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Labour disputes in China may have different outcomes depending on case and region

Foreign companies operating could face labor disputes in China and, depending on the circumstances and the local jurisdiction, outcomes may vary. It is important to know and understand relevant laws and their regional interpretation, which may lead to different resolutions in similar cases. 


China’s employment regulations are complex and navigating the system requires legal expertise. This can be a difficult task, especially for foreign enterprises without much experience in the Chinese market.  


Companies facing employment labour disputes in China should seek timely local legal advice and assistance. 


Employers' social insurance obligations 


Employers hiring staff need to register them with the local Social Insurance Bureau and the Housing Fund Bureau to initiate or reactivate the company’s corresponding accounts. Both employer and employee are obligated to make contributions, however, it is generally the employer’s responsibility to calculate and withhold the payments correctly for both parties. 


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Employers are required to pay their employees and ensure contributions are made on time. Failure to do so may lead to labor conflicts or fines. If there are serious and repeated infractions, the entity may be listed on an HR "name and shame" list, which may make it more difficult to recruit new employees in the future. 


An employer’s obligation to make adequate and timely contributions cannot be alleviated or exempted by reaching a mutual agreement with employees. 


Statute of limitations on social insurance recovery

 

Article 20 of the Regulations on Labour Security Supervision states that if a violation of labour security laws, regulations, or rules was not discovered or reported within two years, the labour security authority would no longer pursue the case. 


If an employee fails to report to the local labour authority (the Human Resources and Social Security Bureau) missing contributions to the mandatory social insurance within the statute of limitations, local authorities may not decide to investigate, and the complaint may be dismissed. 


However, similar cases may yield different rulings in other regions. In Beijing, courts tend to view the social insurance authority’s order for employers to make up the social insurance shortfalls as a social insurance audit action, instead of a labour security supervision action, so Article 20 does not apply. Employers are expected to make up for all underpaid social insurance, even if the underpayment dates back two years or more. 


Double salary for senior employees 


According to Article 82 of the Employment Contract Law, if an employer fails to conclude a written employment contract with the employee more than a month but less than a year from the date of employment, it should pay the employee twice their monthly salary as compensation. Generally, this provision applies to both rank-and-file and senior employees. 


If there was evidence that the employee requested a written employment contract but was refused by the employer, a request for double salary could be supported by the court. 


Chinese law mandates written employment contracts for all employees, full-time and part-time.  Employment contracts must comply with China’s national labor laws as well as with pertinent provincial and local regulations.  


Termination of senior employee 


While the Company Law allows the board of directors to unilaterally appoint and dismiss senior employees through proper procedures, the Employment Contract Law requires a statutory ground for an employer’s unilateral termination of an employee. This overlap in the application of laws makes the termination of senior employees more complex than that of ordinary employees. 


For senior employees who have established an employment relationship with the company, the board’s resolution to dismiss their position should be regarded as a change in role, not necessarily leading to termination of the employment relationship.  


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A company, as an employer, must follow the statutory grounds set out in the Employment Contract Law and provide sufficient evidence in order to justify the termination, such as serious negligence of duties and severe violation of internal policies. 


When it comes to employee termination in China, the process becomes more intricate for employers who aim to adhere to Chinese labor laws. It is crucial to comprehend the various types of termination, their implications, and how to comply with criteria such as severance pay obligations and notice periods. 




The Labor Contract Law, effective in China since 2008, is the first nationwide legislation to regulate labor relations and provide a legal framework for the establishment, execution, and termination of labor contracts. 


This law applies to all entities, organizations, and individuals that employ workers in China, including foreign joint ventures, wholly foreign-owned enterprises and foreign individuals working in the country. 


The law aims to protect the rights and interests of employees while outlining the responsibilities of employers. 


The legislation has significantly improved employee rights and interests in China and played a crucial role in promoting social stability since its implementation. 


 

Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.


Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

 

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