By K. Lesli Ligorner
Paul, Hastings, Janofsky & Walker LLP
In 2007, the People’s Republic of China (“PRC”) made great strides toward establishing a more comprehensive labor and employment law regime by promulgating a landmark number of national and local employment-related laws, regulations and rules. This evolving regime includes an unprecedented evolution of employees’ rights and equal employment opportunity (“EEO”) protections.
Most notably, for employees’ rights, on January 1, 2008 the PRC Employment Contracts Law (“ECL”) took effect. The ECL aims to, inter alia, increase the power of the individual employee vis-à-vis management in the workplace. Concomitantly, the ECL increases and emphasizes the power and involvement of trade unions in the workplace.
Also on January 1, 2008 the PRC Employment Promotion Law (“EPL”) became effective. The EPL seeks to increase employment opportunities for more individuals, thereby seeking to achieve greater social stability.
1. Strengthening of employee rights
(a) Employment Contracts Law – Development of Individual Employee Rights
The Labor Law of the People’s Republic of China (“PRC Labor Law”) provided a solid foundation of employee and employer rights and responsibilities in the PRC since it became effective on January 1, 1995. The transformation of the economy since 1995 provided the catalyst for the PRC government to develop greater employee protections through the newly promulgated ECL. The primary goals of the ECL are threefold: extending employment relationships, increasing the leverage and rights of the individual employee in the workplace, and increasing the authority and prevalence of trade unions in the workplace.
(1) Open-ended Employment Contracts Favored As a starting point, the ECL seeks to extend the length of the employment relationship between employees and employers by making fixed-term contracts less desirable to employers and curtailing their viability. Previously, employers were afforded considerable flexibility by employing workers on consecutive, short-term, fixed-term employment contracts. Employers had the option of renewing them annually or choosing not to renew them, generally without incurring any financial liability. That same degree of flexibility has disappeared with the ECL. Now, for example, employers must enter into open-ended contracts with employees upon the second consecutive renewal after January 1, 2008 of a fixed-term employment contract, unless legal justification exists for terminating the employment relationship or if an employee has ten or more years of service, upon the employee’s contract renewal.
(2) Termination of an Employment Contract An employer or employee may not arbitrarily terminate an employment relationship. Rather, employers must have cause, as specifically provided under PRC law, and employers and employees alike must generally provide notice of termination, unless PRC law provides otherwise.
Enhancing the rights of employees, the ECL expands upon the types of legally permissible grounds under which an employee may summarily quit the company. In addition to the grounds previously set out in the PRC Labor Law, the ECL allows an employee to terminate an employment contract without notice and with severance where the employer, for example, fails to pay the employee timely and in full, provides working conditions that contradict those set forth in the employment contract or has rules and regulations that violate laws or regulations and harm the employee’s rights and interests. These new grounds provide employees with significant new rights in the event that an employer does not perform its obligations with respect to pay, safety and social insurance.
Further, the expiration of a fixed-term employment contract that an employer does not renew generally now requires the payment of severance.
(3) Overtime Although the ECL does not provide any new regulations with respect to the payment of overtime, it reiterates the obligation for employers to comply with existing overtime obligations. The ECL restates that an employer may not compel employees, directly or indirectly, to work overtime and that employers must pay overtime compensation in accordance with existing laws and regulations. The ECL further emphasizes the employer’s obligation to pay “wages”, which includes overtime payments, in full and on time. The ECL provides for increased fines and penalties for employers who fail to pay overtime compensation properly.
(b) Annual Leave As of January 1, 2008, employees in the PRC have new rights with respect to paid annual leave. The Rules on Employees’ Annual Leave (“Annual Leave Rules”) provide annual leave entitlements to employees who have worked for at least twelve months, based on their total number of years in the workforce. Further, the Annual Leave Rules provide that if an employer cannot provide the statutorily required annual leave to the employee, upon the employee’s consent, the employer must pay the employee compensation at the rate of 300% of the employee’s regular salary in lieu of any statutorily required leave not taken.
(c) Data Privacy The strengthening of individual employee rights extends to data privacy as well. The ECL provides that the employer may only require an employee to provide basic information directly related to the employee’s employment contract. Under the Employment Service and Employment Administration Regulations, effective as of January 1, 2008, an employer must keep its employees’ personal data confidential and must obtain an employee’s written consent before it may make the employee’s personal data public. Nonetheless, the regulations contain no guidance as to what constitutes “personal data.” Hence, while these provisions promote the protection of data privacy, the question of what data is protected remains.
2. Strengthening of the Trade Union In order to preserve harmony in the workplace and give employees greater rights in privately-owned enterprises, the PRC government is using trade unions as one means to establish greater co-determination by employees in the workplace. Indeed, the ECL increases the pressure on companies to establish a trade union. The plain language of the new law assumes that a trade union already exists in every company.
The ECL grants trade unions increased authority in the operations of companies, particularly through Article 4. Article 4 provides that employers must formulate rules and regulations that govern the workplace and must develop these internal rules with the involvement of the trade union. Further, Article 4 places an obligation on employers to consult with the trade union, listen to its opinions and negotiate with it on the formulation or implementation of the employer’s policies that have a direct bearing on the “immediate interests” of the employees. Topics that fall under the category of “immediate interests” include compensation, benefits, working hours, job safety, social insurance, training, and discipline. Thus, Article 4 suggests that in order to bind employees with a new or amended policy that falls under Article 4’s wide umbrella, a company must satisfy the consultation requirement.
Further, the ECL encourages the negotiation of collective contracts, providing that industry-wide collective contracts and area-wide collective contracts, limited geographically only by county lines, may be concluded. Hence, competitors within certain industries, such as mining, catering services and construction (industries which the ECL specifically mentions), may join each other at the negotiation table and apply the same collective contract to all of their employees. Similarly, unrelated companies in wholly unrelated industries may find themselves sitting together at a bargaining table simply because they are located within the same industrial park or office building. The Shanghai Collective Contract Regulations, which became effective on January 1, 2008, supplement the collective contract provisions found in the ECL and provide detailed procedures for conducting negotiations, the logistical aspects of negotiations and implementation of a collective contract.
3. Strengthening of Employee Equal Opportunity Rights The EPL aims to improve and increase employment opportunities by curtailing discrimination in employment practices, including hiring and recruitment. It declares that all “workers shall be entitled to the right of equal employment.” Essentially, it seeks to protect applicants and employees against discrimination on the basis of “ethnicity, race, sex, religion, etc.” The ECL further identifies other protected categories that include women, disabled persons, infectious disease carriers, and rural workers. Based on the EPL, employers may not vary employment conditions or impose hiring restrictions based on any protected category, save for certain types of jobs which the government regulates (i.e., prohibition of women from working in underground mines or lifting heavy items).
The EPL’s prohibition against discrimination of infectious disease carriers, which includes Hepatitis B carriers, signifies the PRC government’s acknowledgement that Hepatitis B carriers who are otherwise healthy and able to work need specific protection. According to some reports, there are currently 120 million Hepatitis B carriers in China – nearly 10% of the population. It has been quite common in the PRC for employers to ask potential hires about their medical history or administer medical check-ups to determine if candidates are carriers of Hepatitis B and make hiring decisions based on the results. Article 30 of the EPL codifies the prohibition against an employer rejecting a qualified candidate on the basis of his/her status as a carrier of an infectious disease.
With respect to gender discrimination, the EPL provides that “women are entitled to equal labor rights as men” and may not be refused employment based on their gender. Restrictions on female employees in relation to marriage and childbirth are expressly prohibited by the EPL. For example, in the past some companies penalized female employees who had a baby (which entitled them to paid maternity and nursing leave) during the first few years of their employment. The EPL expressly prohibits such practices. To the extent that a company does continue to maintain such restrictions on its female employees, presumably the ECL’s provision permitting an employee to resign without notice and with severance if an employer’s rules violate the law and harm the employee’s rights and interests would apply.
The EPL also prohibits discrimination against migrant workers by seeking to eliminate discrimination based on a worker’s origin. In recent years the large number of workers who migrated from rural areas to urban areas in search of jobs has exacerbated the occurrence of discrimination on the basis of worker origin.
Disabled persons are also afforded greater rights and protections under the EPL. The EPL encourages enterprises to create new positions, supports the employment of unemployed and disabled persons, and grants preferential tax treatment to enterprises that employ a specified ratio (which has not yet been released) of disabled persons.
2007 also saw the passage of implementing regulations in a number of municipalities and provinces across the country in connection with the August 2005 amendment of the Law for the Protection of Women’s Rights and Interests (“Women’s Protection Law”). The new local implementing regulations further strengthen the rights of female employees, inter alia, to be free from sexual harassment in the workplace by defining what conduct constitutes sexual harassment and explicitly linking protections from sexual harassment under the Women’s Protection Law to employers.
4. Enforcement OF EMPLOYMENT LAW DEVELOPMENTS The amount of change in the PRC employment law regime in 2007 was unprecedented. Undoubtedly, the establishment of myriad, new national and local employment laws in 2008 strengthened employee rights in the workplace. Enforcement and compliance will likely be a gradual, evolving process as these new laws and regulations leave significant room for interpretation. Thus, the degree of enforcement and compliance throughout the PRC will remain cloudy, as there are numerous variables that still need definition.
(1) Open-ended Employment Contracts Favored As a starting point, the ECL seeks to extend the length of the employment relationship between employees and employers by making fixed-term contracts less desirable to employers and curtailing their viability. Previously, employers were afforded considerable flexibility by employing workers on consecutive, short-term, fixed-term employment contracts. Employers had the option of renewing them annually or choosing not to renew them, generally without incurring any financial liability. That same degree of flexibility has disappeared with the ECL. Now, for example, employers must enter into open-ended contracts with employees upon the second consecutive renewal after January 1, 2008 of a fixed-term employment contract, unless legal justification exists for terminating the employment relationship or if an employee has ten or more years of service, upon the employee’s contract renewal.
(2) Termination of an Employment Contract An employer or employee may not arbitrarily terminate an employment relationship. Rather, employers must have cause, as specifically provided under PRC law, and employers and employees alike must generally provide notice of termination, unless PRC law provides otherwise.
Enhancing the rights of employees, the ECL expands upon the types of legally permissible grounds under which an employee may summarily quit the company. In addition to the grounds previously set out in the PRC Labor Law, the ECL allows an employee to terminate an employment contract without notice and with severance where the employer, for example, fails to pay the employee timely and in full, provides working conditions that contradict those set forth in the employment contract or has rules and regulations that violate laws or regulations and harm the employee’s rights and interests. These new grounds provide employees with significant new rights in the event that an employer does not perform its obligations with respect to pay, safety and social insurance.
Further, the expiration of a fixed-term employment contract that an employer does not renew generally now requires the payment of severance.
(3) Overtime Although the ECL does not provide any new regulations with respect to the payment of overtime, it reiterates the obligation for employers to comply with existing overtime obligations. The ECL restates that an employer may not compel employees, directly or indirectly, to work overtime and that employers must pay overtime compensation in accordance with existing laws and regulations. The ECL further emphasizes the employer’s obligation to pay “wages”, which includes overtime payments, in full and on time. The ECL provides for increased fines and penalties for employers who fail to pay overtime compensation properly.
(b) Annual Leave As of January 1, 2008, employees in the PRC have new rights with respect to paid annual leave. The Rules on Employees’ Annual Leave (“Annual Leave Rules”) provide annual leave entitlements to employees who have worked for at least twelve months, based on their total number of years in the workforce. Further, the Annual Leave Rules provide that if an employer cannot provide the statutorily required annual leave to the employee, upon the employee’s consent, the employer must pay the employee compensation at the rate of 300% of the employee’s regular salary in lieu of any statutorily required leave not taken.
(c) Data Privacy The strengthening of individual employee rights extends to data privacy as well. The ECL provides that the employer may only require an employee to provide basic information directly related to the employee’s employment contract. Under the Employment Service and Employment Administration Regulations, effective as of January 1, 2008, an employer must keep its employees’ personal data confidential and must obtain an employee’s written consent before it may make the employee’s personal data public. Nonetheless, the regulations contain no guidance as to what constitutes “personal data.” Hence, while these provisions promote the protection of data privacy, the question of what data is protected remains.
2. Strengthening of the Trade Union In order to preserve harmony in the workplace and give employees greater rights in privately-owned enterprises, the PRC government is using trade unions as one means to establish greater co-determination by employees in the workplace. Indeed, the ECL increases the pressure on companies to establish a trade union. The plain language of the new law assumes that a trade union already exists in every company.
The ECL grants trade unions increased authority in the operations of companies, particularly through Article 4. Article 4 provides that employers must formulate rules and regulations that govern the workplace and must develop these internal rules with the involvement of the trade union. Further, Article 4 places an obligation on employers to consult with the trade union, listen to its opinions and negotiate with it on the formulation or implementation of the employer’s policies that have a direct bearing on the “immediate interests” of the employees. Topics that fall under the category of “immediate interests” include compensation, benefits, working hours, job safety, social insurance, training, and discipline. Thus, Article 4 suggests that in order to bind employees with a new or amended policy that falls under Article 4’s wide umbrella, a company must satisfy the consultation requirement.
Further, the ECL encourages the negotiation of collective contracts, providing that industry-wide collective contracts and area-wide collective contracts, limited geographically only by county lines, may be concluded. Hence, competitors within certain industries, such as mining, catering services and construction (industries which the ECL specifically mentions), may join each other at the negotiation table and apply the same collective contract to all of their employees. Similarly, unrelated companies in wholly unrelated industries may find themselves sitting together at a bargaining table simply because they are located within the same industrial park or office building. The Shanghai Collective Contract Regulations, which became effective on January 1, 2008, supplement the collective contract provisions found in the ECL and provide detailed procedures for conducting negotiations, the logistical aspects of negotiations and implementation of a collective contract.
3. Strengthening of Employee Equal Opportunity Rights The EPL aims to improve and increase employment opportunities by curtailing discrimination in employment practices, including hiring and recruitment. It declares that all “workers shall be entitled to the right of equal employment.” Essentially, it seeks to protect applicants and employees against discrimination on the basis of “ethnicity, race, sex, religion, etc.” The ECL further identifies other protected categories that include women, disabled persons, infectious disease carriers, and rural workers. Based on the EPL, employers may not vary employment conditions or impose hiring restrictions based on any protected category, save for certain types of jobs which the government regulates (i.e., prohibition of women from working in underground mines or lifting heavy items).
The EPL’s prohibition against discrimination of infectious disease carriers, which includes Hepatitis B carriers, signifies the PRC government’s acknowledgement that Hepatitis B carriers who are otherwise healthy and able to work need specific protection. According to some reports, there are currently 120 million Hepatitis B carriers in China – nearly 10% of the population. It has been quite common in the PRC for employers to ask potential hires about their medical history or administer medical check-ups to determine if candidates are carriers of Hepatitis B and make hiring decisions based on the results. Article 30 of the EPL codifies the prohibition against an employer rejecting a qualified candidate on the basis of his/her status as a carrier of an infectious disease.
With respect to gender discrimination, the EPL provides that “women are entitled to equal labor rights as men” and may not be refused employment based on their gender. Restrictions on female employees in relation to marriage and childbirth are expressly prohibited by the EPL. For example, in the past some companies penalized female employees who had a baby (which entitled them to paid maternity and nursing leave) during the first few years of their employment. The EPL expressly prohibits such practices. To the extent that a company does continue to maintain such restrictions on its female employees, presumably the ECL’s provision permitting an employee to resign without notice and with severance if an employer’s rules violate the law and harm the employee’s rights and interests would apply.
The EPL also prohibits discrimination against migrant workers by seeking to eliminate discrimination based on a worker’s origin. In recent years the large number of workers who migrated from rural areas to urban areas in search of jobs has exacerbated the occurrence of discrimination on the basis of worker origin.
Disabled persons are also afforded greater rights and protections under the EPL. The EPL encourages enterprises to create new positions, supports the employment of unemployed and disabled persons, and grants preferential tax treatment to enterprises that employ a specified ratio (which has not yet been released) of disabled persons.
2007 also saw the passage of implementing regulations in a number of municipalities and provinces across the country in connection with the August 2005 amendment of the Law for the Protection of Women’s Rights and Interests (“Women’s Protection Law”). The new local implementing regulations further strengthen the rights of female employees, inter alia, to be free from sexual harassment in the workplace by defining what conduct constitutes sexual harassment and explicitly linking protections from sexual harassment under the Women’s Protection Law to employers.
4. Enforcement OF EMPLOYMENT LAW DEVELOPMENTS The amount of change in the PRC employment law regime in 2007 was unprecedented. Undoubtedly, the establishment of myriad, new national and local employment laws in 2008 strengthened employee rights in the workplace. Enforcement and compliance will likely be a gradual, evolving process as these new laws and regulations leave significant room for interpretation. Thus, the degree of enforcement and compliance throughout the PRC will remain cloudy, as there are numerous variables that still need definition.
