CHINALabor Laws

Increase in awareness of the rights of workers

In China, as a socialist country, awareness of the concept of a corporation or a contract was conventionally scarce to begin with, but from the 1990s onward, after the policy had switched to the reform/open-door policy, a legal system that acknowledged these concepts directly had been established. In the labor sector, the Labor Law of the People's Republic of China was passed for the first time in 1994, and provisions related to labor contracts between employers and workers have been prescribed (and enforced from 1995). Nevertheless, because the entire country was heading toward economic development when the Labor Law was enforced, the provisions of the Labor Law were relatively advantageous for companies.

Furthermore, because an awareness of the rights of workers has increased pursuant to the recent economic growth in China, the Labor Contract Law of the People's Republic of China, which incorporates the strengthening of the rights of workers, was passed in 2007 (and enforced from 2008), and because the bar for requesting labor arbitrations/mediations has been lowered, it could be said that an awareness of the rights of workers is generally increasing.

Legal system for dismissal

Under the foregoing Labor Contract Law, grounds that allow employers to dismiss workers are limited, and the dismissal of a worker based on vague reasons could cause a subsequent labor dispute. Furthermore, there are also restrictions on dismissal, including that certain types of employees (workers suffering from an occupational illness, pregnant employees, etc.) cannot be dismissed in the first place.

Furthermore, when a company dismisses a worker based on certain reasons, the company is obligated to pay economic compensation (monies similar to retirement allowance), and in recent years, when a company dismisses a worker on the grounds of reorganization (restructuring), it should be noted that there are many cases where the company is required to pay an amount that is greater than the statutory standards.

Increase of minimum wage and average wage

Based on the recent growth target (five-year plan) of the Chinese government, the minimum wage is being increased by 10% or more nearly on a yearly basis, and the upward trend of the average wage of overall workers is notable pursuant to the increase in the minimum wage. However, because of the recent economic slowdown, some local governments have begun issuing notices to slow down the adjustment of this minimum wage standard (e.g. Sichuan and Guangdong).

Importance of local laws

In China, which covers a vast area of land, regional differences in the working environment are considerable, and in addition to the possibility of the interpretation and practice of the respective laws being different for each region, the local laws formulated independently by the respective local governments are based on local business practices, and it could be said that the necessity to refer to these local laws is also high in the labor management of companies.

Trade unions

In China, because trade unions are positioned as being a subordinate body of the Communist Party, which is the ruling political party, trade unions have relatively important significance. Specifically, when a company is to formulate or revise its work rules or dismiss a certain number (ratio) of workers or more, the company is required to consult with the trade union and explain the circumstances.

Obligation of foreign nationals to participate in the social insurance scheme

While practice differs depending on the region, foreign nationals are also obligated to participate in the social insurance scheme (and pay the insurance premium of social insurance). Most foreign nationals are scheduled to return to their own countries after working in China for a given period of time, and while a part of the paid-in insurance premiums may be substantially refunded to the employee upon returning to the home country with regard to basic endowment insurance, which corresponds to the retirement pension, it should be noted that there are also many nonrefundable insurance premiums. However, on a practical level, the operation of this system has not yet started in certain regions, such as Shanghai.

In this regard, the bilateral Social Security Agreement between Japan and China, which had been under discussion for a long time, has finally been agreed upon and entered into force. As a result, as from September 1, 2019, Japanese employees in China have been officially exempted from payment of basic endowment insurance premiums. Note that this agreement does not include provisions for the total pension enrollment period and does not cover other social insurance.

Revision of foreign national work permit system

When a foreign national is to reside in China and work on a long-term basis, the foreign national is required to acquire a work visa (Z visa) and subsequently obtain a residence permit and a work permit. Among the above, while the type of work permit previously differed depending on whether or not a foreign national was a foreign expert, however, from April 1, 2017 onward, the unified system of work permits for foreign nationals in China has been adopted nationwide, and a foreign national is now required to acquire this work permit. Furthermore, it has also been announced that applicants will be managed by category according to the competence and performance of foreign nationals who wish to work in China.

Overview of labor-related legal system

Labor-management relations, employment, working conditions, and other matters related to labor are mainly set out in the Labor Law enforced on January 1, 1995, and in the Labor Contract Law enforced on January 1, 2008 (revised version of the Labor Contract Law was enforced on July 1, 2013).

The Labor Contract Law, which constitutes the core of the labor-related legal system, prescribes the strengthening of obligations to conclude indefinite-term labor contracts, the strengthening of provisions related to labor dispatch, and the procedural obligations concerning consultations and discussions with trade unions pursuant to the formulation and revision of regulatory systems, and the Labor Contract Law is more aware of the protection of the rights of workers in comparison to conventional legal systems.

In addition, there are the Trade Union Law as the law for regulating the relationship with trade unions, the Law on Mediation and Arbitration of Labor Disputes as the law related to labor disputes, the Social Insurance Law as the unified law related to social insurance, the Safety Production Law and the Law on Prevention of Occupational Illness and Treatment as the laws related to occupational safety and sanitation, and the Law on Protection of the Rights of Women as the law related to the protection of female employees. Moreover, while these are not laws adopted by the National People's Congress, which is a legislative body, it is often the case that various legal codes, which were prescribed by the State Council, which is an administrative body, and other government sectors (primarily the Ministry of Human Resources and Social Security in the labor sector), substantially prescribe basic rules, and on a practical level, it is also necessary to pay particular attention to these legal codes.

Furthermore, in China, which covers a vast area of land, there are cases where labor practices differ depending on the region, and the social insurance rate (burden of employer and employee) and the minimum wage standards are different in each region. Thus, in the labor management of companies, a company also needs to give consideration to local laws of the district where the company is located.

Labor Contract Law

As described above, the Labor Contract Law, as the core law that regulates current labor contract relations in China, basically prescribes the following matters.

1. Applicable scope

   The Labor Contract Law basically applies to all employers and employees (workers) irrespective of wage standards or job description. However, there may be cases where the Labor Contract Law does not apply to students, and those re-employed after mandatory retirement.

2. Details of labor contract

   A written labor contract must be concluded in order to establish a labor relationship between labor and management, and a labor contract must contain the following provisions:

   1. Name, domicile, and legal representative or the principal leading person of the employer
   2. Name, address, and the number on the resident identity card or from other valid identity documents of the worker
   3. Term of the labor contract
   4. Job description and the place of work
   5. Working hours, rest, and vacation
   6. Wages
   7. Social insurance
   8. Occupational protection, working conditions, and protection against occupational hazards
   9. Other matters

   In addition to the above, a labor contract may also prescribe matters regarding the probation period, training, confidentiality, supplemental insurance, and welfare benefits.

   With respect to this point, a written labor contract must be concluded within one month from the date of employing the worker, and it should be noted that, if a company neglects to conclude the labor contract, the company is obligated to pay wages in an amount that is double the statutory wages.

   Furthermore, if the labor contract provided by the employer fails to include the necessary information described above, or if the employer fails to deliver a written labor contract to the worker, the employer may be ordered to take corrective action by government authorities and be liable for compensating the worker for damages.

3. Period of labor contract

   Regarding the period of a labor contract, labor contracts are classified into (i) fixed-term labor contracts, (ii) labor contracts without a fixed term, and (iii) labor contracts that set the completion of specific tasks as the term to end contracts. (i) above refers to a definite-term labor contract, (ii) above refers to an indefinite-term labor contract, and (iii) above refers to a contractual period defined on the basis of the completion of specific duties. With regard to (ii) above, the labor contract may not be terminated (the company may not end the labor contract) on the grounds that the labor contract term has expired.

4. Probationary period

   As described above, while a probationary period is not necessarily required to be included in the labor contract, since it would also be a good opportunity for the employer to determine a worker's competence, it is often the case that companies include a probationary period in the labor contract. Under the Labor Contract Law, the relation of the labor contract term and the probationary period is as follows.

   Labor contract term

   Probation period

   Less than 3 months*

   No setting of probation period

   3 months or longer and less than 1 year

   1 month or less

   1 year or longer and less than 3 years

   2 months or less

   3 years or longer or indefinite term

   6 months or less

   *Even in cases where the labor contract term is defined on the basis of the completion of certain job duties, a probationary period may not be set.

   Moreover, wages during the probationary period must be the minimum-level wage in the same job position among the workers of that employer or 80% or more of the wage agreed under the contract and may not be less than the minimum wage standards of the region where the employer is located.

   Furthermore, during the probationary period, the termination of labor contracts by employers is also restricted (refer to Section 5 described below).

5. Working hours system

   Under Chinese labor-related laws, the statutory standard working hours are 8 hours per day and 40 hours per week or less. With respect to this point, while the Labor Law prescribes 44 hours per week or less, this has been revised to 40 hours per week or less in subordinate laws.

   The extension of (overtime work beyond) these standard working hours is legally permitted only up to 3 hours per day and up to a total of 36 hours per month, but not restricted in the following cases:

   1. Where in the event that the life and health of employees or the safety of property is in peril due to natural disasters, accidents, or for other reasons and an urgent response is needed
   2. Where in the event of the breakdown of production facilities, transportation lines or public facilities; and where production and public interests are affected, and urgent action is needed
   3. Other circumstances

   Furthermore, an employer is also required to guarantee at least one day of holiday per week to its workers.

   In addition, if an employer causes its worker to work overtime in violation of the foregoing restrictions, the employer may receive a warning, correction order, or disposition to pay fines from authorities.

   However, irrespective of the foregoing restrictions, while it is often the case that companies cause their employees to work overtime beyond the foregoing limit, there are cases where workers, who are working away from home in major cities, rather appreciate longer work hours, and this is a difficult issue because authorities sometimes give their silent approval.

   The rate of premium of overtime pay is as follows.

   Timing of overtime work

   Rate of premium

   Normal working day

   Add 50% of wage (total of 150%)

   Holidays*

   Add 100% of wage (total of 200%)

   Statutory rest days and national holidays

   Add 200% of wage (total of 300%)

   *Under laws, when an employer causes its worker to work on a holiday, as a general rule, the employer must make arrangements for a substitute holiday. Moreover, while the employer is required to pay additional wages only when it is not possible to offer a substitute holiday, in effect it is often the case that the employer deals with this by simply paying additional wages.

   As of 2023, the number of days of statutory rest days and national holidays is as follows:

   1. New Year's Day: 1 day
   2. Spring Festival (Chinese New Year): 3 days
   3. Qingming Festival: 1 day
   4. International Labor Day: 1 day
   5. Dragon Boat Festival: 1 day
   6. Mid-Autumn Festival: 1 day
   7. Anniversary of Founding of PRC: 3 days

   Generally, by substituting Saturday or Sunday for a weekday immediately before or after any of the above holidays, workers often take five to seven consecutive days off for the Spring Festival and Anniversary of the Founding of the PRC and three consecutive days off for other rest days. However, it should be noted that ordinary Saturdays and/or Sundays may become substitute workdays to that extent.

   For 2020, the central government had announced an extension of the holidays for the Chinese New Year period by two days (three days if Sunday is counted) in response to the COVID-19 outbreak. Even after that, local governments have respectively taken their own measures (including suspension of business resumption). In such ways, in China, when a serious situation different from normal occurs, special measures may be implemented by the central or local government to deal with the situation (in the past, similar special measures had been implemented at the fall of Lehman Brothers). Under such situations, it is necessary to pay closer attention to daily news and try to collect accurate information.

   The work system with integrative computation of working hours and non-regular working hours

   In addition to the above, there are cases where the application of a different working hour system is permitted mainly in cases where the general working hour system is unsuitable for certain job descriptions or job titles. Specifically, this is the work system with integrative computation of working hours and non-regular working hours.

   The work system with non-regular working hours is a work system in which the working hours of one day are not set based on fixed standard working hours, and in cases where the permission of the Labor Department is obtained regarding senior executive positions, outside duty workers, sales personnel, long-distance drivers, taxi drivers, and workers engaged in railway and harbor-related work, the employer is not required to pay any overtime pay even when causing its workers to work beyond the restriction of standard working hours per day (eight hours).

   Furthermore, the work system with integrative computation of working hours is a system of calculating working hours not on a day-to-day basis but based on the unit of the week, month, quarter, or year upon obtaining the permission of the Labor Department and is applied in cases where continuous work is required in light of the nature of the work or the restrictions of natural conditions in sectors, such as transportation, railroad, post, telegraphic communication, water transportation, aviation, geology, resources, architecture, and travel.

   However, even in the foregoing cases, the employer must make arrangements to ensure that employees are given rest breaks and rest days, and the employer is required to pay overtime pay in cases where, based on the foregoing unit of calculation, working hours that are equivalent to the standard working hours are exceeded on average.

6. Annual paid leave

   When an employee has worked for a total of one year or longer since the start of the working career, the employee is entitled to receive annual paid leave according to the same wage for the standard years of service in the workplace. The relationship between the years of service and the number of days of annual paid leave that can be acquired is as follows.

   Cumulative years of service*

   Number of days of annual paid leave that can be acquired

   1 year or longer and less than 10 years

   5 days

   10 years or longer and less than 20 years

   10 days

   20 years or longer

   15 days

   *It should be noted that the foregoing cumulative years of service include the period that the employee worked for a different employer and not only for the current employer of that employee, as well as the hours which are deemed to be the employee's years of service pursuant to administrative laws or the State Council.

   As a general rule, while the days of annual paid leave should be all used within one year, they can also be provided across business years in cases when it is unavoidable for business reasons. It should be noted, however, that if an employer is required to grant annual paid leave but fails to do so, the employer will be required to pay (purchase) 300% of the daily wages (*) of that employee. Moreover, when an employer is to terminate a labor contract with the employee and there is unused paid leave, the employer is similarly required to purchase such unused paid leave.

   Note that leaves, such as homecoming leave, special leave for weddings and funerals, and maternity leave, to be acquired by employees based on laws and suspension periods due to occupational injury or illness are not included in the annual paid leave period.

7. Social security system

   The social security system in China can be broadly classified into the following two systems of social insurance (so-called five insurance plans of basic pension insurance, basic medical insurance, industrial accident insurance, unemployment insurance, and maternity/childcare insurance) and the housing reserve fund (together with the foregoing five insurance plans, this is sometimes collectively referred to as the five insurance plans and one fund). It should be noted that there are cases where the social insurance plans taken out by workers residing in cities and the social insurance plans taken out by local native workers working away from home are different.

   Among the above, the social insurance plans were previously prescribed in individual laws, but recently, these laws have been integrated and unified as the Social Insurance Law (enforced on July 1, 2011). For instance, the parties obligated to participate in the respective urban social insurance plans (pay insurance premiums) and the insurance rate in Shanghai's social insurance plan are as follows (from July 2022 to June 2023). Recently, from the standpoint of economic stability and reducing the burden on the employer side, the insurance premium rate has been on a downward trend, and the employer's contribution to the pension premium has been reduced from 20% to 16%. As per industrial accident insurance, the insurance rate varies in accordance with the risk of an accident in each industry, and each insurance rate has been equally reduced by 20% (i.e. 0.16% to 1.52%). Meanwhile, the amount of monthly wages on which calculation of the rates is based has been increasing almost every year. For example, the minimum amount in Shanghai was renminbi (RMB) 4,927 and the maximum amount was RMB 28,017 as of July 2020, whereas, the minimum amount was RMB 5,975 and the maximum had increased to RMB 31,014 from July 2021 on, and furthermore, the minimum amount is RMB 6,530 and the maximum increased to RMB 34,188 as of July 2022.

   Type of social insurance

   Parties obligated to participate in social insurance scheme (rate)

   Basic pension insurance

   Employer (16%) and employee (8%)

   Basic medical insurance
   (including maternity/childcare insurance)

   Employer (10%) and employee (2%)

   Industrial accident insurance

   Employer only (0.16-1.52%)

   Unemployment insurance

   Employer (0.5%) and employee (0.5%)

   The insurance premium for the respective insurance plans differs depending on the region, and it is necessary to confirm the local laws of that region.

   The Social Insurance Law makes reference to the fact that foreign nationals working for companies in China are obligated to take out social insurance; consequently, from October 15, 2011, it is now a legal obligation for foreign nationals working in China to participate in the foregoing five insurance plans. Among the above, with regard to basic pension insurance, because it is normally anticipated that foreign nationals who have worked for a certain number of years in China will subsequently return to their home countries, when a foreign national leaves China before reaching the eligible age for receiving pension insurance benefits, the law allows the collective payment of the deposited amount to a personal account of that foreign national (the law also allows the retention of the deposited amount, and accumulation of the same when that foreign national is to work again in China).

   Generally, while the social insurance rate is calculated according to a fixed rate (with an upper limit) based on the monthly wage of each employee, because the monthly wages of foreign nationals (particularly resident officers) are generally high, it is often the case that the employer is required to pay an amount that is equivalent to the upper limit.

   However, in Shanghai and other certain regions where the number of foreign employees is particularly high, on a practical level, because there are cases where the obligation of participating in the social insurance scheme has not yet been enforced, it is necessary to confirm the latest status of the respective regions¹. With regard to foreign nationals' obligation to pay social insurance premiums, there has been an issue of employees' double payment of social insurance premiums with the home countries. Japan and China have agreed on a bilateral social security agreement, and as of September 1, 2019, Japanese employees in China have been officially exempted from paying the basic pension insurance premium for five years after the secondment, in principle. Note that this agreement does not include provisions for the pension enrollment period and does not cover other social insurance plans.

   Meanwhile, housing reserve funds are long-term savings that are deposited by the individual employees and by their employers so that the employees can purchase housing, which are used for the purchase, construction, and major repairs of the housing of employees, and belong to the individual employees. The rate of deposit of this housing reserve fund is also calculated according to a fixed ratio based on the monthly wage of each employee and differs depending on the region. For instance, in Shanghai (from July 2022 to June 2023), the monthly average wage of the employee of the previous year is used as the basis (however, the upper limit is RMB 34,188 and the lower limit is RMB 2,590), and 7% thereof is used as the standard deposit rate for each employee and employer (14% in total); however, the rate of 5% (10% in total) or 6% (12% in total) may be applicable to some cases depending on the business performance and size of the company. In addition, the upper and lower limits are set for the monthly deposit amount. For companies with a deposit rate of 14% in total, the upper limit is RMB 4,786, and the lower limit is RMB 362.

   Note that foreign nationals are not obligated to make deposits for this housing reserve fund.

Obligation to formulate work rules

Article 4 of the Labor Law prescribes that an employer shall establish and perfect a work rule system so as to ensure the rights of workers. Furthermore, the subject matters to be set forth in this work rule system are understood to be, in the least, the following matters.

• Wages
• Work hours
• Rest breaks and rest days
• Occupational safety and health
• Insurance and welfare
• Training of employees
• Work discipline
• Quota management
• Protection of female employees²

Separately from the above, the Law on the Protection of Women's Rights and Interests was amended on 30 October 2022 and came into force on 1 January 2023. Under this amended law, the obligation of employers to prevent sexual harassment is newly stipulated (Article 25 of the above Law), and employers are newly obliged to establish the relevant rules and systems prohibiting sexual harassment, among others.

Procedural obligations

Under labor-related laws, if an employer is to formulate or revise the regulatory system or major issues directly related to the interests of workers as those listed in (3-1) above, the employer may not do so unilaterally but is required to submit a draft and opinion after discussing with the employee representative congress or with all employees and must finalize its formulation or revision upon fairly consulting with the trade union or the representative of employees. Furthermore, during the course of making the foregoing decision, if the trade union or the representative of employees deems that the foregoing formulation or revision is inappropriate, the trade union or the representative of employees may submit its opinion to the employer and request changes through consultation. In addition, if the formulation or revision of major regulatory systems or major issues is decided, the employer is obligated to publicly announce the same and notify its employees.

While it may be a burden for the employer to make the foregoing decisions and take the foregoing procedures, it should be noted that if the employer breaches any of these obligations, that may constitute grounds for termination of the labor contract by the employee, and there is a possibility that the employee may seek damages from the employer.

Overview

Under Chinese labor-related laws, generally, wages include the basic wages, bonuses, allowances, overtime pay, and other payments. It has been reported³ that the average wage in the city area of each administrative district (top 10 provinces and cities) in 2021 was as follows, and regional differences were considerable. There is also a difference between urban non-private sectors⁴ and urban private sectors.⁵ Furthermore, these values are the overall average value of each administrative district in all business types, and in effect, it is considered that differences are also considerable in the respective administrative districts and business types.

Minimum wage system

Article 48 of the Labor Law prescribes as follows: "The State shall implement a system of guaranteed minimum wages. The specific standards of minimum wages shall be determined by the people's governments of provinces, autonomous regions, or municipalities directly under the Central Government and submitted to the State Council for the record." The respective local governments prescribe the minimum wage standards according to the price levels, labor productivity, and working conditions of the respective regions. Generally, there are monthly minimum wage standards and hourly minimum wage standards.

Furthermore, under the law, the following allowances must be excluded from the minimum wage.

1. Wages in cases where the working hours were extended
2. Allowance for working under special working environments and conditions, such as an evening shift, overnight shift, high temperature, low temperature, mining, or toxic/harmful substances
3. Welfare benefits of workers prescribed under laws and rules and those prescribed by the nation

According to broadcasting, the transition of the monthly minimum wage standards in major cities is as indicated in the following table,⁶ and it could be said that a drastic increase can be observed (units are in RMB). Beijing and Shanghai indicate amounts in which various social insurance premiums and housing reserve funds are not included, and Tianjin and Shenzhen indicate amounts in which various social insurance premiums and housing reserve funds are included.

If an employer violates any provision related to the minimum wage standards, it should be noted that the employer may be ordered to pay insufficient wages after the Labor Department sets forth the corresponding period, or be ordered to pay indemnification in an amount that is not greater than 5 times the unpaid wages.

In this regard, because of the recent economic slowdown, some local governments have begun issuing notices to slow down the adjustment of this minimum wage standard (e.g. Sichuan and Guangdong).

Overview

The dismissal of employees (termination of labor contracts) in China is allowed based on an agreement between labor and management and can otherwise be classified as cases where there are grounds for termination on the part of the employer and cases where there are grounds for termination on the part of the employee, which are further classified as cases where prior notice is required (the latter is immediate termination). In addition, grounds and procedures for dismissal on the grounds of reorganization and cases where dismissal is prohibited are also prescribed by law.

Termination by employee

An employee may terminate the labor contract by providing written notice at least 30 days in advance if the employer corresponds to any one of the following circumstances:

1. Failing to provide occupational protection or working conditions as agreed upon in the labor contract
2. Failing to pay wages on time and in full
3. Failing to pay the social insurance premiums for the worker in accordance with law
4. Having rules and regulations that are at variance with laws or regulations, thereby impairing the worker's rights and interests
5. Invalidating the labor contract as a result of one of the circumstances specified in the law
6. Other circumstances in which a worker may have the labor contract revoked as provided for by laws or administrative regulations

Furthermore, an employee may immediately terminate the labor contract if the employer corresponds to any one of the following circumstances without providing any prior notice to the employer:

1. If the employer forces the employee to work by resorting to violence, intimidation, or illegal restriction of personal freedom
2. If the employer gives instructions in violation of rules and regulations
3. If the employer gives peremptory orders to the employee to perform hazardous operations, which endanger personal safety

In addition, during the probationary period, an employee may terminate the labor contract by notifying the employer at least three days in advance.

Termination (dismissal) by employer

When the employee corresponds to any one of the following circumstances, an employer may terminate the labor contract by notifying the employee in writing at least 30 days in advance or pay one month's worth of wages in lieu thereof (dismissal with prior notice):

1. The worker is unable to take up the original work or any other work arranged by the employer on the expiration of the specified period of medical treatment for illness or for injury incurred when not at work (excluding occupational illness or injury).
2. The worker is incompetent for the post and remains incompetent after receiving training or being assigned to another post.
3. The objective conditions taken as the basis for the conclusion of the contract have greatly changed, so that the original labor contract cannot be performed and, after consultation between the employer and the worker, no agreement is reached on modification of the contents of the labor contract.

Furthermore, an employer may immediately terminate an employee when the employee corresponds to any one of the following circumstances:

1. Proved unqualified for recruitment during the probationary period
2. Seriously violated the rules and regulations of the employer
3. Caused major losses to the employer due to serious dereliction of duty or engagement in malpractices for personal gain
4. Concurrently established a labor relationship with another employer, which seriously affected the accomplishment of the task of the original employer or refused to rectify after the original employer brought the matter to his/her attention
5. Invalidated the labor contract as a result of the circumstance specified in the law
6. Investigated for criminal responsibility in accordance with the law

As described above, when the employer is to dismiss an employee during the probationary period, it should be noted that the employer may be required to certify the employer's incompatibility regarding the employment conditions.

Furthermore, when an employer is to unilaterally terminate the labor contract, the employer is required to provide prior notice to the trade union, and if there is any violation of laws or the labor contract by the employer, the trade union is entitled to demand the employer to take corrective action.

Dismissal on the grounds of reorganization

If an employer needs to reduce personnel by more than 20 employees or by more than 10% of all employees, such personnel reduction must correspond to any one of the following cases, and the employer must also explain the situation to the trade union or all of its employees 30 days in advance and solicit opinions from among them. The employer is additionally required to submit its personnel reduction plan to the Labor Department:

1. The company is to undergo reorganization.
2. The company is in dire straits in production and management.
3. The company changes its products, introduces a major technological update, or adjusts its business method, and after modification of the labor contracts, still needs to reduce its personnel.
4. The objective economic conditions taken as the basis for the conclusion of the labor contracts have greatly changed, so that the original labor contracts cannot be fulfilled.

Furthermore, when reducing personnel, the employer shall continue to preferentially employ the following employees:

1. Persons who have concluded fixed-term labor contracts for a relatively long term with the employer
2. Persons who have concluded open-ended labor contracts with the employer
3. Persons whose other family members do not have a job and who have an elder or minor depending on their support

If an employer that has reduced its personnel pursuant to above goes to recruit employees anew within six months, the employer is required to give notification to the laid-off persons and, under equal conditions, preferentially recruit them before others.

Restrictions upon dismissal (prohibition of dismissal)

Among the above, an employer is prohibited from dismissing the following employees upon terminating the labor contract (excluding immediate dismissal) and dismissing employees based on the dismissal on the grounds of reorganization:

1. When engaged in operations exposed to occupational disease hazards, the worker is not given pre-departure occupational health examinations, or being suspected of an occupational disease, is in the process of being diagnosed or is under medical observation
2. When having contracted an occupational disease or being injured at work, the worker is confirmed to have lost the ability to work (including partial loss)
3. When the worker is in the prescribed period of medical treatment for an illness or for an injury incurred when not at work (excluding industrial accidents)
4. When the worker is during the pregnant, puerperal, or breast-feeding stage
5. When the worker has been working for the employer continuously for 15 years in full and is less than 5 years away from the statutory retirement age
6. When the worker is in any other circumstances as provided for by law

Furthermore, an employer may not dismiss an employee during the probationary period unless there are grounds for immediate termination or there are the grounds of (1) or (2) of the dismissal with prior notice, and even in cases of terminating such an employee, the employer is required to explain the reason for such dismissal to the employee.

Note that, in cases where an employer terminates the labor contract in violation of laws, and the employee requests the continued performance of the labor contract, the employer must continue to fulfill the labor contract. When the employee does not request the continued performance of the labor contract or when the continued performance of the labor contract is impossible, the employer must pay compensation for damage in an amount that is double the standard amount of statutory economic compensation.

Economic compensation

In cases where a labor contract is terminated by an employee (see (5-2) above), cases where a labor contract is terminated upon agreement based on the employer's proposal, cases of dismissing an employee based on dismissal with prior notice, and cases of dismissing an employee based on a dismissal on the grounds of reorganization, the employer is obligated to pay economic compensation to the employee (note that, in certain cases, the employer is obligated to pay economic compensation pursuant to the termination of the labor contract based on expiration).

The calculation of the amount of economic compensation is performed, under laws, according to the period that the employee worked for that employer, and is one month's worth of wages for each year of service, and one-half of a month's worth of wages for the length of service of six months or longer and less than one year. Moreover, if the monthly wage of that employee (average wage of the 12-month period immediately before dismissal) exceeds three times the employee's monthly average wage of the previous year in the administrative district where the employer is located, the payment standard of the economic compensation is an amount that is three times the employee's monthly average wage, and the maximum number of years is 12 years.

Nevertheless, on a practical level, there are cases where the agreement of employees cannot be obtained with the standard amount prescribed under laws, and particularly in cases of dismissal on the grounds of reorganization, there are many cases where it is necessary to negotiate with the trade union and pay economic compensation of an amount that exceeds statutory standards. In particular, there are many cases where Japanese corporations pay an amount that is considerably greater than the statutory standards in order to avoid disputes. However, in order to reduce the costs for dismissal on the grounds of reorganization as much as possible, it is necessary to maintain a favorable relationship on a regular basis with employees belonging to a trade union and the Labor Department of that region, so that the employer can receive support in time of need.

Revision of system related to foreign nationals working in China

When hiring a foreign national in China, there has to be a special need, there has to be a shortage of suitable personnel in China, and the job position to be offered to the foreign national must be permitted by law.

With respect to this point, to work in China, a foreign national was conventionally required to enter the country with a work visa based on the Employment Management Rules of Foreign Nationals in China (enforced on May 1, 1996) (in the case of a country with a reciprocal exemption agreement on visas, procedures are to be followed according to such agreement), and acquire the Alien Employment Permit, Alien Employment License, and Alien Resident Certificate after entering the country. Furthermore, foreign nationals with expert knowledge and skills were allowed to work by acquiring the Foreign Expert Employment Permit and the Foreign Expert Certificate.

Among the above, the Alien Employment Permit, Alien Employment License, Foreign Expert Employment Permit, and Foreign Expert Certificate have been unified in certain regions that include Tianjin, Shanghai, Guangdong, Sichuan, and Yunnan, from November 1, 2016, based on the Notice on the Trial Implementation Plan for the System of Work Permits for Foreign Nationals in China (Notice of the State Administration of the Foreign Experts Affairs P.R. China [2016] No. 151), and as a result of the Foreign Business Permit Notice and the Foreign Business Permit being newly issued, these have been uniformly implemented nationwide from April 1, 2017.

The foregoing notice additionally prescribes that foreign nationals to work in China should be managed based on category, and matters related to the simplification of materials related to the screening procedures. The foregoing category-based management is the scheme of classifying foreign nationals into the three categories of outstanding foreign talent (Category A), foreign professional talent (Category B), and ordinary personnel (Category C) based on competence (educational background and qualifications, fluency in Chinese, etc.), age, annual income, and the number of service years of the foreign nationals, and while the screening requirements of personnel corresponding to Category A will be relaxed, permits for personnel corresponding to Category C will be limited to a certain number, and this is being disputed together with the strictness of standards in classifying foreign nationals.

Note that, in China, excluding certain cases, such as government employees, there are no particular restrictions on hiring foreign nationals, and there are basically also no restrictions on the ratio of the number of persons to be employed (however, as a general rule, four or more employees (representatives) may not be hired in a representative office (in China) of a foreign corporation).

Visas

Under existing laws, the categories of visas in China are as follows. Note that the initial (capital letter) is the first letter of the corresponding Chinese term (Pinyin).

Note that, as a general rule, a Japanese passport holder may stay in China for a period of 14 days or less without a visa.⁷ However, this point has been more strictly managed from January 1, 2015. In other words, it should be noted that even if a foreign national's stay is shorter than the foregoing period when the foreign national will be staying in China for business purposes, it may correspond to employment, and as a result, (i) there are cases where the Z visa is required, and (ii) there are cases where the M visa is required.

Among the above, (i) includes cases of offering technical guidance and management at the destination of cooperation in China and cases of shooting films and advertisements and (ii) includes cases of maintenance, repair, and installation of purchased equipment, guidance of projects that were bid in China, short-term work to be performed by being dispatched to branch offices, subsidiaries and representative offices in China, and cases of participating in sports events and social action programs. For details regarding this point, please also refer to the website of the Embassy of Japan in China (http://www.cn.emb-japan.go.jp/consular_j/joho150113_j.htm).

Recently, the Implementation Measures for Foreign Talent Visas on the R visa system has been enforced and is being implemented nationwide for the purpose of providing convenience for high-level foreign talents. According to the implementation measures, the R visa has more advantages compared with normal employment visa (i.e. Z visa); for example, it takes a relatively short period of time from application to granting of R visa, and its valid period is longer than Z visa.