From Hiring To Firing: A Basic Guide To The Chinese Employment Law Life Cycle
For many employers, the key to having a productive and high-performing workforce is recruiting the right people to start with. However, it is important for employers to be aware that even before an employee commences work, there are a number of legal issues which arise in the process of seeking, interviewing and selecting candidates for a position.
Employers are prohibited from discriminating against potential candidates for employment based on ethnicity, race, gender, age, physical disabilities, or religious beliefs.
Please see full Guide below for more information.
FROM HIRING TO FIRING
A BASIC GUIDE TO THE CHINESE
EMPLOYMENT LAW LIFE CYCLE
02 | From Hiring to Firing
For many employers, the key to having a
productive and high-performing workforce
is recruiting the right people to start with.
However, it is important for employers
to be aware that even before an employee
commences work, there are a number of legal
issues which arise in the process of seeking,
interviewing and selecting candidates for a
Employers are prohibited from discriminating
against potential candidates for employment
based on ethnicity, race, gender, age, physical
disabilities, or religious beliefs.
Basic requirements to be met by
Expatriates must also meet the following
1. be at least 18 years of age and in good
2. have the necessary professional skills
and work experience required for the
3. have two years of post-graduate work
4. have no criminal record;
5. have a confirmed position; and
6. have a valid passport or equivalent
international travel document.
An employer should ensure that the prospective
employee does not have any restrictions which
may prevent him or her from entering into
the employment contract (for example,
post-employment restrictive covenants
imposed by his or her former employer).
Employers are required to have individual
written employment contracts with each
employee, subject to a limited exemption.
If no employment contract is signed within
one month of the commencement of an
employee’s work, the employee is entitled
to double his or her wages for the period
between the beginning of the second month
of his or her term of employment, and
when the contract is signed or the end of the
first year of the employment (whichever
occurs first). If no employment contract is
signed within one year of the commencement
of an employee’s work, the parties are
deemed to have signed an open-term contract.
Employment contracts are required to include:
1. the name, domicile and legal representative
or main person in charge of the employer;
2. the name, domicile and number of the
resident ID card or other valid papers
of the worker;
3. the term of the employment contract;
4. the job description and the place of work;
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5. working hours, rest and leave;
6. labor compensation;
7. social insurance;
8. labor protection and working conditions; and
9. other items that shall be included in
the labor contract under any laws or
Expatriates should obtain an employment
visa prior to entering China, except under
special circumstances. Upon arrival in
China, the expatriate will need to obtain
employment and resident permits. It is
further emphasized by the PRC Exit and
Entry Administration Law, which became
effective on 1 July 2013, that no employer
is allowed to employ expatriates without
work permits or work-related residence
permits. In practice, many expatriates enter
the country on tourist or business visas and
then either obtain the employment visa in
China once final approval is obtained, or
hire the services of a consulting firm to
obtain the visa (and related permits) for
them. One of the stated objectives of the
Exit and Entry Administration Law is to
curb the illegal employment of foreigners
Benefits and Entitlements
Annual Leave – Employees who have worked
for one full year or more are entitled to
annual leave with pay. The duration of
leave for each employee is determined by
reference to his or her accumulated years
of work (with all employers, not just the
current employer). An employee having
worked for one year or more but less than
ten years is entitled to five days’ annual paid
leave; an employee having worked for
ten years or more but less than twenty years
is entitled to ten days’ annual paid leave; and
an employee having worked for twenty years
or more is entitled to fifteen days’ annual
paid leave. The statutory holidays and rest
days stipulated by the State are not included
in the annual leave calculation. Generally,
annual leave should be taken during the
current calendar year and not be carried
over to the next calendar year. Unless an
employee expressly waives his or her annual
leave entitlement in writing, the unused
annual leave during the year should be
compensated at the rate of 300% of the daily
wage of the employee.
In practice, many employers give their
employees annual leave in excess of the
legally required annual leave entitlement.
04 | From Hiring to Firing
Statutory Holidays – In China, there are
certain national public holidays where
employees are entitled to paid time off.
The holiday schedule changes slightly
each year and is announced by the
government in the beginning of each year.
The current holidays include New Year’s
Day (1 day), Spring Festival (3 days),
Tomb Sweeping Day (1 day), Labor Day
(1 day), Dragon Boat Festival (1 day), Mid-
autumn Festival (1 day) and National Day
(3 days). It is common for the government
to rearrange weekend and work days
around some of the above holidays so the
public has consecutive days off.
Sick Leave – The treatment of an employee’s
sick leave differs, depending on whether
the illness or injury is work related or not.
Normally, fully paid sick leave with respect
to work related injuries should not exceed
12 months. An employee who suffers a
non-work-related disease or injury will be
entitled to a medical treatment period of no
more than 24 months, depending on how
long he or she has worked for all employers
and how long he or she has worked for the
Rest Days – Employees are entitled to at least
one day off each week.
Maternity Leave – Female employees are
entitled to 98 days of maternity.
For female employees that experience a
difficult childbirth, 15 or 30 extra days may
be added depending on local regulation.
If the female employee gives birth to more
than one child in a single instance (twins,
triplets, etc.), 15 extra days may be added
for each child.
After giving birth, female employees are
entitled to one paid working hour per day
for nursing purposes until the baby is
one year old.
Miscellaneous leave – Other types of leave
granted to employees include wedding
leave, paternity leave, funeral leave, family
planning home leave and public leave.
Wages refer to the remuneration for labour
which the employer pays directly to the
employee in the form of currency, in
accordance with the State regulations and
as required by the employment contract.
This generally includes wages calculated
on a time basis or on a piece-rate basis and
rewards and certain allowances.
The Labor Law states that employers
should adhere to the following principles:
1. Payment according to the type of work
Different levels of remuneration should
be determined in accordance with
the level of the quality and quantity
of the work performed, the degree of
expertise and the physical requirements
for the job.
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2. Equal pay for equal work
Where the quality and quantity of work
produced by employees is similar, the
remuneration provided to employees
should also be similar. Additionally, wages
should not differ on account of gender.
3. Increase in wages
Wage standards should be raised
gradually according to the economic
development of the employer.
Employers and employees are required
to contribute to certain mandatory social
insurance and housing fund schemes in
China. Social insurance includes pension,
medical insurance, unemployment
insurance, work-related injury insurance
and maternity insurance. The minimum
contributions required by employers and
employees are determined by the local
labor and social security bureaus.
The PRC Social Insurance Law, which
came into effect on 1 July 2011, states that
foreign nationals should also participate
in the social insurance system in China.
This requirement will apply to all foreign
nationals working in China, not only
foreign nationals employed directly by
PRC-registered entities, but also expatriates
seconded from overseas companies.
Depending on an employee’s income
level, the applicable individual income tax
rate can range from 3% to 45%. Taxable
income includes an employee’s base salary
and any cash allowances. Employees are
allowed a standard monthly deduction, with
expatriate employees enjoying a slightly
higher deduction due to the higher costs of
living for expatriates.
Company rules are required and the
adoption or amendment of rules directly
relating to the rights and interests of
employees requires the following:
1. discussion with all employees or an
employee representative congress;
2. proposal and comments by
all employees or an employee
3. negotiations with union or employee
Work safety and health
Employers hold the primary responsibility
for the health of their employees at work
and are required to establish a system to
protect health and safety.
06 | From Hiring to Firing
Effective measures should be taken by
employers to control workplace hazards and
prevent occupational diseases. Employers
should establish in-house occupational health
organisations to handle occupational health
management and provision of related services.
Plans for controlling workplace hazards
should be formulated and put into practice
and workplaces should be regularly monitored
and evaluated to determine the effectiveness
of hazard control measures. Occupational
health records relating to workplace hazard
monitoring and employee health examinations
should be kept up-to-date.
Employees who are exposed to hazardous
conditions at the workplace should have
regular health examinations paid for by
the employer. Employers should provide
regular training courses to educate
employees regarding health and safety at the
workplace. When negotiating or concluding
an employment contract, employers are
required to inform employees of any
occupational diseases that may be contracted
at work, the consequences thereof, and the
measures adopted by the employer to protect
against the harm. Employers must specify
this information in the employment contract.
China does not presently have a general data
protection law. However, the Regulations
on Employment Services and Employment
Management require that an employee’s
personal data be kept confidential and not be
publicised without the employee’s consent.
Termination for cause
There is no “at-will” employment in China and
termination of employees must be for cause.
An employer may terminate an employment
contract without notice if the employee:
1. is proven during the probation period not
to satisfy the conditions for employment;
2. materially breaches the employer’s rules
3. commits serious dereliction of duty
or practices graft, causing substantial
damage to the employer;
4. has additionally established an
employment relationship with another
employer which materially affects the
completion of his or her tasks with the
original employer, or he or she refuses to
rectify the matter after the same is brought
to his or her attention by the employer;
5. uses such means as deception or coercion,
or takes advantage of the employer’s
difficulties, to cause the employer to
conclude an employment contract, or
to make an amendment thereto, that is
contrary to the employer’s true intent; or
6. has his or her criminal liability pursued
in accordance with the law.
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An employer may terminate an employment
contract by giving the employee 30 days’
prior written notice, or one month’s wage in
lieu thereof, if:
1. after the set period of medical care for
an illness or non-work-related injury, the
employee can neither engage in his or her
original work nor in other work arranged
for him or her by the employer;
2. the employee is incompetent and remains
incompetent after training or adjustment
of his or her position; or
3. a major change in the objective
circumstances relied upon at the time of
conclusion of the employment contract
renders it unperformable and, after
consultations, the employer and the
employee are unable to reach agreement
on amending the employment contract.
An employer may make redundancies if
it intends to terminate the employment
contracts of at least 20 employees or 10%
of the workforce while:
1. it is under restructuring according to the
PRC Enterprise Bankruptcy Law;
2. it encounters serious difficulties in
production and business operation;
3. the enterprise changes products, makes
important technological innovation,
or adjusts the methods of its business
operation, and it is still necessary to
lay off the number of employees after
changing the labor contract; or
4. a major change in the objective economic
circumstances relied upon at the time of
conclusion of the employment contract
renders it unperformable.
In the above mentioned redundancy, the
employer is required to explain the situation to
the union or all employees 30 days in advance
and solicit the opinions of the union or the
employees, and file the redundancy plan to the
local labor administrative department before
proceeding with the redundancy. Otherwise,
the redundancy will be deemed illegal.
In any of the following circumstances, the
employer is required to pay an employee
(a) the employment contract is terminated
by the employee for any of the reasons
stipulated under the PRC Labor Contract
Law where the employee is allowed
to terminate the employment contract
without notice due to a fundamental
breach of the employment contract by
(b) the employment contract is terminated
after such termination was proposed to
the employee by the employer and the
parties reached agreement thereon after
08 | From Hiring to Firing
(c) the employment contract is terminated
by the employer in certain circumstances
stipulated under the PRC Labor Contract
Law where the employer is allowed to do
so upon giving 30 days notice;
(d) the employment contract is a fixed term
contract whose term expires, unless
the employee does not agree to renew the
contract even though the conditions offered
by the employer are the same or better than
those stipulated in the current contract;
(e) the employment contract ends because
the employer becomes bankrupt, has its
business license revoked, is ordered to
close or is closed down or the employer
decides on early liquidation.
After 1 January 2008 (the enforcement date of
the PRC Labor Contract Law), an employee
shall be paid severance pay based on the
number of years an employee has worked with
the employer at the rate of one month’s wage
for each full year worked. Any period of not
less than six months but less than one year
shall be counted as one year. The severance
pay payable to an employee for any period of
less than six months shall be one-half of his
or her monthly wage.
For purpose of the calculation of severance,
the “monthly salary” refers to the employee’s
average monthly pre-tax income (including but
not limited to base salary, overtime and other
monetary allowances and subsidies) during
the 12 month period immediately prior to the
termination or ending of his or her employment
contract. However, if an employee’s monthly
salary is greater than three times the average
monthly salary of the employees in the local
jurisdiction, as promulgated by the statistic
bureau on an annual basis, the severance pay
paid to him or her shall be three times the
average monthly salary of the employees and
shall be for no more than 12 months.
Female workers and juvenile workers
(i.e. those workers that are over the age of
16, but younger than 18) are given special
protection under PRC law.
Confidential information that is disclosed
to or becomes known to employees during
their employment is often protected through
or confidentiality clauses in employment
contracts and in some cases, a restrictive
covenant or non-compete agreement.
Non-compete agreements can only be
imposed on senior management, senior
technicians and other employees that have
a confidentiality obligation. The scope,
territory and term of non-compete
agreements needs to be agreed between
the employer and employee, but in any event,
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the post-termination non-competition term
cannot exceed two years. Additionally,
the employer is required to pay compensation
to employees on a monthly basis during
the post-termination non-compete period.
The post-termination non-competition
compensation shall be stipulated in the
employment agreement or non-competition
agreement. If no compensation is stipulated or
the amount of the compensation is not stated,
according to the Fourth Interpretation on
Certain Issues regarding the Law Applicable
to Trials of Labor Dispute Cases issued by
the PRC Supreme Court on 1 February, 2013,
the employee is entitled to claim a monthly
compensation equal to 30% of his or her
monthly average salary during the 12 months
preceding the termination if he/she has
fulfilled the non-competition obligation.
Parties to labor disputes are encouraged to
seek alternative dispute resolution procedures
such as consultation and mediation. Prior to
litigating the dispute before a court, arbitration
before the local labor arbitration commission
is mandatory. After arbitration, court
proceedings remain an option except where an
arbitration award is issued in relation to:
■ disputes in relation to labor remuneration,
work-related injury medical fees, economic
compensation or damages which do not
exceed 12 months of the standard local
monthly wage; or
■ disputes arising from implementation of
the State labor standards such as working
hours, rest and leave entitlements and
in which case the arbitration award is final.
The limitation period for bringing labor
disputes before a labor arbitration committee
is one year.
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10 | From Hiring to Firing
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Copyright © 2015 DLA Piper. All rights reserved. | MAR15 | 2864649
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