A brief introduction to Chinese employment law

A look at how the law governs the employment relationship in the world's most populous country
By Jenny Yan
|employmentlawtoday.com

The current employment law in China is mainly regulated by the

PRC Employment Law

(PEL) which took effect on Jan. 1, 1995. Local governments make regulations based on their different area's local policies. However, all regulations are guided by the PEL and will be regarded as void if they are conflict with PEL. The PEL has 13 chapters which cover almost all aspects of employment relationships such as working hours, holidays, salary, health and safety, training, social insurance and welfare, disputes and discrimination on grounds of race, sex, disability and age.

What follows is a brief summary of the main provisions of the PEL. For a detailed summary (in Chinese) see

http://www.dffy.com/faguixiazai/xf/200311/20031111125547.htm

.

Forms of employment contract

Employer and employee are required by the PEL to enter into a written employment contract but an oral employment contract is also enforceable when an employment relationship has actually been formed by conduct.

Term

Employment contracts can apply to a fixed period, an open period, or just to a specific project. However, if an employee has worked for the same employer for more than 10 years and both parties want to continue the relationship, the employee has the right to determine whether the contract should be for a fixed term or not.

Normally, an employment contract has a trial period of no more than six months. During that period, the employer may terminate the contract if the employee is found to be unsuitable for the work he is doing.

Confidential information

The law provides that an employer may require an employee to keep business information confidential as a term of their contract. Damages are available to the employer if the employee breaks this or any other term of the contract.

Termination

There are different rules for the parties to terminate the contract. An employer, can terminate on 30 days notice, if:

•the employee is ill or has a non-work related injury and is not able to carry out any of the work which he has been contracted to perform, provided all treatment to remedy the illness or injury has been completed. There is no right to terminate the contract while treatment is in progress;

•the employee is not suitable for the work he is doing and after training or being given alternative work, he is still not suitable for that work;

•the contract becomes unenforceable because a “major situation” has changed on which the employment contract mainly relies. Although the PEL does not define the term “major situation,” the courts have held that the term may include changes in law or policy.

Employees must normally give their employer 30 days notice to terminate the contract. However, they could leave anytime without 30 days notice, if:

•they are in the trial period;

•the employer forces them to work by violence, threats, or by unlawfully restricting their freedom;

•the employer does not pay or provide work conditions according to the contract.

Redundancy

There is no equivalent regulation to the United Kingdom’s TUPE (

The Transfer of Undertakings (Protection of Employment) Regulations 1981 and 2006

) in China. However, article 27 of PEL provides that an employer may dismiss an employee if the company is about to wind up, go into administration (normally within two years), or serious difficulty has occurred with the business which has drastically reduced its turnover. The company must give the union or its entire workforce 30 days notice for discussions to take place and must report the situation to the relevant department of the Ministry of Employment. Redundancy payments are calculated at the rate of one month's pay for each completed year's service.

Working hours and holiday

All employees work eight hours per day and generally no more than 44 hours per week. Employers have to give employees at least one day off per week. Overtime must be negotiated with the relevant union, but normally not more than one hour per day is allowed. If there is a specific situation which requires overtime, the employer must ensure the employee is fit to do the work. The overriding limit on overtime is no more than three hours per day, to a maximum of 36 hours per month.

Overtime rates are time-and-a-half for normal workdays, double-time for weekends and triple time for public holidays.

Employees have the right to paid leave. The duration of such leave will depend on the type of work, the length of service and local regulations. For example, in Guang Dong province, employees with between one and five years’ service are entitled to a minimum of five days’ holiday and a maximum of 14 days for more than 20 years’ service.

Special protection for women and employees between 16 to 18 years old

Hiring employees who are under 16 years old is not permitted.

Women and employees aged between 16 to 18 years cannot be employed to undertake dangerous or physically demanding work. This type of work is regulated by the National Stress Level Table which can be found on the links below:

www.china.org.cn/chinese/funv/230997.htm

; and

www.china.org.cn/chinese/zhuanti/shbz/

PEL provides a right to 90 days maternity leave for mothers after giving birth. Local regulations

Disciplinary action

Where there is a written contract of employment, disciplinary clauses must be included in the contract. These normally provide for an oral warning for minor breaches of discipline, followed by a written warning and finally, dismissal. For serious breaches of discipline such as theft from the employer, instant dismissal is available. Where there is no written contract, the employee must follow the company disciplinary code. Employees may seek arbitration in respect of unfair dismissal claims.

Disputes

There are three ways to solve disputes between employers and employees: mediation, arbitration and litigation. Mediation is not compulsory, but if the dispute is not settled by mediation, arbitration becomes compulsory for the parties before they can actually go to the courts. The parties are required to pass case papers to the arbitration panel within 60 days of the dispute arising. The courts will refuse to hear the case unless this procedure is followed, except where a

force majeure

has occurred, or there is a reasonable reason which has caused the application to be delayed.

Normally, the arbitration panel makes a decision within 60 days. The parties can either accept the arbitration decision, in which case it becomes enforceable, or they may then ask to be dealt with by the courts, but must apply to the courts within 15 days of receipt of the arbitration panel’s decision.

Future changes

Chinese employment contract law is currently a hot issue, as there are proposals to change the current law. Several procedural steps have been completed since the beginning of last year, after the topic was listed as one of the new laws planned by the National People's Congress Committee in 2005. These procedures include drawing the draft law, its consideration by the National Ministerial Committee and the submission of an application for permission from the National People's Congress Committee in March 2006 for assent. The Committee then opened the issue for nation-wide discussion, which is ongoing.

The key issues to be tackled in this new employment contract law are:

•where the burden of proof will lie when there is no written contract;

•the rules for calculation of compensation;

•central and local governments' supervisory role in making sure that the terms of contracts are fair and reasonable in order to protect all the parties legal interests.

This is an area where the law is developing and a better work life balance is being established. These developments will enable China to become a more mature and healthy employment market, as the economy and wealth of the country grows.

Jenny Yan is a paralegal with Pinsent Masons in the United Kingdom. She can be reached at jing.yan@pinsentmasons.com. For more information visit www.pinsentmasons.com.

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