China Employment Law Update - December 2014

12 December 2014


New Emphasis on the Rule of Law by Xi Jinping

Decades after Jiang Zemin's endorsement of the rule of law as a basic strategy for running the country in 1997, the Chinese Communist Party, at this year's annual Central Committee Plenum, underlined a new enthusiasm for the rule of law. The four-day event, which ended on 23 October 2014, culminated in the Committee issuing a Decision on Several Important Matters intended to promote rule-based order across China. Whilst the origin of this re-emphasis on the rule of law is most likely the Communist Party's ongoing anti-corruption campaign, it facilitates the launch of a series of reform measures in a much wider variety of areas of legislation, enforcement and government administration.

The highlights of the Decision are:

  • 12 December is the date set as the annual “National Constitution Day”. Officials will now have to swear loyalty to China’s constitution and schools are required to teach pupils of its importance;
  • legislation regulating social responsibilities will be strengthened;
  • a civil code will be drafted. Currently civil matters are regulated in a sporadic way under the general principles of Civil Law, Contract Law, the Law of Tort, etc., so the drafting of a civil code will be a significant departure from current practice;
  • the rules on property rights will be reviewed to better encourage innovation, protect intellectual property and introduce systems for promoting the exploitation of scientific and technological achievements;
  • laws and regulations in respect of finance and tax, banking, investment administration, land administration, energy and mine resources and agriculture are to be formulated and/or reinforced;
  • legislation relating to the internet is to be strengthened, and laws and regulations concerning internet information services, internet security and internet society administration are to be improved;
  • the introduction of anti-corruption legislation, broadening the definition of bribery crime, is to be accelerated;
  • awareness of the governments' list of powers is to be promoted within government and amongst the public;
  • the Supreme People's Court will set up circuit courts to hear major administrative, civil and corporate cases across administrative regions;
  • the country will trial cross-administrative region courts and procuratorates (bodies responsible for bringing prosecutions and carrying out investigations of certain cases) for cases across administrative regions; and
  • court acceptance rules are to be reformed so as to better protect citizens' procedural rights.
New Guangdong Rules on Employees' Maternity Insurance

New Rules on Employees' Maternity Insurance in Guangdong province were issued on 6 November 2014. They are more comprehensive than the previous rules (promulgated in 2008). The following changes will be effective from 1 January 2015:

  • the categories of businesses and individuals to which the rules apply will be extended. Law firms, accounting firms, sole proprietors hiring workers and all employees (including workers hired by sole proprietors) will all be subject to the rules;
  • employers or hirers will participate in maternity insurance at the place where they are registered;
  • the employer's insurance contribution fee will be 1% of the remuneration of the employer's total workforce for the preceding month, capped at three times the average monthly salary of all employees in the city where the employer is located;
  • the unemployed spouse of an employee whose working unit contributes to the insurance in full will be entitled to maternity medical treatment coverage;
  • employees who have undergone a surgical operation for the purposes of family planning will be entitled to specified leave and subsidies;
  • maternity subsidies will be calculated based on the average monthly salary of all of the particular employer's employees, so as to ensure a link between the employer's business performance and the level of benefit provided. The employee will receive the subsidy even if it is higher than their original salary. However, if the subsidy is lower, the employee will receive their original salary; and
  • the standard allocation for maternity leave will be 98 days whereas for dystocia (unusually difficult childbirth) it will be 128 days.
Draft Amendment to the Catalogue for the Guidance of Foreign Investment Industries

The National Development and Reform Committee ('NDRC'), along with the Ministry of Commerce, announced the latest draft amendment to the 2011 Catalogue for the Guidance of Foreign Investment Industries on 4 November 2014 (the '2014 Draft'). The NDRC called for public comments on the 2014 Draft by 3 December 2014.

The Catalogue sets out the government-imposed classifications ('encouraged', 'restricted', 'prohibited' and 'permitted') on foreign direct investments in various industrial sectors. The 2014 Draft significantly shortens the list of those falling within the 'restricted' category. It also increases the proportional limit on equity ownership held by foreign investors and highlights the liberalisation of the manufacturing and service industries.

However, the 2014 Draft also removes the engagement of human resource services through outsourcing arrangements from the 'encouraged' category, in contrast with the earlier 2011 edition. Following this change, the understanding is that the engagement of human resource services may be categorised as 'permitted'. This seems to suggest a stricter approach to the outsourcing of HR services.

Previously, the government had manifested a more liberal stance in its Supplementary Provisions for the Tentative Provisions for the Administration of Sino-foreign Equity Joint Venture Personnel Agencies (the "Supplementary Provisions") issued in 2008. Under the Supplementary Provisions, the equity ownership proportional limit for Hong Kong and Macao-based investors which set up Sino-foreign equity joint venture personnel agencies in China was lifted, meaning that Macao and Hong Kong investors are allowed to establish such agencies as Wholly Foreign Owned Enterprises. The Beijing government's Opinion on Speeding Up Development of Human Resource Services issued on 29 September 2014 (the 'Opinion') may be viewed as a further step for liberalisation. It provides that, in a specific area in Zhong Guan Cun, a foreign investor may hold up to 70% of the total shares of a Sino-foreign equity joint human resource agency.

Although the amendments set out in the 2014 Draft appear to be regressive, in that they seem to signal a less liberal approach to foreign investors engaged in human resource services than is currently provided for under the Supplementary Provisions and the Opinion, they are currently only in draft form and it is advisable to keep a close eye out for the final version.

Circular on matters relating to Unemployment Insurance in Support of Job Stability in Enterprises

The Ministry of Human Resources and Social Security, together with the Ministry of Finance, National Development and Reform Commission and the Ministry of Industry and Information Technology, have produced a circular designed to motivate employers to increase their efforts in social responsibility and to stabilise employment. Under the circular, which was issued in early November 2014, China's unemployment insurance scheme will provide 'post-stabilising subsidies' to enterprises which take effective measures to avoid or reduce redundancy and ensure stable employment. The policy applies to enterprises undertaking mergers and acquisitions, seeking to deal with excess production capacity, shutting down due to insufficient productivity and those approved by the State Council.

The subsidies will be paid at a rate of 50% or less of the unemployment insurance fee actually contributed by the enterprise and its employees in the preceding year to the unemployment insurance fund. The circular will be gradually implemented between now and 2020.

Research Report on Malicious Actions arising from Labour Disputes by a Court in Dongguan Guangdong

On 13 November 2014, the 3rd district court of Dongguan Guangdong (a city located in southern China) issued a research report on malicious actions arising from labour disputes. The report indicates that between 2012 and 2014, the court accepted 23 presumed malicious lawsuits from employees of labour-intensive enterprises. Although the number of lawsuits during this period has remained stable when compared to previous periods, the sums claimed are drastically increasing, with the total amount claimed by employees between 2012 and 2014 reaching RMB 45,000,000. Additionally, the types of claim issued are becoming more diverse. In the past, cases mainly related to claims for unpaid wages, whilst more recently, cases have included claims for compensation for annual leave, unpaid social insurance, double-month salaries, severance pay, unpaid allowances and subsidies.

The increased variety and value of malicious claims being issued may be attributable to the fact that there is no cost for an employee to submit a claim or make an application for arbitration to a court or tribunal against his or her employer, even if he or she is not successful. This means that some unscrupulous employees are able to pursue claims with little or no merit, without significant financial or legal risk. The 23 cases detailed in the report mainly concerned workers who repeatedly issued employment-related claims against multiple enterprises in order to obtain unwarranted financial compensation.

The report may prompt legislators to take steps to improve the courts' powers to impose penalties on individuals who bring these types of malicious legal action. In the meantime, employers are advised to review and improve their internal rules and policies to protect themselves as far as possible from employees seeking to take advantage of poor management for their own personal gain. 

Authors

Walsh-Pádraig

Pádraig Walsh

Partner
China and Hong Kong

Call me on: +852 2248 6000
Image of Ying Wang

Ying Wang

Partner
China and Hong Kong

Call me on: +86 21 2312 1288
de Silva-Susan

Susan de Silva

Consultant
Singapore

Call me on: +65 6534 5266