortheworkvisadue to China’s fluctuating immigration policies.Also, chief representatives and representativesof representative offices do not need to applyforthenotificationofaworkpermit,andcanuserepresentativecertificatestodirectlyapplyfortheworkpermitandtheresidencepermit.

Workpermitsusuallyhaveatermofoneyearandneverexceedfiveyearseven if certainconditionsare satisfied. Residence permits usually havethe same term as work permits. If the employerintends tocontinue toemploy the foreigneraftertheexpirationoftheworkpermitandtheresidence

permit,theemployermustapplyforarenewalofthepermitsatleast30daysbeforetheirexpiration.Theemploymentrelationshipautomaticallyexpiresif the work permit or residence permit becomesinvalidoriscancelled.

In addition, foreigners who come to China toperform special tasks in the areas of technology,scientificresearch,managementorguidancewithChinese business partners or other reasons andstay in China less than 90 days (the “Short-termWork”)mustapply to the relevantauthorities fortheirapproval letters,certificatesofemployment,invitationlettersorconfirmationsofinvitationandworkvisas.IftheyintendtoperformtheShort-termWorkinChinainexcessof30days,theymustapplyforresidencepermits(foremploymentpurposes).However, foreign employees who are dispatchedto the branches, subsidiaries and representativeoffices inChinaby foreign companies and stay inChinaforfewerthan90days,arenotconsideredtobeperformingShort-termWorkandshallapplyforbusinessvisas(Mvisas).

2. does a foreign emPloyer need to establish or worK through a local entity to hire an emPloyee?The PRC labour laws and regulations will notbe applicable to the employment relationshipestablishedbetweenaforeign-registeredemployerand its employees. However, if the foreigncompanyplanstorecruitandhaveemployeesworkinChina, inorder to avoid the riskof permanentestablishment, foreign companies are usuallyrequired to incorporate subsidiary company orrepresentative office in China. The subsidiarycompany incorporated in China can directly hireemployees or retain employees seconded fromforeignparent companies.A representativeoffice



establishedbya foreignemployer isonlyallowedtohireChineseemployeesthroughalocalHRagentinChina.

3. limitations on bacKground checKsAccordingtoPRCLabourContractLaw,employerisentitledtoknowanemployee’sbasicinformation,whichdirectlyrelatestotheemploymentcontractand the employee is obligated to inform theemployer of the said information truthfully.However, the background checks or application/interview questions shall not infringe employees’privacy rights or equal employment rights;otherwisetheemployercouldbeliabletolitigationpursuanttoPRCTortLawandotherapplicablelaws.For any personal information obtained throughbackground checks, employers shall fulfill therequirements of the Civil Code to process suchinformation. Pursuant to the Civil Code, theprocessingofpersonalinformationshallrespectthefollowingprincipleswiththeaimtobelegitimate,just, necessary and not excessive. Moreover,employers are required to obtain consent fromindividuals for collecting personal information. Inpractice,toavoidpotentialdisputes,itisadvisableforemployerstoobtainthejobapplicant’sconsentbeforeimplementingthebackgroundchecks.

4. restrictions on aPPlication/interview questionsIssued by nine departments accorded top-levelauthorityinChina,theCircularRelatedtoFurtherAction to Promote Employment for Womendetails the restrictions imposed on employersand human resource agents when engagingwithfemalecandidatesduringtherecruitmentprocess.Wheninterviewingprospectivefemalecandidates,employers are explicitly restricted from raisingquestionsaboutmaritalstatusorpregnancystatus.The penalties for an employer’s breach of thisrestrictiveruleincludeafineuptoRMB50,000.



iii. emPloyment contracts1. minimum requirementsUnder the Labour Contract Law, a writtenemployment contract is necessary to establisha full-time employment relationship. However,a part-time employee, who works no more than24cumulativehoursperweekandfourhours,onaverage,perday,issubjecttodifferentrequirementsandmaybeemployedunderanoralcontract.

The law gives a one-month grace period toemployers that commences upon the employee’sfirst day of work. The employer must execute awritten employment contract with the employeewithin this grace period, otherwise it will owedouble wages to the employee for each monthof employment after this grace period withouta written contract, and such period shall not belonger than 11 or 12 months, if the fixed-termemployment contract is not renewed once itexpires,buttheemployeecontinuestoworkfortheemployer.Ifanemployerfailstoexecuteawrittenemployment contract with a full-time employeefor over a year, the employer and the employeeshallbedeemedtohaveexecutedanopen-endedemploymentcontract.

TheLabourContractLawrequiresanemploymentcontracttoincludethefollowingitems:

•name, domicile and legal representative orpersoninchargeoftheemployer;

•name,domicileand IDcardnumberornumberof another valid identification document of theemployee;

•contractterm;•jobcontentandplaceofwork;•workinghours,restandleave;•compensation;•socialinsurance;

•workplace protection, workplace conditionsand protective measures against occupationalhazards;and

•othermattersrequiredbylawsandadministrativeregulations.

In addition, an employer and an employee may,in their sole discretion, agreeonmatters such asprobation,training,confidentiality,supplementaryinsurance, welfare, other incentives and othermattersintheemploymentcontract.

Usually, the contents of an employment contractcanonlybemodified inwritingafterbothpartieshave reached a consensus through mutualnegotiation. However, a verbal modification ofan employment contractmay also be valid if themodification has actually been performed forlonger than onemonth and does not violate anylaw, administrative regulation, state policy, publicorder or good morals, and the employee doesnotraiseanobjectionwithinonemonthafterthemodification.

2. Fixed-term/Open-ended contractsEmployment contracts in China can have threedifferenttypesofterms:fixed,open-endedortermsthat expire upon completion of an assignment.Under the Labour Contract Law, if an employeropts to enter into a fixed-term contract with anemployee,afterthecompletionoftwofixedterms,thatemployerwillbeobligatedtoexecuteanopen-ended contract upon the employee’s request.Sinceopen-endedcontractsareinherentlydifficultto terminate, employers may want to use fixed-termcontracts fornewhires.Thiswouldgive theemployerachancetoevaluateitsnewemployees.If the employee’s performance is deemedunsatisfactory, a fixed-term contract provides the



employer with the option of discontinuing theemploymentrelationshipattheendoftheterm.

3. trial PeriodInChina, theemployee trialperiod isalsoknownas the probationary period. A probationaryperiod is commonly included in employmentcontracts. However, Chinese labour law containsrestrictions on the length of the probationaryperiod.Probationaryperiodsmustconformtothefollowingparameters:

•where the term of an employment contract isthreemonthsormore,butlessthanoneyear,theprobationaryperiodmaynotexceedonemonth;

•where the term of an employment contract isoneyearormore,butlessthanthreeyears,theprobationaryperiodmaynotexceedtwomonths;and

•where the term of an employment contract isthreeyearsormore,orwherethetermisopen-ended,theprobationaryperiodmaynotexceedsixmonths.

Theemployermayagreeonaprobationaryperiodwith the sameemployeeonlyonce.Probationaryperiodsarenotpermittedforemploymentcontractsthatexpireuponcompletionofanassignmentorthosewithtermsshorterthanthreemonths.

4. notice PeriodInChina,anemployeemayunilaterally terminatehisorheremploymentcontractbygivingawrittennotice 30 days in advance or 3 days in advanceduring probationary period. On the other hand,an employer may unilaterally terminate anemploymentcontractbygivingawrittennotice30daysinadvanceorprovidingonemonth’ssalaryinlieuofnoticeinthefollowingthreecircumstances:

•the employee, after exhausting the legallyprescribed period of medical treatment for anillness or non-work-related injury, can performneitherhisorheroriginalworknorotherworkarrangedforhimorherbytheemployer;

•theemployeeisincompetenttocarryouthisorherworkandremainssoafterreceivingtrainingoranadjustmentofhisorherwork;

•a major change in the objective circumstancesrelied upon at the time of conclusion of theemployment contract that renders the contractnon-performable and, after consultations, theemployerandtheemployeeareunabletoreachan agreement on amending the employmentcontract.

In addition, if the employer intends to reduce itsworkforceby20personsormoreorbyanumberthatis lessthan20butaccountsfor10%ormoreofthetotalnumberofitsemployees,theemployermustexplainthesituationtothetradeunionorallemployees 30 days in advance, provide relevantinformation regarding the employer’s productionandoperationstatusandmakeaformalreporttothelocallabourauthorities.



iv. worKing conditions 1. minimum worKing conditionsThe employment relationship established underthePRCemploymentlawsandregulationsishighlyregulated. Employers areunder a legal obligationtoprovidetheminimumworkingconditionsinthefollowing aspects: i) labour remuneration; ii) restandholidays; iii)workinghours; iv)compensationfor overtime work; v) contribution for socialinsurance; vi) payment of statutory severancewhere applicable; and vii) provide for a safe andhealthy working environment and measures forprotectionagainstoccupationalhazards.

2. salaryEmployersandemployeesshouldspecifysalariesintheir employment contracts. Full-time employeesshouldbepaidtheirsalaryatleastonceamonth.Employees’ monthly salaries should not be lessthantheminimummonthlywagepublishedbylocalgovernments.Anemployer shouldpaysalaries toitsemployeesinaccordancewiththelawforofficialpublic holidays, marriage or bereavement leaveandforanyperiodswhentheyparticipateinsocialactivitiessuchasexercising thestatutoryelectionrights. Furthermore, employers may arrangecompensation and bonus policies according tothe lawand theirownneeds. Thesepoliciesmayinclude content on performance bonuses, annualbonuses, stock options, etc. Individual incometaxes and other taxes payable by employeesare the responsibility of employees. However,employersshouldwithholdindividualincometaxesand the employee’s portion of social insurancecontributions from the employee’s salary andpay such amounts to the competent governmentdepartmentsonbehalfoftheiremployees.

3. maximum worKing weeKTherearethreeworkinghoursystemsdesignedforfull-timeemployees inChina.Under thestandardworking hours system, employees work for eighthoursperdayand40hoursperweekandshallbeguaranteed at least one rest day eachweek. Theflexibleandcomprehensiveworkinghoursystemsareusuallyappliedto jobsthatcanbedifficult toperformwithinafixedworkinghoursscheme.Foremployeesunderaflexibleworkinghourssystem,PRC employment laws and regulations do notimposea limit onworkinghours, but require theemployerstotakeappropriatemeasurestoensurethattheiremployeesareaffordedtimetorest.

4. overtimeIn some circumstances, an employermay extendtheworkinghoursofanemployeetoaccommodatechangesinproductionorbusinessoperations,afterconsultingwiththetradeunionandtheemployeeconcerned.Generally, overtime should be limitedtoonehourperday.Inspecialcircumstances,theovertimeshouldbecappedatthreehoursperday,providedthattheemployee’shealthisnotaffectedandthetotalmonthlyovertimeshallnotexceed36hours.

Employers are required to pay overtimecompensation to employees under the standardworkinghourssystemasfollows:

•150%ofanemployee’snormalwageforextendedworkhoursonworkdays;

•200%ofanemployee’snormalwageforworkingonrestdays (ifemployers fail toprovidecomp-days);



•300%ofanemployee’snormalwageforworkingonanofficialpublicholiday.

Employees working under the flexible workinghours system are not entitled to overtimecompensation,unlessotherwiseprovidedbylocalgovernmentregulations.

5. health and safety in the worKPlace

a. employer’S oBliGation to provide a HealtHy and Safe workplaCe

According to PRC Labour Law, an employermustestablishasoundlaboursafetyandhygienesystemandstrictlyimplementstaterulesandstandardsoflabour safety and hygiene, conduct labour safetyand hygiene education among its employees,preventaccidentsandreduceoccupationalhazards.Employersmustalsoprovidetheiremployeeswithlaboursafetyandhygieneconditionsandnecessaryarticlesforlabourprotectioninconformitywiththeregulationsofthestateandarrangeforemployees,whose work involves occupationally hazardoussubstances, to undertake regular occupationalhealthchecks.

TheWork Safety Law of the PRC further clarifiesemployers’ work safety duties and obligationsunder the Labour Law and prescribes theadministrativeandcriminalpenaltiesanemployeranditsresponsiblepersonnelmayfaceforviolatingworksafetylaws.

Inaddition,theAdministrationNormsofEmployers’NotificationandWarningofOccupationalHazards(the“Norms”)addressissuessuchasstandardisingtheadministrationonemployer’snotificationsandwarningsofoccupationalhazards;preventionandcontrolofoccupationalhazards;andmeasuresforprotectingthehealthofitsemployees.

TheNormsdefine the“Employer’sNotificationofOccupationalHazards”andrequiretheemployersto sign employment contracts with employees,release announcements and offer training toemployees,whichwouldenableemployeestotrulyunderstandtheoccupationalhazardsthatoccuror

exist in theworkplace, the preventionmeasures,the influenceonhealth and the results of healthchecks. Also, the Norms define the “Employer’sWarning of Occupational Hazards” and requireemployers to put up the graphic signs, warninglines, warning languages, written notice andcombinedsignsintheworkplace,soastoremindtheemployeestobecautiousaboutoccupationalhazardsandtakeappropriateprotectivemeasures.EmployerswhoviolatetheNormswillbepunishedaccordingtotheLawonPreventionandControlofOccupational Disease of the PRC, Regulations ontheSupervisionandAdministrationofOccupationalHygiene in Workplaces and other laws andregulations.

B. Complaint proCedUreS

Any person or entity is entitled to complain orreport to the competentwork safety supervisoryauthority, regarding an employer’s violation oflawsandregulationswithrespecttooccupationaldisease, hazards or accidents. Such violationsincludethefollowingscenarios:

•whereoccupationaldiseasesorhazardsexist inthe workplace, and the employer fails tomeetspecificrequirementsforoccupationalhealth;

•when any acute accident due to occupationalhazards occurs or is likely to occur in theworkplace,andtheemployerfailstoimmediatelytake emergency and control measures, or tomake a timely and truthful report to the localpublichealthauthority;

•where the employer fails to take measuresfor prevention and treatment of occupationaldiseases;

•where the employer fails to ensure necessaryfunds are used for prevention and control ofoccupational diseases or misappropriates ordivertssuchfunds;and

•where the employer fails to provide effectivefacilities or personal protective equipment toemployees for prevention and treatment ofoccupationaldiseases.

If any complaint or report is made to the worksafetysupervisoryauthority,thesaidauthoritywillusuallyundertakethefollowingprocedures:i)visitthereportedcompanyanditsworkplaces,conductoccupational disease and hazard testing, accessrelevant information, conduct investigation and



collectevidence;ii)accessandduplicatedocumentsofthecompanyconcerningpreventionandcontrolof occupational diseases and hazards and collectrelevant samples on site; iii) order the companytoceaseanddesistanyongoingunlawfulactions;iv) order the operations that cause occupationaldiseases,hazardsoraccidentssuspendedandthensealoffthefacilityorequipmentthathascausedormaycausesuchoccupational risks;andv)controlthescenewheretheoccupationaldiseases,hazardsoraccidentstranspired.

When it is substantiated by the work safetysupervisory authority that the employer hascommittedaviolationinrespectofpreventionandcontrolofoccupationaldisease,theerrantemployerwillbesubjecttothefollowingpunitivemeasures:i)warnedandorderedtorectifywithinspecifictimelimit;ii)afinewithitsamountdeterminedbasedonseverityofthecircumstance;oriii)orderedbylocalgovernment to shut down the specific operationthatgeneratedtheoccupationaldiseasehazardsortheentireoperationoftheemployer.

C. proteCtion from retaliation

The PRC Labour Law explicitly stipulates that ifemployers unreasonably obstruct the labouradministrative authority, relevant authoritiesor their officials from exercising the right ofsupervisionandinspectionandretaliateagainstthewhistleblower,thelabouradministrativeauthorityor relevant authoritiesmay impose a fine on theemployer,and thecriminal liabilityof responsiblepersonnelwillbepursued,iftheretaliatoryactionconstitutesasacrime.



V. Anti-diSCriminAtiOn laws1. brief descriPtion of Anti-diSCriminAtiOn lawsCurrently, the rules on anti-discrimination arescatteredthroughoutvariouslawsandregulations,such as the PRC Employment Law, the PRCEmployment Promotion Law, the PRC Protectionof Women’s Rights and Interests Law, and thePRCProtectionofDisabledPeople Law.However,theseanti-discriminationrulesareverygeneralandimpracticalanddonotspecifywhatdiscriminationis,howtodetermineitsexistence,howtoallocatethe burden of proof in establishing it and whatliabilityshouldbeimposed.

2. extent of Protection AccordingtothePRCLabourLaw,employeesshallnotbediscriminatedagainstduetotheirethnicity,race,genderorreligiousbelief.TheRegulationonEmploymentServiceandEmploymentManagementformulated by the Ministry of Human Resourceand Social Security further expands the scope ofprotection, and specifies that employees shallalsonotbediscriminatedagainstduetodisabilityor formigratingfromruralareas.Also,employersshallnotrefusetoemployajobcandidateonthebasis that he or she is a carrier of any infectiouspathogen unless otherwise provided by laws andregulations.Particularly,anemployer is forbiddento include provisions in its labour contracts orinternalpoliciesrestrictingtherightsofitsfemaleemployees to marry and reproduce. If a femaleemployeebelievesherrighttomarryorgivebirthhasbeenviolated,shemaybringacasebeforethecourtandevenseekcompensation.

3. Protections against harassmentHarassmentinChinaismainlyaddressedassexualharassmentinlegislation.The2005PRCProtectionof Women’s Rights and Interests Law explicitlystates that sexual harassment against women isbannedandvictimsareentitledtocomplaintotheemployerortherelevantauthorities.

The Special Rules on the Labour Protection ofFemale Employees issued by the State Council in2012,furtherprovidethatemployersshallpreventand prohibit the sexual harassment of femaleemployeesintheirworkplaces.However,neitherofthesetwolawsincludesacleardefinitionof“sexualharassment” nor do they contain any specificobligations foremployers topreventandprohibitsexualharassment.

The PRC Civil Code, effective from the beginningof2021,prescribesthatbothmenandwomenareunder the protection against sexual harassmentand employers are obligated to take reasonableprecautions, handle complaints, investigateand discipline, and prevent sexual harassment,conducted by exploiting authority or subordinaterelationships or by other means. The victims ofsexual harassment may file a claim against theoffender demanding an apology,moral damages,orothercivilremedies. Inthelatestdevelopmentonanti-sexual-harassmentrules,thePRCCivilCodealso describes sexual harassment as actions thatareagainstthewillofanother(orothers)andcanbeconveyedvialanguage,words,photos,physicalmovementorbyothermeans.

In 2008, a human resourcemanager in Chengduwassentencedtofivemonths’criminaldetentionforharassmentofafemaleemployee.Thiswasthefirst sexual harassment case where the offender



receivedcriminalsanctions.Comparedwithmanyother countries, the anti-harassment legislationin China is rather nominal and in practice, it isbelieved that very few remedies are ultimatelyawarded to most harassment victims. In view ofthis,thelegalpractitionersinChinahavelongurgedfortheestablishmentoflegalsystemwithamorecomprehensiveanti-sexual-harassmentprotection.

4. emPloyer’s obligation to Provide reasonable accommodations Under the PRC Protection of Disabled PeopleLaw, employers shall provide disabled employeeswith appropriate working conditions and labourprotection,andmakeappropriatemodificationstotheworkingplace,equipmentandlivingfacilities.

5. remediesCurrently in China, employment discriminationcould be litigated according to PRC Labour Law,EmploymentPromotionLawandTortLiabilityLaw.Onediscriminationcasein2017,thecompanyputanemployeeonpaidleaveduetothefactthattheemployee was diagnosed as infected by HIV andthe company was ordered by the court to allowthe employee to resume working in his originalposition.Still,employmentdiscriminationcasesarerare in China because, under current legislation,it is difficult to adduce evidence and there areno comprehensive remedies for employmentdiscriminationviolations.

6. other requirements The PRC laws and regulations on employmentdiscrimination do not specifically prescribe anydetailedrestrictioninrespectsofquotas,diversityor affirmative action. But employers in China areinfactencouragedtoemployacertainproportionof disabled employees and provide them withappropriate types of work and positions. Wherethe employer fails to employ enough disabledemployees at a certain proportion of the wholestaff(e.g.1.5%inShanghai)asrequiredbythelocal

government, such employer shall be obligated tocontribute to the Disabled Person EmploymentSecurityFund(the“Fund”)onanannualbasis.TheFund is established and committed to improvingemploymentopportunitiesfordisabledindividualsand protect their legitimate interests in dealingswith different employers. In practice, from aneconomic perspective, large companies usuallychoose to retain a satisfactory percentage ofdisabled employees, so that the companywill beexemptfromcontributionstotheFund.

InDecember2019,theNationalDevelopmentandReformCommission,togetherwithfiveothercentralgovernmental departments, released the OverallPlanforRefiningtheDisabledPersonEmploymentSecurity Fund and Facilitating the Employmentof the Disabled (the “Plan”). The Plan expresslystipulatesthat,asfrom1January2020,employerswithnomorethan30employeesareexemptfromcontributions to the Fund. Following the Plan,various provincial and municipal governmentsupdated the calculation formula relating to anemployer’scontributiontotheFund.TakeShanghaiasanexample, twodifferent calculation formulashavebeen releasedandwill beappliedbasedontheproportionofdisabledemployees:

•Employers whose disabled employees accountfor1%ormoreofthetotalstaff–

Theannualcontributionamount for theFund=(1.5%-Ratioofdisabledemployees)× thesumof the employer’s social insurance contributionbaseoflastyear×50%;

•Employers whose disabled employees accountforlessthan1%ofthetotalstaff–

Theannualcontributionamount for theFund=(1.5%-Ratioofdisabledemployees)× thesumof the employer’s social insurance contributionbaseoflastyear×90%.

Inaddition,pursuanttothePRCRegionalAutonomyLaw,employersinnationalautonomousregionsareexpected to give priority to recruiting candidateswithminorityethnicity.



vi. Pay equity laws 1. extent of Protection General provisionson theprincipleof “equal payforequalwork”existindifferentPRClaws.ThePRCConstitution provides that the state shall protectthe rights and interests of women, implementequalpayforequalworkbymenandwomen,andtrain and select female officials. The PRC LabourLawalsoprescribesthatwagesshallbedistributedaccordingtocontributionandequalpayforequalworkshallbeimplemented.

ThePRCLabourContractLawspecificallyprescribestheequalpayforequalworkunderthecontextofa labour dispatchment relationship, according towhich, dispatched employees shall be entitled toreceive thesamepayasemployeesdirectlyhiredandworkinginthesamepositions.Inaddition,thesame labour remuneration system shall be usedfor the dispatched employees and directly-hiredemployees,basedontheprincipleofequalpayforequalwork.

In some areas in China, the people’s courts haveissuedjudicialopinionsthatprovidefurtherdetailstoguidethehearingsincasesinvolvingequalpay.According to the judicial opinions issued by theShanghaiHighPeople’sCourt,“equalwork”cannotbe simply determined based on the employeesworkinginthesameposition,butratherthecourtshould comprehensively consider the factors,such as employees’ work experience, work skills,workenthusiasmandotherspecialcircumstances,and employers are allowed to pay employeesworkinginthesamepositionaccordingtodifferentremunerationstandardsbasedonthesefactors.

2. remedies An employee may challenge equal pay practicesby filing labour arbitration/litigation against theemployer; theavailableremedyforsuchclaims isto force the employer tomake up the differencein salary. In addition to the judicial proceedings,employeesmayalsoapplytothetradeunionand

request mediation for resolving the dispute withtheemployerregardingsalarystandards.

3. enforcement/litigation In view of the judicial practice in China, mostcases involving a claim seeking to remedy salarydifferencesbasedontheprincipleof“equalpayforequalwork”havenot,generally,beensupportedbythecourts,asitisextremelydifficultforemployeesto prove that the employer has violated theprincipleof“equalpayforequalwork”.

Anemployerusually defends and justifies certainemployees, who are paid higher wages despiteworking in the same position as the (employee)petitioner,bypointingouttheirsuperioreducation,workexperience,workskills,performance,etc. Inaddition, employers in China are not obliged toreleaseinformationregardinganemployee’ssalary,whichfunctionsasapracticalbarrierthatpreventsemployees from initiatingaclaimbasedonequalpay.

4. other requirementsExcept for theprovisionsmentionedabove, therearenootherrulesinthecurrentPRClegalschemethatwouldcompelemployerstotakeanypositiveactiononequalpay.



vii. social media and data Privacy 1. restrictions in the worKPlaceEmployers in China may impose restrictions onemployee’s electronic communications. Therestrictive requirements are usually phrased as i)the electronic communication systems includingthecomputers,Internetsystems,telephone,voicemail and email systems provided to employeesby the employer, shall belong to the employerand only be used for work-related purposes;and ii) the employees shall not have a legitimateexpectation of privacy protection in regard tothe said electronic systems. The aforementionedrestrictive requirements are often documentedin the employer’s internal policies and becomebindingontheemployeesafterundergoingthedueprocedures.

a. Can tHe employer monitor, aCCeSS, review tHe employee’S eleCtroniC CommUniCationS?

Under PRC Labour Contract Law, the employercouldformulateits internalpolicies inaccordancewithlaw.Ifsuchpoliciesinvolvethematterssuchasworkinghours,workdiscipline,etc.,whichhaveadirectimpactonemployees’immediaterightsandinterests,thesaidpoliciesshallbediscussedbytheemployeerepresentativecongressorallemployees,and then determined by the employer afterconsultation with the labour union or employeerepresentatives(the“DemocraticProcedures”).

Therefore, if the employer’s restriction onemployees’useofelectroniccommunications isapartofitsinternalpolicies,whichhaveundergonethe said Democratic Procedures and have beenannounced to all employees, or informed toa specific employee, or is incorporated in the

employee’semploymentcontract,itcouldbevalidandenforceable.

As employees’ electronic communications mayincludepersonalinformationthatcanbeidentifiedunderthePRCCivilCode,theemployershallalsobe aware of observing the PRC Civil Code whenprocessingsuchinformation.

2. emPloyee’s use of social media to disParage the emPloyer or divulge confidential informationSimilar to the restrictions on employees’ usageof electronic communications, an employer mayalso formulate its social media policy to requireits employees to refrain frommaking disparagingcomments about the employer. The socialmediapolicy also needs to undergo the DemocraticProceduresbeforeitcan(legally)beenforced.

In a recent case decided by the Beijing No. 3Intermediate Court, the employee circulatedmultiplearticlesontheInternetabouttheemployer.Asaresult,theemployerterminatedtheemployeeforbreachingthenon-disparagementobligationasprescribed in theemployeehandbook. TheCourtdetermined that the employee’s online articleswere derogatory and aggressive and thereforeit was legal for the employer to terminate theemploymentrelationship,pursuanttoitsemployeehandbook.

However, the nature of the non-disparagementobligation conflicts with an employee’s freedom



ofspeech,toacertainextent.Sometimes,itisalsodifficulttoobjectivelydeterminewhetherornottheemployee’swordsaredisparagingtotheemployer.Thus,employers inChinaareoftenadvised tobecautiouswhendiscipliningemployeesforviolatingtheirnon-disparagementobligation.

Regardingtheconfidentialinformation,pursuanttoPRCLabourContractLaw,confidentialityobligationcouldbeagreeduponbetweentheemployerandemployee in the employment contract. If theemployee has divulged confidential informationto any third party, the employer could claim anydamageincurredthereofagainsttheemployee.Inpractice, for more effective regulation purposes,employers may specify the restrictions regardingemployee’suseof socialmediaandnotdivulgingconfidential information in their internal policies(e.g. explicitly stated in the employee handbookthat employees are not allowed to comment onany affairs related to the employer in a publicnatureorontheirownsocialmedia).Theemployermay, in accordancewith internal policies, imposedisciplinarymeasuresontheemployeesiftheyusesocialmediatodisparagetheemployerordivulgeconfidentialinformation.



viii. termination of emPloyment contracts 1. grounds for termination PRC labour law generally favours employees andtherefore contains many statutory provisions ontermination of employment contracts that protectemployees’ rights and interests. The statutorygroundsforterminationare:

•terminationbymutualagreement;•terminationbyemployee;•terminationbyemployer;•automatictermination.

a. termination By mUtUal aGreement

Employers and employees may terminate theiremployment contracts at any time upon mutualagreement. Termination by mutual agreement isoftenusedbyemployerstoencourageemployeestoleave,whilereducingtheriskofbeingsuedforillegaltermination.

B. termination By tHe employee

It is usual for employees to voluntarily terminatetheiremployment.Employeesmayterminatetheiremployment by giving their employers 30 days’prior written notice (or three days’ notice if theemployee is still within the probationary period).Where the employer is at fault according to thelaw,suchas failingtoprovide labourprotectionorlabourconditionspursuanttotheprovisionsoftheemployment contract or failing to promptly paylabourremunerationinfull,theemployeeisentitledtoimmediatelyterminatetheemploymentbygivingthe employer notice. Where an employer usesmeans such as violence, threats or unauthoriseddetentiontocoerceanemployeeintoworkingforthe

employer,givesordersinviolationofrulesorforcesanemployeetoengageinriskyworkthatendangerstheemployee’spersonalsafety,theemployeemayimmediately terminate the employment withoutinformingtheemployerinadvance.

C. termination By tHe employer

PRC labour law only permits an employer toimmediately and unilaterally terminate anemploymentcontractwhentheemployeecommitsamisconductlistedinArticle39ofthePRCLabourContract Law. An employer may also terminatean employee with either 30 days’ prior writtennoticeor amonth’s salary in lieuof notice, underthe circumstances described in Article 40 of thePRC Labour Contract Law. An employer may alsoterminateanemployeeif itsatisfiestheconditionsfor reduction in force and completes the requiredprocedures contained in applicable employmentlaws.

d. aUtomatiC termination

Inanyofthefollowingcircumstances,theemploymentcontract should terminate automatically, unlessotherwiseprovidedbylaw:

•thetermoftheemploymentcontractexpires;•the employee reaches the statutory retirementageorstartstoenjoyretirementbenefits;

•theemployeepassesaway,orisdeclareddeadorlostbythepeople’scourt;

•theemployerisdeclaredbankruptunderthelaw;•theemployer’sbusinesslicenseisrevokedortheemployerisorderedtoclosedownorde-register,ordecidestoliquidateinadvance;or

•other circumstances in which the employmentcontractshouldterminateaccordingtothelawsoradministrativeregulations.



Labour arbitrators and courts in China interpretthese statutory termination provisions asexhaustive. In otherwords, employers cannot addany additional conditions for termination in itsemploymentcontractandterminate itsemployeesbasedonsuchadditionalconditions.However, theemployermayreasonablydefineseriousmisconductin its employee handbook (also known as a staffhandbook).Employeeswhocommitanysuchseriousmisconductwill be deemed asmaterially violatingtheinternalrulesoftheemployer,whichconstitutesoneofthestatutoryterminationgrounds.

2. collective dismissalsCollectivedismissalsusuallytakeplaceinthecontextof reduction in force, which include the followingcircumstances:

•the employer is restructuring pursuant to theEnterpriseBankruptcyLaw;

•theemployer is experiencing seriousdifficultiesinproductionand/orbusinessoperations;

•the employer switches production, introducesa major technological innovation or revises itsbusiness method, and, after amendment ofemployment contracts, still needs to reduce itsworkforce;or

•other objective economic situations on whichtheemploymentcontractisbased,havechangedconsiderablyandrenderstheemployerunabletoperformtheemploymentcontract.

UnderthePRCLabourContractLaw,ifanemployerintendstoreduceitsworkforceby20personsormoreorbyanumberthatisfewerthan20butaccountsfor10%ormoreof its totalnumberofemployeesforthereasonmentionedabove,theemployermustexplain thesituationto its tradeunionorallof itsstaff 30 days in advance. The employermust alsoseektheopinionofthetradeunionoritsemployeesand submit a redundancy report to the labouradministrative authorities, which will accept thereportfor15days,withoutobjection.Onlythenmaytheemployerimplementtheredundancy.

Also,when reducing itsworkforce, an employer isrequired to give priority to retaining the followingemployees:

•thosewhohavefixed-termemploymentcontractswitharelativelylongterm;

•those who have open-ended employmentcontracts;or

•thosewhoare the sole incomeearner for theirfamiliesandmustsupportelderlyorminors.

Furthermore,thefollowingemployeesareprotectedfromreductioninforce:

•those who are engaged in work involvingoccupationaldiseaseorhazards,withouthavingundergoneapre-departureoccupational healthexamination, or who are suspected of havingcontractedanoccupationaldiseaseandarebeingdiagnosedorundermedicalobservation;

•thosewho have been confirmed as having lostorpartiallylosttheircapacitytoworkduetoanoccupational disease or a work-related injurysustainedwiththeemployer;

•thosewhohavecontractedanillnessorsustaineda non-work-related injury, and the statutorymedicaltreatmentperiodhasnotexpired;

•femaleemployees intheirpregnancy,maternityleaveorbreastfeedingperiod;and

•those who have been working continuouslyfortheemployerfornot lessthan15yearsandare less than 5 years away from the statutoryretirementage.

Evenifaredundancyproposalhasbeenreportedtothelabourdepartmentandtheemployerproceedstoterminateitsemployees,suchterminationsmaystillbereversedbyalabourarbitrationcommissionor a court. One common reason for such reversalis that the employer improperly terminates anemployeewhoshouldhavebeenspeciallyprotectedorfailstogiveprioritytoretainingthethreekindsofemployeesdiscussedabove.Inordertoavoidsuchmistakes, the employer needs to carefully checkand investigate its employees’ situations beforeimplementing the redundancyplan,whichmaybenoteasywithoutsupportoflegalcounsel.Itmaybeespeciallydifficulttolearnwhichemployeesaresoleincomeearners andhave theelderly orminors tosupport.

3. individual dismissalsAsmentionedabove,anemployermayunilaterallyterminate an employment contract immediatelywhentheworkercommitsanyofthefollowingtypesofemployeemisconductcontained inArticle39oftheLabourContractLaw:



•the employee fails to satisfy the recruitmentconditionsduringtheprobationaryperiod;

•the employee seriously violates the labourdisciplines or the employer’s rules andregulations;

•the employee causes serious damage to theinterests of the employer due to his or herseriousdereliction,orhisorherengagement inmalpracticeforpersonalgain;

•the employee has established employmentrelationship with another employer, whichmaterially affects the completion of his or hertaskswiththeoriginalemployer,ortheemployeerefusestorectifypertheemployer’srequest;

•theemploymentcontract is invalidbecause theemployee used means such as deception orcoercion, or took advantage of the employer’sdifficulties to cause the employer to concludethecontractortomakeanamendmentthereto,whichiscontrarytotheemployer’strueintent;

•theemployeeisheldcriminally liableunderthelaw.

Furthermore, theemployermayalso terminateanemployment contract by giving the employee 30days’priorwrittennoticeoronemonth’ssalaryinlieuofnoticeunderanyofthefollowingcircumstancesdescribedinArticle40oftheLabourContractLaw:

•the employee, after exhausting the statutorymedical treatment for an illness or non-work-related injury, remains unable to perform hisor her original job duties, and is also unfit foranotherjobassignedbytheemployer;

•the employee is incompetent in fulfilling his orher duties, and remains so after undergoingfurther training or an adjustment of his or herposition;

•the employment contract cannot beperformeddue to major changes of the objectivecircumstances under which the contract wasoriginally concluded,and theemployerand theemployeefailtoreachagreementonmodificationofthecontractaftermutualconsultation.

a. iS SeveranCe pay reQUired?

Under the Labour Contract Law, for mutualterminations proposed by the employer, unilateralterminations by the employer via notice underthe three statutory circumstances, redundancyterminations for economic reasons, unilateral

terminations by the employee for the employer’sfault or constructive terminations due to theemployer’sreasons,theemployerisrequiredtopayseverancebasedontheemployee’syearsofservice.Severance is calculated at a rate of one month’ssalary (the“AverageMonthlySalary”) foreach fullyear of service. Service periods greater than orequal to sixmonthsare roundedup toa full year,andperiods fewer thansixmonthsareconsideredhalf-years(theemployerwouldoweahalfmonth’ssalary). The Average Monthly Salary means theaverage monthly wage of the employee over thelast12monthspriortohisorherterminationdate.If the employee’s AverageMonthly Salary ismorethan threetimes the localaveragemonthly salary,accordingtothelocalgovernment,severancewillbecalculatedatthreetimesthislocalaveragemonthlysalary. Inotherwords,theAverageMonthlySalaryforseverancecalculations iscappedatthreetimes(3x)thelocalaveragemonthlysalaryandwhenthiscapisreached,thecompensableyearsforseverancecalculation shall not exceed 12 years, pursuant totheLabourContractLaw.

4. seParation agreements

a. iS a Separation aGreement reQUired or ConSidered BeSt praCtiCe?

A separation agreement is required in the eventof mutual termination. As mentioned above,termination by mutual agreement is often usedby employers to reduce the risk of being sued forwrongfultermination.Therefore,whentheemployerdecides to terminate an employee, a separationagreementwouldbeconsideredabestpractice.

B. wHat are tHe Standard proviSionS of a Separation aGreement?

The law does not specify the standard provisionsin a separation agreement. However, in practicea separation agreement for mutual terminationtypically includes the last working day, severanceamount and payment date, last month salarypayment,paymentofsocial insuranceandhousing



reserve fund, the employee’s obligations to handover work and return the employer’s properties,waiverandrelease,confidentiality,etc.

C. doeS tHe aGe of tHe employee make a differenCe?

AccordingtoPRCLabourContractLaw,iftheemployeehasbeenworkingwiththeemployerformorethan15years and it is less than5 years forhimorhertoreachthestatutoryretirementage,theemployershall not lay him or her off for economic reasonsor unilaterally terminate his or her employmentcontract, unless the employee’s behaviour fallswithin the types ofmisconduct detailed in Article39 of the Labour Contract Law. However, in theevent ofmutual termination, the employer is alsoabletoreachaseparationagreementwiththeagedemployees.Duetothelegalprotectionaffordedtoaged employees, the employer may need to payex-gratia severance in addition to the mandatoryseveranceprovided in theLabourContractLaw,asanincentivefortheemployeetosigntheseparationagreement.

d. are tHere additional proviSionS to ConSider?

Iftheemployerandtheemployeehaveanagreementon the post-employment non-competitionobligation, the separation agreement shall havea clause to specify whether or not the employerreleases the employee from the post-employmentnon-competition obligation. In addition, theseparation agreement may include provisionsabout non-solicitation, non-disparagement, non-interference, etc. when necessary, especially forsenioremployees.

5. remedies for emPloyee seeKing to challenge wrongful terminationEmployees may initiate labour arbitrations inresponse to any unilateral termination by theiremployers. Either the employee or employermayappeal a labour arbitration’s decision to the court

if dissatisfied with its decision, unless otherwiseprescribedby law.Duringthe labourarbitrationorlitigation,theemployermustprovidesolidevidencetosupporttheterminationandassumetheburdenof proof. If the unilateral termination by theemployerisfinallyjudgedaswrongful,theemployeemay request theemployer to continue toperformthe employment contract (i.e. reinstatement ofemployment) and provide back pay of salary andsocial insurance contributions for the period ofdispute resolution.Where the employee does notrequestcontinuedperformanceoftheemploymentcontract or the employment contract cannot bereinstated, the employer must pay the employeecompensation equal to double the statutoryseverance. Due to the high risk of a unilateralterminationleadingtoalabourdispute(arbitrationand/orlitigation),employersshouldviewunilateralterminationasalastresort.

6. whistleblower laws The PRC Labour Law explicitly stipulates that ifemployers unreasonably obstruct the labouradministrativeauthority,relevantauthoritiesortheirofficialsfromexercisingtherightofsupervisionandinspection,andretaliateagainstthewhistleblower,the labour administrative authority or relevantauthoritiesmayimposeafineontheemployer.

From the perspective of corporate governanceand a company’s operational compliance, Chineselegislationhasnot yet formulated an independentsectoroflawstogoverntherightsandobligationsofthewhistleblower.Except for theabovementionedprovision, a similar concept on whistleblowerprotection can also be found in the PRC criminallawsandregulations,wherecriminalliabilityistobepursuedbythepublicprosecutor,andtheidentityofthewhistlebloweriskeptundisclosedforavoidanceof potential retaliation against the whistleblowerandofimpedinganyongoinginvestigation.



ix. restrictive covenants 1. definition of restrictive covenantsIn PRC Labour Contract Law, there is no expressdefinition of restrictive covenants. Nevertheless,restrictivecovenantsarecommonlyusedinpractice.For example, an employment contract and aseparationagreementmayincludeanobligationnottoviolatetheconflictofinterestpolicy,confidentialityobligation, non-disparagement obligation, non-solicitationobligationandnon-competeobligation.

2. tyPes of restrictive covenants

A. non-compete cLAuses

AccordingtoPRCLabourContractLaw,anemployerandanemployeemayaddapost-terminationnon-competeclauseinalabourcontractorconfidentialityagreement.Employeeswhomaybesubjecttonon-compete obligation include senior management,senior technical personnel and others who haveconfidentialityobligations.

Themaximumnon-competitiontermis24months.During the non-compete period, the employer isobligedtopaycompensationtoemployeesfortheperformance of non-compete obligations aftertermination of employment, and the employeris entitled to have the employee assume theagreed liabilities for the violation of non-competeobligations.

The regulations and practical rules for post-employment non-competition usually vary byregion.However,theInterpretationsoftheSupremePeople’s Court on Several Issues Relating to LawsApplicable for Trial of Labour Dispute Cases (IV),

whichwaspromulgatedin2013,enjoysanationwidelegal effect and contains several important rulesaboutnon-competeobligations.

Thefollowingrulesdeservespecialattention:

•if the compensation for employees abiding bythe non-compete obligations is not explicitlystipulated in writing, then the non-competeclauseisstillbindingupontheemployees;

•the default standard for the monthly non-compete compensation is 30% of employees’average monthly salary in the last 12 monthsprior to employment termination, which shallbe no lower than the monthly minimum wageannouncedbythelocalgovernment;

•ifanemployerfailstopaysuchcompensationforthreemonths,theemployeeisentitledtorequestrelieffromthenon-competeclause;and

•an employer may waive the employee’s non-competeobligationduring the restrictedperiodand such employer shall pay three additionalmonthsofcompensation,ifsorequestedbytheemployee.

b. non-soLicitAtion of CUStomerS

Although a non-solicitation obligation is notexpressly incorporated into PRC Labour ContractLaw, normally in the employment contract orspecific non-competition and non-solicitationagreement, the employer will request that duringthe employment period, and for a certain periodof time after termination of the employmentrelationship, the employee shall not solicit anycustomer, consultants, agents, representatives,vendors,etc.oftheemployeroritsaffiliates.



c. non-soLicitAtion of employeeS

In addition to the obligation of non-solicitationof customers, non-solicitation of employees isalso requestedbymost employers in practice. Forinstance,theemployerwillrequestthatduringtheemploymentperiodandforacertainperiodoftimeafter termination of the employment relationship,theemployeeshallnotdirectlyor indirectlysolicit,induce, recruit or encourage any employees orany othermember of the employer to leave theiremployment.

3. enforcement of reStriCtiVe COVenAntS – Process and remediesIf an employer has a non-compete agreementwith an employee, but does not want to enforcesuchagreement,itisadvisablefortheemployertoexpresslywaivethenon-competitiondutiesbeforethe termination of employment. Otherwise, oncetheemploymentisterminated,theemployerwillbeobliged to pay thenon-competition compensationon a monthly basis, or would need to pay threeadditionalmonths’non-competecompensationifitintendstorescindthenon-competeagreement.

Under PRC Labour Contract Law, the employeecan be required to pay liquidated damages to theemployer only under two circumstances, one ofwhich is the violation of his or her non-competeobligation. In other words, if the employee hasviolated his or her non-compete obligation, theemployer may require the employee to bear theagreed liabilities, which usually include paymentof the liquidated damages, refund of the paidcompensation,continuedperformanceofthenon-compete obligation and compensation for actuallossessufferedbytheemployer,beyondtheamountofliquidateddamages.

For non-solicitationobligations, the employermayenforce the relevant clauses in the employmentcontract,etc.andclaimdamagesforanylossincurredthereof. In non-solicitation cases, employers areusuallyrequiredtoprovidefactualevidenceofthesolicitationandtherelatedactuallosses.

Where a non-competition or non-solicitationobligation is breached, despite the remedies inthe form of economic compensation, it is oftenquite difficult for judicial bodies to rule on thespecific performance of the non-competition ornon-solicitation obligation, as such enforcement isbelievedtoconflict,toacertainextent,withpersonalfreedom.

4. use and limitations of garden leaveTheconceptofgarden leavedoesnotderive fromthe PRC employment laws and regulations, but itiswidelyusedindailyHRpracticeinChina.Gardenleave refers to the period when the employeeis relieved from all job duties, maintains his/heremployment relationship with the employer andreceivesnormalremuneration.Gardenleaveisoftenarrangedinthesituationswherei)theemployeeissuspectedofmisconductandunderinvestigation;orii)theemployerexpectstheemployeetobreakawaywith the confidential informationor trade secrets,beforetheemployee’sdeparturefromthecompany.

Theuseofgarden leave isunlimited inmostcitiesinChina.However,wehaveseenexceptionalcaseswherethearrangementofgardenleaveisviewedasadeprivationoftheemployee’sworkingconditions,which entitles the employee to terminate theemploymentandclaimseverancefromtheemployer.



x. transfer of undertaKings 1. emPloyees’ rights in case of a transfer of undertaKingUndertheLabourContractLaw,whenanemployerdecides major company matters that directlyimplicatetheinterestsofemployees,theemployershould discuss such matters with the employeerepresentativecongressoritsentirestaff.Itshouldonly make a decision after consulting with thetrade union or employee representatives. Theconsultation procedure is designed to give thetrade union and employees a chance to expresstheiropinions,buttheemployerhastheauthoritytomakethefinaldecision.

A transfer of undertaking may include manyscenarios, such as mergers and acquisitions. Thekey issue is whether such transferwillmateriallyaffecttheinterestsofsomeorallemployees.UnderPRC law, if the transfer only involves a changeof shareholders with the employer remainingunchanged, the performance of employmentcontracts will not be affected. Furthermore,in case of a merger, the original employmentcontracts may remain valid and the survivingpartywill continue to recognise and perform theemploymentcontracts.Inbothofthesescenarios,theconsultationobligationwouldnotbetriggeredbecausetheemployees’interestsarenotmateriallyaffected (therearedifferent requirements for therestructuringofstate-ownedenterprises).

Another scenario involves the acquisition ofassets, which may be defined by the labour lawas a material change in the objective conditionsonwhich the employment contractswere based.Such change would usually result in a shift ofemployment relationships or redundancies.Accordingly, the acquisition of assets itselfwould

not trigger the consultation obligation; but if theacquisitionofassetsresultsinmassredundancyofemployees,thenasimilarconsultationobligationisrequiredtobeperformedbytheemployer.

2. requirements for Predecessor and successor Parties

a. eQUity deal

Achangeofshareholdersandamergerwouldnotaffect the performance of employment contractsand therefore neither the transferor nor theacquiring party is obliged to pay severance toemployees.However,inpractice,employeesoftendemand severance and even collectively opposesuchtransfer,becausetheymisconstrueachangeof shareholders as a termination of employmentortheyworrythattheirrightsandinterestswillbeimpairedafterthetransfer.Therefore,toappeasethese employees, some acquiring parties maypromise that they will not reduce employees’compensationorbenefitsafterthetransferandmayevenundertaketorefrainfromcollectivelayoffsforacertainperiod(suchastwoyears)followingtheconsummationofthetransferofundertaking.

B. aSSet deal

In the event of the acquisition of assets, theacquiring party is not legally obliged to employthe employees of the target company, unlessboththeacquiringpartyandtheemployeeagreeto establish an employment relationship. If boththe acquiring party and the employee agree onthe transfer of employment, theymay enter intoatri-partyagreementtogetherwiththetransferortostipulate that the transferorandtheemployee



willterminatetheiremploymentcontractandthatthe transferee and the employee will sign newemploymentcontracts.Thismayraisetheissueofseverance.AccordingtotheImplementationRulesof PRC Labour Contract Law, the transferor mayasktheacquiringpartytoassumetheemployees’seniority.Inotherwords,anyseniorityoftransferredemployees may be carried over to the acquiringpartyaftertheacquisitionandnoseveranceispaiduntiltheemployeeisactuallyterminatedduringtheemploymentwiththeacquiringparty.Thisoptionfor the transferee to carry over the employees’seniority reduces immediate transaction costs forthe transferor, and thus it is the more commonpractice.

When the employment contract between theacquiring party and the employee is finallyterminated, the employee may be entitled toreceive severance according to law. At that time,the continuous seniority with the transferee andthe transferor will be combined together forseverance calculation. However, some employeesmay firmly request severance even when theyagree to transfer their employment relationshiptotheacquiringparty.Thismakesthepaymentofseverancedifficulttoavoid.

If theemployeedoesnotwant to transfer to theacquiringpartyortheacquiringpartydoesnotwanttohireanemployee,thetransferormayterminatetheemploymentcontractwiththeemployeebyamutual termination agreement. If the employeerefusestosignthemutualterminationagreement,thetransferormayoffertoamendtheemploymentcontractforthereasonthattheobjectivesituationhas materially changed and then unilaterallyterminate the employment contract, by givingthe employee 30 days’ prior written notice orone month’s salary in lieu of notice, when thepartiesfailtoreachanagreementontheamendedemploymentcontract.



xi. trade unions and emPloyers associations 1. brief descriPtion of emPloyees’ and emPloyers’ associations

a. trade UnionS

InChina,alltradeunionsareundertheleadershipoftheAll-ChinaFederationofTradeUnions(“ACFTU”).ACFTUisanational-levelorganisationthatreportsdirectly to theChineseCommunist Party andhasbranchesattheprovincial,cityanddistrictlevels.Technically speaking, an enterprise does nothave to take positive action to establish a tradeunion. However, if its employees request for theestablishment of a trade union, the enterprisecannot obstruct the process. In practice, localACFTUbrancheshavebeenobserved increasinglypressuringenterprisestosetuptradeunionsfromthetoptown.

In the case of Wal-Mart, the ACFTU publiclycondemned Wal-Mart for refusing to establishtradeunionsandthreatenedtofilealawsuitagainstWal-Mart.In2006,almost30Wal-Martemployeesrequested to have a trade union instated, whichledtotheformalestablishmentofatradeunionatWal-Mart.

B. employerS’ orGaniSationS

The China Enterprise Confederation (originallyknown as the “China Enterprise ManagementAssociation”) and China Enterprise DirectorsAssociation (the “CEC/ECDA”) are non-profitnationalorganisationsthatareregisteredwithandapprovedbytheMinistryofCivilAffairsofthePRC.The government department responsible for

overseeing the CEC/ECDA is the State-ownedAssetsSupervisionandAdministrationCommissionof the State Council. The CEC/ECDA have legalpersonstatusandarecreatedtopromotereformswithin enterprises, improve management withinenterprises, act as a liaison between enterprisesandgovernmentsandprotectthelegitimaterightsandinterestsofenterprisesandentrepreneurs.

CEC is the sole representative from China withinthe International Organisation of Employers.Currently,mostprovinces,autonomousregionsandmunicipalities,whicharedirectlyunderthecentralgovernment,variousnationalindustrydepartments,industrialcitiesandtensofthousandsoflargeandmedium-sizedbusinesshaveestablishedtheirownenterprisemanagementassociations.Thenumberofenterpriseswithsuchmanagementassociationshasreachedhundredsofthousands.Thesevariousassociations comprise an interconnected nationalsystemofmanagementassociations.

2. rights and imPortance of trade unionsThe fundamental rights and responsibility oftrade unions is to safeguard the legal rights andinterests of employees. Specifically, trade unionsshouldi)harmoniseemploymentrelationshipsandsafeguard the rights and interests of employeesby conducting equal negotiations for employeesand forming collective contracts; ii) organise andcoordinate employee participation in democraticdecision making, democratic management anddemocratic supervision according to relevant lawand via the employee representative congress orotherchannels;andiii)maintainclosecontactwithemployees,listentotheirviewsanddemandsand



forwardthesametothemanagementofemployers,exhibit concern for their daily lives, help themresolvedifficultiesandservethemwholeheartedly.

Anenterprisemayformcollectivecontractswithitstradeunion(oritselectedemployeerepresentativesiftheenterprisehasnotradeunion).Ifaunionoran elected employee representative submits awrittenrequesttoengageincollectivebargaining,theemployergenerallycannotrefusewithoutjustcause.

Collective contracts are binding on the employerand all of its employees. Accordingly, individualemployment contracts cannot include standardsthatarelowerthanthosesetforthinthecollectivecontracts. However, it is possible to have termsin individual employment contracts that aremore favourable to the employees than whatthe collective contracts provide. If an employerviolatesthecollectivecontractandinfringesupontheemployee’sinterests,thetradeunionmaythetrade unionmay insist that the employer shouldbear the burden of liability. If there is a disputearisingfromperformanceofthecollectivecontractanditcannotberesolvedthroughnegotiation,thetradeunionmayfileforarbitrationandlitigationinaccordancewiththelaw.

3. tyPes of rePresentation

A. empLoyee congress / employee repreSentativeS’ ConGreSS

The trade union is the operating organ of theemployeecongressandemployeerepresentatives’congress (the “EC/ERC”) and is responsible forcarryingouttheirroutineactivities.TheEC/ERCarethebasicformsinChinaforenterprisestoexercisedemocratic management, and for employees toexert their rights to participate in democraticmanagement.

InChina,state-ownedenterprisesusuallyestablishatradeunionandEC/ERC,andprivatebusinessesare also encouraged by the government to aestablish trade union and EC/ERC. In practice,private businesses, if they would like to have a

trade union, usually establish a trade union andorganise the EC/ERC only when necessary. InShanghai, where an enterprise’s total number ofemployeesisfewerthan100,theenterpriseusuallyneeds to organise an EC insteadof an ERC. Localgovernments in various regions of China (such asShanghai andGansuprovince)mayhavedifferentprovisionsonhowtoconveneandholdtheEC/ERC.

When an enterprise creates or revises internalpoliciesormakesotherdecisionsonmajormattersthat directly affect employees’ interests such asissues related to remuneration, working hours,restperiodsandoffdays,worksafetyandhealth,insurance and welfare, staff training, labourdiscipline and work quota management, etc. itshoulddiscusssuchmatterswiththeERCorallitsstaff. Employees should be given the opportunityto make proposals and provide their opinions inthis process, and the employer should hold fairnegotiations with the trade union or employeerepresentatives before finalising any decision.During the implementation of any internalpoliciesormajordecisions,thetradeunionortheemployees have the right to raise their concernswith their employer on any inappropriate issues.Such issues will be corrected and addressedthrough negotiation, but the employers retainthe right to make the final decision. Employersshouldannounceornotifytheiremployeesofanydecisions on internal policies and major mattersthatdirectlyimplicatetheinterestsofemployees.

Employeerepresentativesshallbeelectedthroughthe democratic process for the ERC. The numberof employee representatives is determinedbased on the percentage of total employees,but there should be at least 30, pursuant to theRegulationsofShanghaiMunicipalityonEmployeeRepresentativesCongresses.

According to the Regulations of ShanghaiMunicipality on Employee RepresentativesCongresses, the voting process of employeerepresentatives shall be held when at least twothirds of the total employees in the electorate(determined by different branches, departments,etc.) are present and the candidate shall at leastreceiveamajorityofthevotesintheelectorate,inorder tobe the representative. It is also requiredthatemployees’representativesshallbecomposedmainly of grassroots employees and the numberof middle and senior management personnel,



usually,shallnotbegreaterthan20%ofthetotalrepresentatives. In addition, the ratio of femalerepresentatives shall generallymatch the ratio offemaleemployeesinthecompany.

B. General aSSemBly of Union membership / union member repreSentative ConGreSS

The general assembly of union membership orthe union member representative congress (the“GAUM/UMRC”) is the power and authority of atradeunion,whichisheldonceortwiceayear.Therepresentatives of the UMRC are democraticallyelectedamongunionmembers.Tradeunionswithmembersfewerthan100shouldconveneaGAUM.The functions and powers of the GAUM/UMRCincludereviewingandapprovingworkreportsandfinancialreportsfromtradeunioncommittees(the“TUC”) and work reports from finance scrutinycommittees(the“FSC”).Theyarealsoresponsiblefor electing the members of the TUC and FSCand removing theelected representativesor TUCmembers.

C. trade Union Committee (“tuc”)

TUCsarethepermanentbodyofandanswerabletotheGAUM/UMRC.ElectedbyeithertheGAUMortheUMRC,theTUCshouldreport itsworktoandsubject itself to the supervisionofGAUM/UMRC.Atradeunionwithmorethan25membersshouldestablish a TUC. A trade union with fewer than25unionmembersmay establish a TUCby itself,jointlyestablishaTUCwithothertradeunions,orelectonepersonasaunionorganisertocoordinateunion members in the performance of unionactivities. If a trade union has a large number offemalemembers,afemaletradeunioncommitteecanalsobeestablished inaddition to thenormalTUC. If a trade union has few female members,theTUCcanreservespotsforfemalememberstoensurethattheyarerepresented.

d. finanCe SCrUtiny Committee (“fsc”)

Tradeunionsshouldsetupasystemofscrutinisingand monitoring their budgets, financial accounts

and funds according to independent accountingprinciples. Unions of all levels should establishFSCs. FSC members are elected by the GAUM/UMRC.Theelectionresultsshouldbesubmittedtothehigh-levelunion forapproval.TheFSCwillberesponsibleforreviewingtheexpensesandincomeoftheunions.Theresultsofthesereviewsshouldbe periodically reported to the GAUM/UMRC formonitoring purposes. The GAUM/UMRC has therighttopresenttheirviewsabouttheuseofunionfunds and, if necessary, implement changes oramendments.

Unions receive their funding from a varietyof sources including i) union fees paid byunion members; ii) fees allocated to unions byenterprises, public institutions and governmentauthorities, which have established trade unions(theyaretypicallyrequiredtosetaside2%ofthetotal employee wages per month to the union);iii)acertainpercentageofprofitsfromtheunion’senterpriseorpublicinstitutions;iv)subsidiesfromthegovernment;andv)otherincome.Unionfundsaretypicallyusedtoserveemployeesorforunionactivities.

e. trade Union preSident, depUty preSident and Committee memBer

The trade union president or deputy presidentis elected either by the GAUM/UMRC directly orby the TUC.Dismissal of thepresident or deputypresidentrequiresconveningtheGAUM/UMRCfordiscussion.ThedismissalmustbesupportedbyamajorityoftheGAUM/UMRCmemberstopass.

Enterprise trade unions with more than 200employees can appoint a full-time trade unionpresident. The labour contract terms of full-timetrade union presidents, deputy presidents orcommittee members are automatically extendedon the date they take office. The length of theextension isequal to the termofoffice. Ifanon-full-time trade union president, deputy presidentorcommitteemember’sresidualemploymenttermisshorterthantheirofficeterm,theemploymenttermwillbeautomaticallyextendedtotheexpirydate of the office term. These extensions do notapply where the president, deputy president orcommittee member commits an act of serious



misconduct or reaches the statutory retirementage.

4. tasKs and obligations of rePresentativesAccording to the Regulations of ShanghaiMunicipality on Employee RepresentativesCongresses, employee representatives shall: i)learn and propagate among employees relevantlaws, regulations and policies, improve their ownqualities, reinforce the ability of participating indemocratic management, and performing dutiesproperly; ii) communicate with employees inthe electorates, listen to employees’ opinionsand suggestions, and express employees’ wishesand requests; iii) implement ERC resolutionsand properly complete all work assigned by theERC; iv) promptly circulate informationabout theperformanceoftheirdutiesandtheirparticipationin ERC activities, and accept the assessment andsupervision by employees; and v) observe theemployer’s rules and keep the employer’s tradesecretsconfidential.

5. emPloyees’ rePresentation in managementAccording to PRC Company Law, limited liabilitycompanies invested and incorporated by twoor more state-owned enterprises or by two ormore state-investedentities, shallhaveemployeerepresentatives in their board of directors. Forentities solely owned by the state, there shallbe an employees’ representative appointed asboard director. Other limited liability companiesor companies limited by sharesmay opt to haveemployee representatives in their board ofdirectors. Employees’ representatives who siton the board of directors shall be appointed bycompany employees via an ERC or EC or otherformsofdemocraticelection.

In addition, according to PRC Company Law, theboard of supervisors shall include shareholders’representatives and an appropriate number

of employees’ representatives; the ratio ofemployees’ representatives shallnotbe less thanone-third,andsuchratioshallbestipulatedbythearticlesofassociationofthecompany.Employees’representativessittingontheboardofsupervisorsshallbeappointedbycompanyemployeesviaanERCorECorotherformsofdemocraticelection.

6. other tyPes of emPloyee rePresentative bodies Apart from the abovementioned employeerepresentative bodies, grassroots ChineseCommunist Party (“CCP”) federations could alsohelp employees to organise, receive informationconcerning the employees’ appeals and provideassistancetoresolvedisputesbetweenemployersandemployees,inordertoestablishandmaintainharmonious employment relationships. Accordingto theCCPConstitution,anyemployerwithmorethanthreeCCPmembersshallestablishagrassrootsCCP organisation. In addition, PRC Company LawprovidesthatemployersshallprovidethenecessaryconditionstofacilitatetheCCPactivities.



xii. emPloyee benefits 1. social securityTheChinesegovernmenthasadvancedthenation’ssocialsecuritysystemstoincludethebasicpensioninsurance, basic medical insurance, work-relatedinjury insurance, unemployment insurance andmaternity insurance to protect the basic rightsof citizens. These systems enable participatingindividuals to obtain assistance from the state(according and subject to certain conditions andprocedures)inspecialcircumstancessuchaswhentheyreacholdage,suffercertainillnesses,sufferawork-relatedinjury,becomeunemployed,undergomaternity, etc. Additionally, employers andemployeesbothparticipateinahousingprovidentfundsysteminaccordancewiththelaw.

Generally, employers in China contribute socialsecuritypremiumsandhousingprovidentfundsfortheir employees pursuant to the law. Employeesthemselvesalsocontributetheirownsocialsecuritypremiums and housing provident funds pursuanttothelaw.Employerstypicallywithholdaportionof their employees’ monthly salaries to helpthemcompletetheirsocialinsuranceandhousingfund contributions. The employer’s obligation tocontributetosocialsecuritypremiumsandhousingprovident funds, cannot be exempted by mutualagreementwithemployees.

ExpatriateemployeeshiredbyChineseemployersarealsorequiredtoparticipateinthesocialsecuritysystem when they complete the employmentformalities required by law. However, expatriateemployees may be exempt from social securitycontributions under a treaty or convention.Expatriate employees are not required toparticipate in the housing fund system.However,thosewithpermanentresidentstatusmaychooseto contribute to the housing funds at their owndiscretion.

2. healthcare and insurances

a. BaSiC penSion inSUranCe

Employers and employees must both contributebasic pension insurance premiums pursuantto national and local law. Where an employeehas contributed basic pension insurance for 15cumulative years and has reached the statutoryretirementage,heorshemaycollectpensiononamonthlybasis.Theexactamountofsuchpensionisdeterminedaccordingtofactorssuchashisorhercumulative contribution period, his or her wage,theaveragemonthlywageofemployees inhisorherlocality,thetotalamountinhisorherpensionaccount,theaverage lifeexpectancyoftheurbanpopulation,etc.

B. BaSiC mediCal inSUranCe

Employers and employees both must contributebasic medical insurance premiums pursuant tonational and local law. The costs of employees’prescription drugs, medical treatments, medicalservices and use of other healthcare facilities foremergenciesorrescueoperationswillbecoveredby the basic medical insurance fund pursuant tonational and local laws, as longas such costs areconsistent with basic medical insurance policiesandincurredatapprovedmedicalinstitutions.

c. work-reLAteD injury inSUranCe

Employers are required to contribute work-related injury insurance premiums accordingto the combined wages of all staff and a feerate determined by the social security agency.Employees do not need to contribute to work-relatedinjuryinsurance.Employeeswhosufferanaccidentalinjuryorcontractanoccupationalillnessinthecourseofworkwillbeentitledtowork-related



injury insurance benefits if the injury or illness isverified as work related. If these employees arealsoevaluatedanddeterminedtohaveadisabilitygrade,theywillbeentitledtodisabilitybenefits.

d. Unemployment inSUranCe

Employers and employees must both contributeunemployment insurance premiums pursuanttonational and local law.Anunemployedpersonwho has contributed unemployment insurancepremiums for at least one year before becomingunemployed, and has completed unemploymentregistration,maycollectunemploymentinsurancebenefitsfromtheunemploymentinsurancefund.

e. maternity inSUranCe

Employers are required to contribute maternityinsurance premiums pursuant to national andlocal law. Employees are not required to makesuch contributions. Maternity insurance benefitscoverthemedicalcostsforchildbirthandprovideamaternity allowance.Most cities in China havecombined thematernity insurancewith thebasicmedical insurance for unified collection. Eachfemaleemployeeisentitledtoa98-daymaternityleaveforchildbirth,including15daysthatmaybetaken before childbirth. Thematernity leavemayalsobeprolongedaccordingtolocalregulations.

For example, the local regulation in Shanghaiprolongsthematernity leaveto128days intotal.Incasesofdifficultbirth,thematernityleavemaybeextendedforanadditional15days.Intheeventofmultiplebirths(suchastwins),maternity leavewill be extended by 15 days for each additionalchildbirth. In the event that a female employeeundergoes an abortion within the first fourmonthsofpregnancy,shewillbeentitledtoa14-day maternity leave. In the event that a femaleemployeeundergoesanabortionafterthefirstfourmonthsofpregnancy,shewillbeentitledtoa42-daymaternityleave.

f. HoUSinG fUnd

Employersandemployeesbothmustcontributetothe housing provident fund pursuant to nationaland local law.Thehousingprovidentfund isusedfor employees to purchase, construct, renovate

or rebuild personal dwellings. National labourlegislationgiveslocalgovernmentsbroadflexibilityinregulatingthesocialinsuranceandhousingfundand the precise contribution requirements mayvaryacrossdifferentprovincesorregionsinChina.Therefore, it is important to confirm the exactcontribution rates required by local governmentsfor social securityandhousing funds in theplacewheretheemployee’ssocialinsuranceandhousingfundareregistered.

G. SUpplementary CommerCial inSUranCe

Apart from the abovementioned mandatoryinsurances, employers are free to purchasesupplementary commercial insurance for theiremployees at their own discretion. For example,some employers provide a comprehensive healthinsurance plan (covering medical and dentalexpenses as well as accidental death and severebodilyharm)foremployeesandtheirdependents.However,thisisentirelyoptional.

3. required leave

a. HolidayS and annUal leave

Inthebeginningofeachyear,theStateCouncilwillannounce a holiday schedule which indicates 11nationalholidays,including1dayfortheNewYearHoliday,3daysfortheChineseNewYear,1dayforTombSweepingDay,1dayforLabourDay,1dayforDragonBoatDay,1dayforMid-AutumnDayand3daysofleaveforNationalDay.

According to the Regulations on Paid AnnualLeaveofEmployees,employeeswhohaveworkedbetweenoneandtencumulativeyearsareentitledtofivedaysofannualleave.Employeeswhohaveworkedbetweentenandtwentycumulativeyearsareentitledtotendaysofannualleave.Employeeswhohaveworkedformorethantwentycumulativeyearsareentitled tofifteendaysofannual leave.If the employer fails to arrange annual leave foremployeesduetobusinessreasons,theemployermust pay an encashment to employees for suchaccrued,butuntakenannualleave.Theencashmentvalue should total 300% of an employee’s dailynormal salary for each accrued, but untaken day



of annual leave (100% has been included in themonthly salary and therefore only 200% shall bepaidadditionally).

B. maternity and parental leave

On27December2015,thePRCStandingCommitteeof theNationalPeople’sCongress issued thenewPopulationandFamilyPlanningLawofthePeople’sRepublic of China (the “Family Planning Law”)which formally abandoned China’s decades-longone-childpolicyandallowsallcouplestohavetwochildren. Latemarriage and late childbearing areno longer encouraged under the Family PlanningLaw,andmaternityleavemaybeextendedbylocalrules.

C. SiCkneSS and diSaBility leave

Duringanemployee’ssickleaveperiod,hisorhersalarywill be determined and paid based on thestandard of sick pay and sick benefits during themedical treatmentperiodaccording to state lawsandlocalregulations.Ifanemployeesuffersfromanon-work-relatedillnessorinjuryandneedstostopworkingasaresultofmedicaltreatment,amedicaltreatment period between 3 and 24months willbe granted according to local regulations in theplace where the employee works, and based onthe employee’s years of service with the currentemployer and all previous employers (e.g. theemployee’s entire employment history). If anemployeecannotperformhisorheroriginalworkor other work arranged by the employer afterhis or her statutory medical treatment periodexpires, the employer has the right to terminatetheemploymentcontractandpayseveranceupongiving the employee a 30-days’ advance writtennotice or onemonth’s payment in lieu of notice.Inaddition,subjecttolocalregulationsindifferentcities, the employer may pay medical treatmentsubsidies equivalent to 6 to 12months of his orher salarybasedon the seriousnessofhisorhersickness.

Disability could be caused by a non-work-relatedinjury or a work-related injury. If the employee’sdisability is caused by a non-work-related injury,the employee could enjoy the same benefits(sick pay, medical leave and medical treatmentsubsidies)asintheeventofillness.Ifanemployee

needstosuspendhisorherworkinordertoreceivemedical treatment forawork-related injuryoranoccupationaldisease,hisorheroriginalwageandwelfare benefits shall remain unchanged duringthe suspension period. The suspension period isgenerally no longer than 12 months. Where thework-related injury is severe or the circumstanceis exceptional, after being assessed by the localwork capability assessment committee, the saidsuspensionperiodcouldbeextendedbynolongerthan 12 months. After the disability grade isdeterminedbythelocalworkcapabilityassessmentcommittee, theemployeeshallnotbeentitled tohisorheroriginalwageandwelfarebenefits,butcanenjoythefollowingdisabilitybenefits:

•Ifanemployeeisassessedashavingadisabilitybetween grade one and grade four, the labourrelationship shall remain unchanged, and theemployee shall withdraw from his or post andenjoyi)alumpsumdisabilityallowancepaidbythework-relatedinjuryinsurancefundsaccordingto his or her disability grade; and ii) amonthlydisabilitysubsidypaidbythework-relatedinjuryinsurancefundsaccordingtohisorherdisabilitygrade.

•Ifanemployeeisassessedashavingadisabilitybetweengradefiveandgradesix,theemployeeshall a) enjoy a lump sum disability allowancepaidby thework-related injury insurance fundsaccordingtohisorherdisabilitygrade;b)retainthe employment relationship; and c) enjoy amonthlydisabilitysubsidypaidbytheemployeraccording to his or her disability grade, if it isdifficult for the employer to arrange work forhim or her, which shall be no lower than thelocal minimum salary. If the employee decidestoterminatetheemploymentrelationship,heorshe shall enjoy a lump sumwork-related injurymedical allowance paid by the work-relatedinjuryinsurancefundsandalumpsumdisabilityemployment allowance paid by the employerbased on the standards prescribed by the localgovernments.

•Ifanemployeeisassessedashavingadisabilitybetweengradesevenandgradeten,theemployeeshall enjoy i) a lump sum disability allowancepaidby thework-related injury insurance fundsaccordingtohisorherdisabilitygrade; ii) if theemployment contract expires or the employeedecidestoterminatetheemploymentcontract,alumpsumwork-relatedinjurymedicalallowancepaidbythework-relatedinjuryinsurancefunds;



and iii) a lump sum disability employmentallowance paid by the employer based on thestandardsprescribedbythelocalgovernments.

•If an employee with a work-related injury hasbeen assessed as having a disability grade andconfirmed by the work capability assessmentcommitteeas requiringdaily life care,expensesincurredfordailylifecareshallbepaidmonthlybythework-relatedinjuryinsurancefunds.

4. Pensions: mandatory and tyPically Provided CurrentlyinChina,mandatoryandtypicallyprovidedpensionsonlyincludethebasicpensioninsurance.Recently, the government decided to reduce theemployer’spensioninsurancecontributionratetolower the costofprivatebusinesses. TheCircularof theGeneralOfficeof the StateCouncil on theComprehensivePlanforReducingSocialInsuranceContribution Rate requires that, starting from 1May2019, if theemployer’s contribution rate forthebasic pension insurance in anyprovince (city,district) is higher than 16%, it can be reduced to16%.

5. any other required or tyPically Provided benefitsMarriageleaveisstipulatedbythelocalpopulationandfamilyplanningregulationanditslengthrangesfrom3to30days,indifferentcitiesofChina.Whena member of the employee’s immediate family(parents, spouse or children) passes away, theemployeemaybegiven1to3daysofcompassionateleave with the approval of the employer, underspecificcircumstances.PursuanttothePRCLabourLaw,marriageleaveandcompassionateleaveshallbothbeconsideredaspaidleaves.

CarolZhuPartner,Zhong lun law [email protected]+862160613081

mailto:CarolZhu%40zhonglun.com?subject=



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