Practice Area Articles
January 16, 2023
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KEY DEVELOPMENTS FOR 2023
China’s recently amended law on the protection of women’s rights and interests provides specific obligations for employers to prevent sexual harassment and gender discrimination in the workplace
On 30 October 2022, wide-reaching amendments to the PRC Law on the Protection of the Rights and Interests of Women were approved. The amendments explicitly require employers to prevent female employees from discrimination in the workplace by specifically forbidding employers from inquiring about or investigating the marital and parenting status of female applicants or candidates during the recruitment process. Further, requiring applicants or candidates to take a pre-employment pregnancy test is not allowed. Also, the amendments require gender equality in the processes of recruitment, admission, promotion, performance review, training and termination. Failure to comply with the requirements may lead to correction orders or fines from the local labor authority.
The amendments further require employers to formulate and implement a comprehensive anti-sexual harassment system and procedures. Therefore, employers in China must formulate or update their policies on anti-sexual harassment in accordance with the new requirements.
China’s tightening regulation on third-party social insurance contributions
The amended Measure for Administrative Supervision of the Social Insurance Fund issued by the PRC Ministry of Human Resources and Social Security took effect on 18 March 2022. Third-party social insurance contributions refers to a situation where an employee has an employment relationship with an employer, but his or her social insurance contributions are paid by a third-party agency. Strictly speaking, PRC law requires employers to make social insurance contributions for employees by themselves. However, in practice, due to the lack of a nationally integrated social insurance system in China, the social insurance schemes are still administered separately by local governments at the provincial level, which causes the cross-city contribution arrangements to be not yet feasible. As a resolution, employers often choose to make the cross-city contribution by engaging a local agency to “hire” the local staff and cover the social insurance registration and contributions.
For a long time in the past, such arrangements were widely adopted among employers in China, and it is rarely seen that an employer was imposed with administrative penalties due to such a special arrangement. However, since the release of the aforementioned amendments, we have noticed that some cities adopted strict measures/restrictions against third-party contribution arrangements recently and requested local employers and third-party agencies to rectify the current arrangement within a designated deadline. As the third-party contribution arrangements is not in line with the mandatory requirements under the PRC Social Insurance Law, there are certain legal exposures for employers to adopt such arrangements, including civil, administrative, and criminal liabilities.
As a result, employers shall take rectification methods for third-party social insurance contributions in a timely manner, for example, to set up a local legal entity (e.g., a branch office) to comply with the law and the practical requirements.
Development of legislation on personal information cross-border transfer
In accordance with the Personal Information Protection Law of the PRC (the “PIPL”) which took effect on 1 November 2021, employers, as the personal information processers, must adhere to all requirements under the PIPL, including requirements on cross-border data transfer
Under the PIPL, employers shall fulfil at least one of the following mechanisms to transfer personal information outside mainland China: (a) passing the security assessment (“Security Assessment”) conducted by the Cyberspace Administration of China (“CAC”); (b) obtaining the personal information protection certification (“Protection Certification”) granted by the professional agency in accordance with the requirements of the CAC; or (c) entering into a standard contract (“Standard Contract”) formulated by the CAC with the overseas recipient to set forth their respective rights and obligations.
Among the three mechanisms, the Standard Contract would be the most convenient one for most employers to transfer personal information overseas. The CAC issued the Regulation on Standard Contract for Cross-border Data Transfer (Draft for Comments Ver.) (“Regulation”) on 30 June 2022. The Regulation prescribes a limited scope of application for Standard Contract, that signing the Standard Contract only applies to personal information processers (a) who are not critical information infrastructure operators, (b) who process less than 1 million individuals’ personal information, (c) who transfer less than 100,000 individuals’ personal information overseas from January 1 of the last year, and (d) who transfer less than 10,000 individuals’ sensitive personal information overseas from January 1 of the last year.
Employers should pay attention to the update on the Regulation on the Standard Contract, which is expected to be officially released in the coming months, and take relevant measures to properly continue the employee personal information export.
KEY DEVELOPMENTS FOR 2022
Implementation of Personal Information Protection Law
The Personal Information Protection Law of the PRC (the “PIPL”) came into effect on 1 November 2021, which requires employers to take a range of measures to comply with the new law. The PIPL is the first law in China to specifically regulate the protection of personal information. Employers, as the personal information processers, must adhere to all requirements under the PIPL.
Article 13 of the PIPL allows employers to collect and process personal information, if it is necessary for human resource managements and in accordance with validly adopted employment rules or collective bargaining contracts, without employees’ further consent. However, employers are still obligated to inform employees of the processing procedures relating to personal information. For cross-border transfers of personal information and sensitive personal information processing, whether employers need obtain separate consent from employees remains unclear. That said, employers may face more requirements for processing personal information in the future.
Employers should prepare a guideline or internal policy on the processing of employees’ personal information and adopt internal control measures to deal with personal information.
New guidance on protections for gig-workers
In July 2021, the PRC Government issued new guidance that outlines particular requirements for so-called platform-based businesses to provide certain protections for gig workers, such as deliverymen, drivers, and housekeepers. These gig workers work for their customers through applications made by various giant internet companies but are not employed by those entities. In the past, these flexible workers were generally classified as independent contractors rather than full-time or part-time employees, which means they would not be entitled to any labor protection for work-related injuries, minimum salaries, working hours, or other benefits. The guidance aims to grant gig workers with certain basic rights and protections that are more enhanced than those afforded to independent contractors. For example, gig workers are expected to be covered under occupational insurance (similar to work compensation insurance for employees) so they can receive benefits in the event of a work-related injury.
On a related note, at least 8 trade unions have been established among gig workers in certain cities. We anticipate that collective bargaining between gig workers and their employers may become popular in 2022.
Companies utilising gig workers should ensure that their current policies and practices comply with this recent guidance and ensure that gig workers are joined to their occupational insurance scheme where available.
Implementation of three child policy
It was announced in May 2021 that the new family planning policy permits a couple to have up to three children. The penalty for breach of the family planning policy has also been abolished. These changes are aimed at raising the birth rate in China.
The Government has said that a number of supportive measures for the three-child policy would be implemented in terms of childbearing, parenting, and schooling. Several provinces in the PRC have changed their local laws to allow female employees to obtain maternity benefits if they have a third child (including approximately 130 days of maternity leave). During their pregnancy, maternity and breastfeeding period, child bearers are also protected against unilateral termination. The PRC Government is likely to issue further policies in the future to reinforce the three-child policy.
In November 2021, many provinces and cities revised the local population and family planning regulations to: (i) extend maternity leave to 158-188 days; and (2) grant parents with children under the age of 3 childcare leave of 5-10 days per year.
Employers should consider updating their employee handbook/policies to comply with the extended maternity leave and the childcare leave requirements. In 2021, the net increase of China’s population was approx. 480,000 compared to a total population of 1.4 billion. In 2022, it is anticipated that China’s population will decrease for the first time in 40 years. For this reason, the Chinese Government is expected to release more policies to encourage childbirth in the future.
KEY DEVELOPMENTS FOR 2021
China promulgates the Civil Code of PRC
The Civil Code came into force on 1 January 2021 and it is the first comprehensive codification of the civil laws of PRC. However, it is not about stipulating a new civil law but rather systematically improving existing civil laws and regulations to enable them to be consistent with new situations. As the Civil Code covers almost every aspect of an individual's personal rights, it should be laid great emphasis on corresponding changes in employment and labour law such as protecting of employees' information and preventing sexual harassment.
New rules regarding trade secrets infringement released by PRC Supreme Court
The new rules of trialing trade secrets infringement came into force on 12 September 2020. These rules are promulgated by the Supreme Court of PRC. The new rules provide more comprehensive and detailed provisions on the judicial protection of trade secrets. It formally clarified the scope and constitutive elements of trade secrets and particularly illustrated the technical information and operational information. The rules seek to reflect current judicial practices by describing how courts analyse a trade secret infringement case and provide the guidance for employers to protect their trade secrets in PRC.
Draft Personal Information Protection Law being discussed
On 21 October 2020, the draft Personal Information Protection Law (PIPL) was released to the public and closed its seeking-opinion period on 19 November 2020. Although the Civil Code also mentions the protection of personal information and privacy, the PIPL provides well-rounded protection. It clarifies the scope of personal information, formulates principles of dealing with personal information and sets rules for cross-border transmission of personal information. The formal legislative procedure was due to be conducted in 2021. As a result, employers should lay more emphasis on personal information protection.
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.