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China’s Labour Laws – Sweeping Changes
Impact on HR Management
14 April 2008
Jeremy SargentManaging PartnerJSA Guangzhou Office
Introduction
Sweeping changes to PRC employment law in 2008
Raft of new laws/regulations:- PRC Employment Promotion Law (1 Jan 08) PRC Employment Contract Law (1 Jan 08) Paid Annual Leave Regulations (1 Jan 08) Average Working Hours Circular (3 Jan 08) Labour Disputes Mediation/Arbitration Law (1 May 08)
Why the Changes?
Pre-existing regime out-of-date and failed to address enormous changes in PRC labour market
Rampant abuse of labour rights across the PRC 30% of PRC employees had written labour contracts Discriminatory recruitment practices Failure to pay social welfare contributions A “hire and fire” mentality Lack of employee participation
Toothless labour unions Encourage “awareness” International pressure (??)
The Labour Contract Law Drafting Process
Prolonged drafting process – over 250,000 submissions
Four separate drafts
Implementing Rules still not issued
Uncertainties as to interpretation
Good or Bad?
Generally, the changes are “pro-employee” Onerous new obligations on employers Criticism from employers, business groups, academics Increased costs to employers? Mass-layoffs underway – especially in Guangdong! Increasing number of labour disputes
Shanghai – 4,500 labour arbitration cases in Jan/Feb 08
100% increase on Jan/Feb 08!
Key Changes: Recruitment (1) No discrimination on basis of race, gender, ethnicity, religious belief,
carrying of infectious pathogens – Employee now has clear basis to claim damages for discrimination
Note: Dongguan case in Jan 08 – Hepatitis B carrier awarded RMB24,000 after being rejected for a vacancy after medical test
Employer may request “basic information directly in relation to the employment”
Employer must provide full details of job to Employee (job nature, conditions, remuneration, safety, etc)
Employer may not require lodging of ID card, deposit, other security (penalty: fine of RMB500-2000 per worker and compensation for any losses)
Key Changes: Recruitment (2) Written labour contract must be concluded within one month of date
of employment
Penalty for non-written contract: Additional wages of 200%. After one year, open-term contract is deemed to exist
Written contract not required for “part-time contracts” (hourly pay, max four hours per day on average and not exceeding 24 hours per week)
If Employee still has a labour contract with an existing employer, both Employee and new employer may be jointly liable for any losses suffered by existing employer!
Key Changes: Term of Contract Labour contracts may be fixed term, open-term or based upon completion of
agreed assignment
Open-term contract must be concluded in certain situations when requested by the Employee including:-
Employee has worked for the same Employer for 10 years consecutively Where two consecutive fixed-term contracts have been performed
Penalty for non-compliance: 200% of wages and reinstatement of open-term contract
Note clear whether payment of compensation for prior service extinguishes prior service period
Controversial change in the law! Note: Huawei Enterprises’ “mass resignations”
Case Study (1): Beijing Court Case Feb 08
First reported court case under Labour Contract Law Facts
Ms Zou, an employee, left China to work in Europe for 2 years Agreed her employment with Township Enterprises Mansion would
continue for one year during her absence Her employer continued payment of social insurance (which Ms Zou later
reimbursed) Ms Zou returned two years later and was told her job was no longer
available Judgment
Employment relationship had not been terminated Ms Zou was entitled to resume work Ms Zou was entitled to an open-term contract
Case Study (2): SOE Restructuring Ongoing JSA Case Facts
Foreign investor acquired SOE in North China At time of acquisition, the labour contracts of existing employees
were terminated and compensation paid Employees signed new two year fixed-term labour contracts with
restructured company (now a JV) The two-year fixed term labour contracts due to expire in July Employees with over 10 years total service claiming right to
demand open-term contracts Issue
Did payment of compensation extinguish prior service period? Unclear from law
Key Changes: Probation Probation period may be included in full-time labour contracts with
terms of over 3 months May only be included once Forms part of the term of the labour contract Wages during probation at least 80% of agreed wages
Term of probation period depends on term of contract Contract up to one year – maximum probation one month Contract term between one and three years – maximum probation two
months Contract term over three years or open – maximum probation six months
Penalty: Order for correction and payment of “normal salary” for unlawful excessive probationary term
Key Changes: Formulation of Employment Rules
Where Employer formulates, revises or decides on “rules or major maters” relating to the employment, it should hold discussions with employee representatives or all the Employees and listen to their opinions
Employer should also negotiate with the labour union before making any decisions
If labour union or staff objects to any issues, such issues should be “corrected and refined through negotiation”.
Key Changes: Termination of Labour Contracts
Labour contract may be terminated by “negotiation and consensus” between Employer and Employee at any time – Employer is liable to pay economic compensation based on years of service
An Employee may terminate his/her labour contract Upon three days’ notice during the probation period and upon
thirty days’ notice thereafter Immediately where the Employer fails to provide labour protection,
pay wages, pay social insurance contributions and where the rules and regulations of the Employer are unlawful and prejudicial to the Employee’s interests
Immediately if part-time contract
Key Changes: Termination of Labour Contracts
An Employer may terminate a labour contract immediately without compensation if Employee:- fails to measure up during probation commits a “serious breach” of Employer’s rules and regulations guilty of serious dereliction of duties and corruption causing
“significant damages” holds a labour relationship with another Employer which severely
impacts upon Employee’s performance Is subject to criminal proceedings If part-time contract
Key Changes: Termination of Labour Contracts
An Employer may terminate a labour contract upon 30 days’ notice (or payment in lieu) and payment of compensation:-
Following medical treatment period for non-work-related illness – if Employee is unable to take up original work or new position
Where Employee is incapable of performing his/her job after training or transfer
Where a change in “objective circumstances” makes performance impossible
Key Changes: Termination of Labour Contracts
An Employer may not terminate a labour contract
During an Employee’s statutory medical treatment period
Where an Employee is suffering from a work-related injury or illness
Where a female Employee is pregnant or nursing (up to 1st birthday of child)
Where an Employee has worked for the Employer for 15 years and is within 5 years of retirement age (workers M55, F50 and managers M60, F55)
Key Changes: Termination of Labour Contracts
Economic compensation
Based upon one month’s salary for each year of service (based upon average monthly salary for 12 months prior to termination – now capped at 300% of “City Average”.
Maximum payment of 12 months’ salary
Payment should be made within 15 days of termination - penalty for failure to pay: 50%-100% additional payment
Not necessary for part-time contracts
Key Changes: Termination of Labour Contracts
Unlawful termination by Employer
Must reinstate the Employee if requested to do so by Employee
Where Employee does not request reinstatement, or reinstatement is “not possible”, Employer shall pay additional compensation of 100%
Key Changes: Non-Compete Restrictions
Labour contract may include a non-compete covenant
Only applies to joining a competitor which engages in the production of “same type of products” or provision of “same type of services”
Maximum two year period (previously three years)
Employer must pay additional consideration at agreed amount (note local regulations on this too)
Employee liable for breach – may include a default penalty to be paid by Employee in the event of a breach
Key Changes: Labour Disputes
Mediation encouraged within the enterprise. Mediation centres to be established
Dispute may be referred to arbitration directly or if mediation is unsuccessful
Arbitration Period to bring arbitration increased from 60 days to one year Arbitration shall generally be completed within 45 days Arbitrators shall have minimum levels of qualification and
experience (e.g. lawyers, legal academics, HR experts, etc)
Key Changes: Labour Disputes
Employee may appeal to court if dissatisfied with arbitration
Employer’s rights to appeal are limited. For disputes relating to unpaid wages (below certain amount), personal injury, time off work and social insurance, the Employer may only appeal under certain circumstances including defects in the arbitration process, wrongful application of law and concealment of evidence
Key Changes: Paid Annual Leave Employee with one year’s service entitled to paid annual leave
Number of days depends upon years of service Less than 10 years’ service – 5 days paid annual leave 10-20 years’ service – 10 days paid annual leave 20+ years’ service – 15 days paid annual leave
May be waived by agreement – increased pay at 300%
May be carried forward once to following year if Employer cannot give leave
Not clear whether service period must be with same employer or how additional leave should be treated
Implementing rules being drafted
Key Changes: Calculation of Working Hours and Wages
Public holidays increased from 10 days to 11 days
Working days Per year = 365 – 104 – 11 = 250 Per month = 250 ÷ 12 = 20.83
Working hours per month = 20.83 × 8 = 166.64
Payable days per month = (365 – 104)/12 = 21.75
The End
For further information, please contact:
Mr Jeremy Sargent
Managing Partner
JSA Guangzhou Office3404, North Tower, World Trade Center,
371-375 Huanshi East Road, Guangzhou 510095
T: 86 20 8776 1206
F: 86 20 8776 1301
