Staving Off Damage

1. A Quick Guide to China Labor Law
When the Opening Up process first began in China some three decades ago, the country had very
little legislation on the books regarding employment standards for private industry. As the
country’s economy moved further and further away from reliance on state-sponsored jobs and
the old concept of “the iron rice bowl” (whereby every worker’s financial security – meager as it
was – was guaranteed by the government) a clear need for labor laws emerged.
The most recent labor laws came into force in 2008. In this newsletter, we present some of the
key provisions of those laws.
Hiring
Generally speaking, employees are hired on the basis of a contract between themselves and the
employer which must stipulate job responsibilities, job location, working time, rest and leave,
pay, and working conditions, and will often also stipulate a probationary period, what training is
to be provided, confidentiality obligations, as well as social and supplementary insurance.
Contracts can be for a fixed term (most common), an indefinite term, or until a specified project
is completed. Should an employee work for a year in the absence of a contract, then by law, it is
understood that a contract of indefinite term is in effect.
Probationary periods are generally a function of the contract term:
Term Maximum Probationary Period
< 3 months N/A
3 – 12 months 1 month
1 – 3 years 2 months
> 3 years, or indefinite 6 months
Note that employers may pay employees a maximum of 20% less than their contract pay during
the probationary period. Moreover, if an employer pays fees for employee training then the
employee must generally work for the full agreed-upon term. Otherwise, the employer may seek
repayment of those fees.
Upon executing an employment contract, the employer must go to an official job centre to report
the employment formalities, buy social security for the employee from the Social Security
Bureau; and open a public accumulation fund account for the employee.
Firing
Employment contracts can be terminated in several ways:
Mutual consent: terminate at any time without compensation
Termination for cause:

2. Terminate without compensation in the event that employee fails to perform
during the probationary period, or for serious violations of company policies /
misconduct that causes the company significant loss or harm.
Special circumstances:
Special circumstances, particularly in terms of employees that have health issues
will complicate a termination process. In general, employees that are pregnant or
breast-feeding cannot be terminated, and employees who have suffered injuries on
or off the job cannot be terminated while they are under physician care. While
unable to work, employees earn reduced wages at a rate and for a duration that is
based on their length of service.
When employment involves the potential exposure to industrial hazards such as
dust, radiation, toxins, carcinogens and so on, employers are advised to
stipulate in the employment contract that employees must take relevant medical
tests when their employment starts and ends. Labor laws related to medical
benefits and termination for employees that deal with these workplace hazards are
complex, and generally the most onerous in terms of termination procedures.
When a company terminates a labor contract, it should complete the formalities and cancel all
aforementioned accounts accordingly and successively. When the terminated employee finds
another job, the former employer is obliged to assist in the transfer of the accounts under the
name of the new company.
Layoffs
If a company is subject to restructuring or financial crisis, changes the business it is engaged in,
or changes its technology or management, and it is necessary to cut down more than 20 or 10%
of the staff, the company is allowed to conduct a layoff. However, it should inform the labor
union and/or all staff of the situation at least 30 days in advance, and secure approval from the
relevant labor administrative department.
Summary
Compared to most western countries China’s labor laws are extremely favourable to employers.
However, these laws continue to evolve, changes are frequent, and employees can lodge
complaints with ease. Companies that fail to comply with the letter of the law are subject to
prosecution and penalties. Foreign companies operating in China are therefore advised to hire a
qualified human resources professional to ensure compliance, or alternatively, contact IPO
PANG to discuss the labor-compliance resources that it can offer.
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