PRC Labor & Employment Law Overview
Ying Li
Partner, Hong Kong/Beijing
November 14, 2012
Agenda
• Introduction
• Pre-employment issues
• Employment contracts
• Employment termination
• Social benefits
• Vacations and paid leaves
• Restrictive covenants
• Stock incentive plans
• Labor dispute resolution
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PRC Labor and Employment Law Overview
1. Introduction
• China’s new Employment Contract Law (“ECL”) came into effect
as of January 1, 2008
• The legislative intention of the ECL is to better protect the
interests of blue-collar workers, but it is technically applicable to
all types of workers in China, including white-collar workers
• The implementation of the ECL alerted employees of their rights
and the number of lawsuits filed by employees against their
employers increased dramatically in recent years
• Foreign invested companies in China wishing to terminate an
employee must be particularly vigilant to avoid costly labor
disputes and penalties
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PRC Labor and Employment Law Overview
2. Pre-employment issues
• Interview process
- What information should be disclosed to job applicants?
- What information can be requested from job applicants?
- Certain general principles of non-discrimination
• Offer letters
- Offer letters vs. written employment contracts
- Tips for writing an offer letter
• Pre-employment checks and screening
- Still a new concept in China
- Normally used for senior executives
- Difficult to carry out a thorough pre-employment check in practice
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PRC Labor and Employment Law Overview
3. Employment contracts
– written contracts required
• Time limit
- Within one month of start date
• Penalties for breach
- Within one year of start date: pay double the employee’s monthly
salary for each month without a written contract from the second
month of start date
- After one year of start date: deemed to have an open-term contract
• Mandatory clauses (official template contracts)
-
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Identification of parties
Term of employment
Job description and place of work
Working hours, rest and leaves
Remuneration and social benefits
Details re working conditions and labor protection
PRC Labor and Employment Law Overview
3. Employment contracts
– written contracts required (cont’d)
• Amendment of contracts
- Consent of employees required
• Special situation of foreign representative offices
- Hiring local employees through “nominal” employers like
FESCO
• Foreigners working in China
- Tax considerations
- Work permit
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PRC Labor and Employment Law Overview
3. Employment contracts
– term of an employment contract
• Probationary periods
- Depending on term of a contract, the probationary period can
be 1 to 6 months
- The minimum salary during the probationary period is 80% of
the starting salary for regular employees in the same position
- Restrictions on employer’s right to terminate unilaterally during
the probationary period
- Prove that employee does not satisfy the conditions for
employment, etc.
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PRC Labor and Employment Law Overview
3. Employment contracts
– term of an employment contract (cont’d)
• Fixed-term contract
- A contract with a specific expiration date
- Factors to consider in determining the length of employment term
- Long-term employment strategy, business needs, the employee’s performance,
competency and potential, etc.
• Open-term contract
- A contract without a specific expiration date
- Commonly seen in common law jurisdictions
- Cannot be terminated based on the legal ground of contract expiration
- An employee is entitled to an open-term contract in certain specified
circumstances
• “One-off” contract
- A contract for completing a specific work
- Very rare in the reality
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PRC Labor and Employment Law Overview
3. Employment contracts
– working hours & overtime pay
• Working hours schemes
- Standard working hours scheme
- 8 hours a day and 5 days a week
- Automatically applicable to all types of employees unless a special approval for
flexible working hours scheme or comprehensively calculated working hours
scheme has been obtained
- Flexible working hours scheme - subject to special approval
- Comprehensively calculated working hours scheme - subject
to special approval
• Overtime pay
- Overtime hours on normal business days: 150% of regular rate
- Working hours on weekends: 200% of regular rate
- Working hours on public holidays: 300% of regular rate
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PRC Labor and Employment Law Overview
4. Employment termination
• At-will employment is not permitted by PRC law
• Under PRC law, only employees are given the right to
terminate an employment contract without cause by giving
written notice, while employers cannot terminate an
employment contract without cause
• Employers can only terminate employment contracts based
on limited grounds expressly provided in relevant PRC
labor laws and regulations
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PRC Labor and Employment Law Overview
4. Employment termination (cont’d)
• Grounds for early termination by employers
- Termination by mutual agreement
- No notice period required
- Statutory severance pay is required to be paid if the termination is
proposed by employer
- This route of termination can be a catch-all solution for an early
termination, in case a unilateral termination is legally flawed and thus may
not be feasible
- Unilateral termination without advance notice
- No severance pay required
- Causes include:-
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Proved during probation period not to satisfy conditions for employment
Serious breach of employer’s rules and policies
Serious dereliction of duty or graft, substantially harming employer
Additional employment relationship
Pursued for criminal liability
Deception or coercion in obtaining employment
PRC Labor and Employment Law Overview
4. Employment termination (cont’d)
• Grounds for early termination by employers (cont’d)
- Unilateral termination with 30 days’ notice or payment in lieu
- Statutory severance pay required
- Must be for specific causes (i.e., non-work related illness/injury after expiration of
statutory medical treatment period, incompetence even after training or adjustment of
position, or material change in objective circumstances relied on to conclude contract
that renders it unperformable)
- Certain exemptions
- Economic redundancy
- Minimum 20 persons or 10% of staff if less than 20 persons
- Must be in specific circumstances (restructuring, serious difficulties in production
and/or business operation, change in production or major technological innovation, or
other material changes in objective circumstances relied on to conclude contract that
renders it unperformable)
- Certain exemptions
- Statutory severance pay required
- Must go through statutory notification and “filing” procedures (virtually an approval
requirement)
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PRC Labor and Employment Law Overview
4. Employment termination (cont’d)
• Severance pay
- Severance pay is calculated based on (i) the average monthly pay of
the employee during the previous 12 months immediately prior to the
termination of his/her employment contract, or three times the
average monthly pay of all workers in the city where the employee is
hired (a fixed number published by local government on an annual
basis), whichever is lower (collectively “Monthly Pay”); and (ii) the
length of service period of the employee
- An employee will be entitled to receive 1 month’s Monthly Pay for
each completed year of service, with a cap of 12 months’ Monthly Pay
- 6-12 months: treated as 1 year
- < 6 months: 50% of Monthly Pay
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PRC Labor and Employment Law Overview
5. Social benefits
• Statutory social insurance plans
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−
Pension insurance
−
Medical care insurance
−
Unemployment insurance
−
Work related injury insurance
−
Maternity insurance
−
Housing provident fund
PRC Labor and Employment Law Overview
5. Social benefits (cont’d)
• Both employer and employee should make contributions to
the statutory social insurance plans (except maternity and
work related injury insurances)
• Specific percentages of contribution subject to local
regulations
- In most provinces, an employer’s burden of various social insurances
contributions is about 45% of an employee’s base salary (capped at three
times local average pay for the purpose of social insurance contribution), while
an employee’s burden is normally around 20%
• Both employer’s and employee’s contributions to statutory
social insurance plans are made on a pre-tax basis
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PRC Labor and Employment Law Overview
6. Vacations and paid leaves
• Public holidays – 11 days each year
• Paid leaves
- Annual leave
- Marital leave
- Bereavement leave
- Maternity/miscarriage leave
- Paternity leave
- Nursing leave
- Sick leave (leave for illness and non-work related injuries)
- Work related injury leave
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PRC Labor and Employment Law Overview
7. Restrictive covenants
• Non-compete covenants
- Generally allowed by PRC law
- Certain restrictions on non-compete covenants under PRC law
- Only applicable to senior management staff, senior technical staff and other staff with
confidentiality obligations
- Maximum duration: 2 years
- Reasonable compensation required
- Remedy for breach
- Liquidated damages based on mutual agreement
• Non-solicitation covenants
- No specific laws and regulations in this aspect
- Common understanding is that a non-solicitation covenant is not
prohibited by PRC law
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PRC Labor and Employment Law Overview
8. Stock incentive plans
• PRC domestic individuals’ participation in stock incentive plans of
overseas listed companies – consideration of foreign exchange control
- New rules came into effect as of February 15, 2012
- Types of stock incentive plans registerable under the new rules
-
stock ownership plans
stock option plans
stock appreciation right plans (SAR)
restricted stock (unit) plans
performance stock (unit) plans
phantom stock plans
employee share purchase plans
other plans or schemes commonly seen in non-PRC jurisdictions
• No enabling regulation for PRC domestic individuals’ participation in
stock incentive plans of overseas private companies
• Consequences of non-compliance
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PRC Labor and Employment Law Overview
9. Labor dispute resolution
• Process
- Mediation
- Arbitration
- Litigation
• Tips for preparing for defense of a labor case
- Rules and policies
- Performance monitoring
- Periodic appraisals and performance reviews
- Warnings and disciplinary proceedings
- Employee investigations
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PRC Labor and Employment Law Overview
Ying Li
Partner, Hong Kong/Beijing
Ying Li is a Partner in the Corporate Department, resident in our Hong Kong and Beijing
offices. Having been based in China and Hong Kong for over 18 years at leading
international law firms, Ying’s practice focuses on labor and employment, China-related
cross-border investments, mergers and acquisitions, and private equity.
t: +852.9641.3062
+86.13910139147
yli@proskauer.com
Ying regularly advises international employers and management in all aspects of PRC
labor and employment law, including employment contracts, restrictive covenants,
employee benefits and incentive plans, outsourcing, immigration, social welfares,
sexual harassment, investigations, termination and large-scale layoff, restructuring and
collective bargaining, and labor disputes. Ying also frequently counsels multinational
companies on localizing their internal HR policies and manuals in compliance with PRC
legal and regulatory requirements, and provides strategic and preventive guidance. His
clients cover a wide variety of industries, such as banking and finance, IT,
telecommunications, media, entertainment, sports, hospitality, manufacturing,
infrastructure, natural resources and energy.
Ying obtained his J.D. degree from Harvard Law School and LL.M. and LL.B. degrees
from Peking University. Formerly a law professor at a leading law school in Beijing and
a visiting scholar at Harvard Law School, Ying is a frequent speaker on legal and
regulatory developments related to labor and employment, mergers and acquisitions
and corporate finance in China and is quoted extensively by the press.
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PRC Labor and Employment Law Overview
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PRC Labor and Employment Law Overview
PRC Labor and Employment Law Overview
Ying Li
Partner, Hong Kong/Beijing
November, 2012
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