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An Interview With Zhao Sheng Law Firm on China’s Labor and Employment Laws

Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Labour & Employment

Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Labour & Employment volume featuring discussion and analysis of legal developments, the enforcement of restrictive covenants and political debates about employment within key jurisdictions worldwide.

1 What are the most important new developments in your jurisdiction over the past year in employment law? Announcement of three-child policy

A remarkable development in China is the relaxation of its birth-control policy, allowing married couples to have up to three children, with effect from 31 May 2021. In order to promote this policy, the State Council released a set of opinions on the protection of minors on 6 June 2021, which encourages local governments to conduct trials on the implementation of parental leave policies. On 20 August 2021, a decision was made at the 30th meeting of the Standing Committee of the 13th National People’s Congress of China to amend the Law of the People’s Republic of China on Population and Family Planning, adopting the ‘three-child’ birth policy. China’s President Xi Jinping signed a Presidential Order promulgating the amended Law on Population and Family Planning, which came into effect on that same day.

We believe the ‘three-child’ policy will have a profound and long-term impact on employment practices. Parental leave will be adopted by local governments to encourage employees to take sufficient paid time-off for childcare. Additionally, businesses must take actions to prevent and stop discrimination against women in employment and workplaces. It is worth noting that the State Council Information Office released the National Human Rights Action Plan (2021-2025) on 9 September 2021, which included the need to guarantee the equal employment rights of women, eliminate gender discrimination in employment and regulate recruitment behaviour. It states that in the recruitment process, employers should not limit, or give priority to, the employment of males. In addition, the Human Rights Plan proposes that the issue of gender discrimination in employment be incorporated into the labour security supervision and that joint interviews be conducted with employers suspected of gender discrimination in employment.

China’s new personal data protection law

China recently passed the Personal Information Protection Law (PIPL), which took effect on 1 November 2021. The PIPL is expected to have a vital impact on the employment practices, as firms collect and use the personal information of employees (and candidates, at times) for their day-to-day HR management. As the new law came into force, an employer must notify each employee of the name, contact information, processing purpose and processing methods of the receiving party, the categories of personal information and the procedures for the individual to exercise his or her rights over the receiving party under the PIPL.

‘Separate consent’ is needed to process the sensitive personal information and make cross-border transfers; however, the meaning of ‘separate consent’ is yet to be elaborated by the PRC authorities. In addition to the notice and consent requirements, the cross-border transfers must also be based on business needs and meet other conditions set out in the PIPL, which would pose challenges to multi-national companies with headquarters based offshore or businesses that engage with overseas HR service agencies to support their local HR management.

2 What upcoming legislation or regulation do you anticipate will have a significant impact on employment law in your jurisdiction?

As a result of the three-child policy, we anticipate that employees will have more paid holidays for childcare and parental leave, subject to local regulations. For instance, Beijing Municipal Health Commission confirmed online on 4 August 2021 that a female employee who gives birth to three children after 31 May 2021 (inclusive) will be entitled to one to three months’ leave in addition to her maternity leave, subject to the consent of her employer. Similarly, Guangdong amended its local regulation and now allows female employees who give birth to three children to take 80 days’ leave, on top of the statutory maternity leave, for each birth.

3 How has the #MeToo movement impacted the investigation or settlement of harassment or discrimination claims in your jurisdiction?

In terms of legislations, the new PRC Civil Code, which has been in force from 1 January 2021, includes provisions relating to sexual harassment behaviours and requires government authorities, enterprises, schools and other entities to take reasonable actions to prevent and stop sexual harassment. In addition, Shenzhen issued a set of action guidelines in March, on how to set up anti-harassment mechanisms in local authorities, enterprises, schools and other entities. This is the first guideline promulgated by local government against sexual harassment, and although these guidelines are not hard law or mandatory rules for local businesses, market participants consider them best practice on anti-harassment and regulators expect local businesses to follow them.

While we are monitoring legislative developments in mainland China, it is noteworthy that a female employee in a prominent tech giant in China reported that she had been harassed by her superior colleague and a client during and after dinner in July this year. The incident was incredibly distressing and is considered a landmark case in the #MeToo movement in China by wider society. Businesses in China are now clearly aware that #MeToo cases are likely to cause significant reputational damage and it is reported that some firms will work on the roll-out of internal policies to prevent and stop sexual harassment in the workplace.

4 What are the key factors for companies to consider regarding the enforcement of restrictive covenants against departing employees?

In general, a company should pay attention to the following three aspects in terms of enforcement of post-employment restrictive covenants.

Plan ahead

First and foremost, companies should have a general plan of restrictive covenants, including the scope of employees applicable to such covenants (by law, the post-employment non-competition obligation is only applicable to senior personnel and employees who bear an obligation of confidentiality), and when to conclude agreements regarding post-employment covenants (it is recommended to do so upon an employee’s joining or promotion, rather than upon their departure).

Put in writing

Secondly, businesses should enter into a comprehensive agreement regarding post-employment covenants with in-scope employees. As the PRC law is relatively general in this regard and only includes provisions on non-competition, companies in mainland China have to rely on agreements to cover all the details (including scope of competitors, territory requirement, amount of compensation for non-compete obligation, amount of liquidated damage for employee’s violation of non-competition obligation, and requirement of refunding non-compete compensation for the period when the employee has breached his or her covenants) and bind the in-scope employees, along with other covenants (such as non-solicitation and non-disparagement).

Enforce or release

Last but not least, companies must pay attention to the enforcement or release of these agreements. For instance, on or before the date of termination of employment, a company needs to decide whether to request the employee perform non-competition obligations (which could be the company’s bargaining chip when negotiating with employees for termination via mutual agreement). If yes, the company needs to pay non-competition compensation in full, on monthly basis. Note that three months’ failure to pay could entitle the employee to terminate the non-compete agreement.

5 In which industry sectors has employment law been a hot topic recently? Why?

Tech firms in mainland China are well known for their notorious ‘over-working’ culture. Some of the aliases of the working hour rules in those firms, including ‘996’ (meaning employees would need to work from 9 am to 9 pm per day in a six-day work week), ‘11116’ (likewise, meaning employees would need to work from 11 am to 11 pm per day in a six-day work week) and ‘big and small weeks’ (Da Xiao Zhou, meaning employees would need to work a six-day work week and then a five-day work week), are perfect examples of the work culture of this industry that contradict the mandatory rules on working hours. By default, an employee is to work no more than eight hours a day and 40 hours a week (in effect, a five-day work week). Overtime in any event cannot be more than three hours per day and 36 hours per month.

Notably, in August, the Ministry of Human Resources and Social Security and the Supreme People’s Court jointly published 10 typical labour dispute cases related to overtime work. One of the main purposes was to alert businesses to the risks of law violation on overtime management and ensure compliance on working hours. Of all the published cases, one clearly highlighted that the ‘996’ work schedule exceeds the statutory maximum limit of working hours under PRC law and thus is illegal.

Against this backdrop, some tech firms have cancelled their over-working rules and are now attempting to be compliant on both working hours and overtime management. We are of the view that an increasing number of tech firms, as well as businesses in other industries, will look into their day-to-day practice on employees’ working hours and overtime rules, and aim to strike a balance between sustainability and efficiency. It is also expected that the costs of HR compliance would increase to some extent.

6 What are the key political debates about employment currently playing out in your jurisdiction? What effects are they having?

Unlike in Western countries, there is no regime similar to ‘political debates’ in mainland China, owing to its political system. That said, there are some heated topics relating to existing employment laws, which have already drawn the attention of the state government and caused wide discussion.

In recent years we have witnessed the platform economies growing rapidly with an amazing increase in the number of gig workers in mainland China. Whether a gig worker is an employee under PRC employment law, and therefore subject to employment protection, has been hotly debated in the wider society. On 16 July 2021, China issued the Guidelines on Protecting the Rights and Interests of Workers in New Forms of Employment, which aim to protect the rights and interests of gig workers in the platform economies. As gig workers may not fully meet the conditions of employment, their work relationship with enterprises or platforms is described as ‘atypical employment’. It is anticipated that the central and local government authorities will issue regulations and rules to set forth details of the definition, scope of application and applicable protections and benefits for ‘atypical employment’.

In addition, the Guidelines point out that gig workers are entitled to employment protections, rights and benefits as employees under PRC law, such as minimum wage protection, paid rest days and leave. In some localities, such as Guangdong and Tianjin, the latest local regulations allow gig workers to participate in mandatory social insurance regimes. We expect that other cities and provinces will soon issue similar local rules.

The Inside Track

What are the particular skills that clients are looking for in an effective labour and employment lawyer?

  • Capability to understand a client’s business models and the relevant industries.
  • Capability to provide employment dispute resolution in addition to an advice and documentary service.
  • Capability to process crises and try to manage both employee emotion and client expectation.

What are the key considerations for clients and their lawyers when handling employment disputes?

In addition to legal analysis and solutions, key considerations include:

  • What is the employee’s major purpose behind his or her claims? For instance, claim for reinstatement could just be a method to ask for more compensation.
  • What is the employee’s personality, family status and possible career development?
  • Would the case create a bad precedent for other existing employees and cause similar disputes?
  • Considering all effective judgments will be public, is the company in a positive or passive position in the negotiation for settlement?
  • Would the dispute cause any reputational damage to the company?

What are the most interesting and challenging cases you have dealt with in the past year?

After helping the general agency of an airline company convince an employee who had committed misconducts to resign voluntarily, the client discovered that his failure to settle some airfare may constitute embezzlement. We filed two civil cases against the employee and reported the suspected embezzlement to the police. The employee agreed to settle with the company and refunded the majority of the airfare. Upon discovering the employee was selling air tickets to his old customers, we helped our client issue an official notice discouraging travel agents from doing business with him, although this employee bore no post-employment non-compete or non-solicitation obligations.

About the author

Rajesh Tamada