Topic: China

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Transfer of employees in China

When structuring an acquisition or disposal of a business in China, the transfer of employees is one of the key points that the parties need to consider.

Under PRC law, if an acquisition or disposal is structured as a share deal, so that  the buyer acquires the equity in the target company, the employees of the target company will remain employed by the company and the employment relationship will be unaffected by the transfer of the shares . In addition, the change of company name and/or the legal representative of the target company would not affect the employment relationship with … Continue Reading

Social Insurance in China

Having developed over decades, the social insurance scheme in China has been gradually unified nationwide and is now primarily regulated by the PRC Social Insurance Law (SIL), which came into effect in 2011. Prior to the SIL, the social insurance scheme in China was regulated by various administrative regulations.

The SIL consolidated the social insurance scheme which includes elements covering pension, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance.

It is a mandatory requirement for both the employer and the employee to contribute to the social insurance funds. Employers are required to pay contributions to all … Continue Reading

Important elements of an employment contract under PRC law

Written contract requirement

PRC law requires that an employer must enter into written employment contracts with each of its employees within one month after the commencement of the employment.

Where an employer fails to enter into a written employment contract within such period of time, the employer is liable to pay double salary to the employee concerned, starting from the second month of the employment until the end of the first year of the employment. Starting from the second year of the employment, an open-ended employment contract will be deemed to have been entered into between the employer and the … Continue Reading

Working Hours and Annual Leave in China

Working Hours

PRC law recognises three categories of working hour systems: (i) the Standard Working Hour System; (ii) the Flexible Working Hour System; and (iii) the Comprehensive Working Hour System.  Each system varies in its applicability to employment positions and industries within the PRC.

The Standard Working Hour System provides that an employee may work no more than 8 hours per day and, as such, working hours are capped at 40 hours per week. Any work that exceeds the maximum limit of 8 hours per day, or 40 hours per week, is considered overtime. In contrast, the Flexible Working Hour … Continue Reading

Termination of an Employment Contract in China

PRC law has stringent restrictions on the termination of employment contracts. Generally, an employment contract can be terminated by mutual agreement between the employer and the employee. In the absence of the employee’s consent, PRC law provides very limited grounds for termination of an employment contract by the employer. There are two categories of statutory grounds for unilateral termination by the employer: (i) termination for cause, where the employer is entitled to terminate the contract without prior notice and without payment of severance pay to the employee; and (ii) termination without cause, where the employer must give 30 days’ prior … Continue Reading

Dispatching Arrangement in China

A labour dispatching arrangement in the People’s Republic of China (PRC) is essentially a method for indirectly engaging staff via an employment agency (commonly termed a dispatching agent). It is regulated by the PRC Employment Contract Law (the ECL).   

A typical dispatching arrangement involves three parties (i.e. the employee, the dispatching agent and the employing unit) and is normally governed by (i) an employment contract between the employee and the dispatching agent; and (ii) a dispatching service agreement between the dispatching agent and the employing unit. Under the dispatching arrangement, the employee is employed by the dispatching … Continue Reading

Restrictive Covenants in China

Restrictive covenants imposed on employees in the People’s Republic of China (PRC) are normally in the form of non-compete and non-solicitation obligations. PRC law sets out some general principles on non-compete obligations but is silent on non-solicitation obligations which are therefore generally subject to the mutual agreement of the parties concerned.

As a general principle of PRC law, employers and employees may agree on the employees’ non-compete obligations during and after the term of the employment although the general law does impose some parameters. Under PRC law, the non-compete period must not extend beyond two years after the termination of … Continue Reading