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China

January 25, 2021

By Gordon Feng

Back to International Employment Law

China

KEY DEVELOPMENTS FOR 2020


 

Implementation of the Civil Code of PRC

The country's long-expected Civil Code is due to take effect on 1 January 2021. The codification is not about formulating a new civil law, but rather systematically incorporating and improving existing civil laws and regulations to adapt them to new situations, while also ensuring their consistency. The Civil Code covers, amongst other things, an individual's personal rights to life, health, property, reputation and privacy.


 

Revised rules of evidence in civil proceedings

New rules of evidence in civil proceedings came into force on 1 May 2020. The new rules formally recognise electronic evidence, including, but not limited to, text messages, emails, webpages, blogs and microblogs. The new rules also set standards for authenticity testing of electronic evidence.


 

Regulations regarding data security

In 2019, the Cyberspace Administration of China ("CAC") published two regulations regarding data security: the draft Measures for the Administration of Data Security and the draft Measures for Security Assessment on the Export of Personal Information. These regulations were drafted to support the implementation of the China Cybersecurity Law and require network operators to meet certain security standards if they intend to transfer important data and personal information out of China. The two regulations have completed the public consultation stage and the formal legislative procedure is expected in 2020. Employers should pay more attention to data privacy and data protection in 2020 in light of these new regulations.


 

Challenges relating to the COVID-19 outbreak

In response to the COVID-19 outbreak, the State Council and domestic Governments issued a number of emergent rules and regulations, including those regarding employment. For example, travel agencies, cinemas, theatres, entertainment places, restaurants and other establishments were required to shut down. In addition, many employees are not able to return to certain cities for work due to lockdown or quarantine orders in their hometowns.

Companies are not permitted to resume their normal business activities after the Chinese New Year holiday to avoid the potential spread of the virus caused by returning employees (and in any event, the employees would be subject to 14 days' home isolation before they could return to work). However, employers are still required to pay employees their normal salaries. This has a potentially significant impact on employers, who may need to take measures to reduce their labour costs. It is expected that many middle- to small-sized enterprises may go bankrupt or be forced to lay off employees, which may result in an increase in employment disputes.

To help support employers at this difficult time, the Chinese Government has announced certain exemptions or reductions to social security payments, in addition to implementing tax cuts, low-interest loans and other incentive measures. The total reduction to social security payments is estimated to be RMB 650 billion (approx. 92 billion USD).

 

KEY DEVELOPMENTS FOR 2019


 

Tax and social insurance burden will be significantly reduced by Chinese government to boost the economic growth

In May 2018, four national authorities of China jointly issued a Notice on reduction of the costs of enterprises. The Notice suggests that a systematic tax cut and incentive will be announced in early 2019 to support the development of the real economy. In the meantime, the Chinese government aims to reduce labor costs as well, by reducing the contribution rates for pension, unemployment and occupational injury insurance. Charges for the security fund for disabled employees and labor union fees will also be cut.


 

Release of the fifth interpretation of the China Supreme Court on employment matters

On 5 July 2018, the Supreme Court announced a new plan for judicial interpretations which includes, among other things, the 5th Interpretation on Several Issues in Application of Law in the Trial of Labor Dispute Cases (“5th Interpretation”), which is expected to be promulgated by the end of 2019. One of the targets of the 5th Interpretation is to rebalance the interests between employers and employees and address the issue of over-protection of employees in certain aspects. It will also try to unify the understanding of certain employment law issues.


 

Change of collecting body of social insurance contributions

From 1 January 2019, tax authorities have taken over the collection of the social insurance contributions nationwide.

Non-compliant privately-owned small and medium-sized companies were worried about this change and afraid that the tax authorities will be more aggressive in collecting the social insurance contributions, even retrospectively. To address these concerns, on 19 September 2018, the State Council instructed local governments and labor/tax authorities not to initiate any investigation or collection of historical social insurance underpayments without proper permission. In addition, the overall social insurance burden must remain the same or lower.

 

KEY DEVELOPMENTS FOR 2018


 

Potential Amendment to the Key Employment Laws of PRC in 2018

The representatives of the National People’s Congress (“NPC”) have submitted proposals to amend the Labor Law, Labor Contract Law, and the Social Insurance Law as well as to create specific laws on employment discrimination and collective bargaining. Each legislative proposal requires the support of at least 30 NPC representatives as co-sponsors.

While details of the proposals have not yet been released, it is expected that the proposals may include:

  • eliminating the requirement to pay statutory severance in certain circumstances, such as for an employee’s lack of performance or for an employee’s failure to return to work after medical leave period;
  • setting stricter requirements on the timely payment of wages to migrant workers; and
  • introducing collective bargaining legislation to provide a firm legal basis for the development of collective bargaining and to govern the enforcement of obligations to engage in collective bargaining.

 

Development and Regulation of Employment Relationships in Gig Economy

The internet has challenged traditional employment relationships, with workers signing up quickly and simply on digital platforms to create a more fluid and decentralized workforce. Many of these workers are engaged in providing services through apps for ride-hailing, food delivery, and on-call home maintenance and appliance repair. It is hard to determine whether an employment relationship or a contractor relationship is created between the workers and the companies running the apps. The relevant authorities are therefore reviewing this new mode of employment and new regulations or guidelines may be promulgated to regulate the new employment model in 2018.


 

Enhancement of Protection of Employees’ Personal Data and Restrictions on Data Transfer

Cybersecurity Law, which took effect on June 1, 2017, introduces obligations for employers on collecting and using the personal data of employees. Draft Measures adopt a definition of “personal information” including name, address, telephone number, birth date, ID numbers, and biometric information. Employers deemed as “network operators” would be required to store PRC employee data in China. Moreover, all employers intending to transfer employee data overseas (which would include transfers to Hong Kong, Taiwan, and Macao) would be required to complete self-assessments on at least an annual basis. The assessment should include the purpose, scope, and contents of the transfer, the identity and location of the receiving party, and details regarding employee consent to the transfer. Employers could be required to report their annual self-assessment results to the competent government authority that oversees the industry of the employer.

 

KEY DEVELOPMENTS FOR 2017


 

Labour Contract Law is undergoing an amendment

In early 2016, the ministers from the Ministry of Finance and Ministry of Human Resource and Social Security (“MoHRSS”) openly criticised the Labour Contract Law (“LCL”). The main criticisms aimed at the LCL were that: (1) the labour market is not flexible enough, and (2) the labour costs are relatively high. The ministers’ speeches suggested that the Chinese government has decided to amend the LCL in response to the current economic recession in China. Later, it was confirmed that MoHRSS had begun to solicit experts’ and scholars’ comments on the amendment.


 

Supply-side reform and reduction of financial burden for employers

Many provinces and cities have issued local policies in response to the supply-side reforms prompted by the national government. The supply-side reform includes, amongst other things, reductions of production capability in sunset industries and lowering of the labour costs for employers. As a result, many state-owned enterprises that are in poor financial position have declared redundancy, early retirement, or other employee settlement plans, targeting a reduction in the workforce. Hundreds of thousands of employees will be affected.

In addition, most local authorities have announced a reduction to the social insurance contribution rates aimed at lowering the employer’s contribution. Local authorities have promised that employee benefits will not be adversely affected.


 

Pilot program for a new work card application system for foreign nationals

Since 1 November 2016, a pilot program aimed at overhauling the work permit system for foreign employees has been rolled out in nine major cities and provinces, including Beijing, Tianjin, Shanghai, and Guangdong. The existing parallel systems for expert certificates and work permits will be replaced by work permit cards, which will be applied for through a single online process. Under the new system, senior foreign employees or those with talents that are in high demand will receive work permits much faster than under the older system. For such employees, the restrictions on age and work experience will also be loosened.

 

KEY DEVELOPMENTS FOR 2016


 

Official roll-out of the new work card application system for foreign nationals nationwide

The new system for work permit cards discussed in 2016 is expected to be rolled out nationwide on 1 April 2017. Once the new system is implemented, foreign nationals working in China will be divided into three categories:

  • Category A – Leading Foreign Experts. Individuals falling into this category will likely be at the top of their fields and have extraordinary skills and abilities, and as such will be welcomed and encouraged to come to work in China;
  • Category B – Foreign Professionals. This category should include teachers, educators, accountants, engineers, and general company staff. It is expected that most foreign nationals approved to work in China will fall into Category B; and
  • Category C – Restricted Foreign Nationals. This will include temporary, seasonal, non-technical, and domestic workers. These employees will be subject to annual quotas. Quotas for 2017 have not yet been announced.

 

Amendment to Labour Contract Law

The draft amendment of the Labour Contract Law proposed in 2016 is expected to be released in 2017, mainly focusing on increasing the flexibility of the labour market, especially for small-and medium-sized enterprises. Due to the controversial nature of any amendment on employment law, it is difficult to foresee when the amendment will be officially passed by the Congress.

With thanks to Gordon Feng of Jun He LLP for his invaluable collaboration on this update.

Contributors

Image: Suzanne Horne
Suzanne Horne
Partner, Employment Law Department

Image: Kirsty Devine
Kirsty Devine
Associate, Employment Law Department

Image: Aashna Parekh
Aashna Parekh
Associate, Employment Law Department