Chinese Labor Law

Overview of Chinese Labour Law

Chinese labour law is principally governed by the Labour Law of 1994, the Labour Contract Law of 2007 effective from 1 January 2008, and the Social Insurance Law of 2010. The legal framework is characterised by strong formal protections for workers, including mandatory written contracts and extensive social insurance coverage, though enforcement varies considerably across regions and sectors. The legislative development reflects China’s transition from a planned economy to a market-oriented system and the accompanying need to regulate increasingly complex employment relationships.

Scope of Labour Legislation

The Labour Law applies to all enterprises and individual economic organisations within the territory of the People’s Republic of China and the workers who form labour relationships with them. The Labour Contract Law extends to state organs, institutional organisations, and social organisations. A distinction is drawn between workers subject to labour law and those engaged in civil law relationships, including certain categories of domestic workers and independent contractors, who are not covered by labour legislation. The fundamental principle articulated in Article 1 of the Labour Law is the protection of the legitimate rights and interests of workers, including the right to employment, remuneration, rest, occupational safety and health, training, social insurance, and dispute resolution.

Written Labour Contracts

The Labour Contract Law of 2007 introduced mandatory written labour contracts as a central element of the regulatory framework. Article 10 requires that a written labour contract be concluded within one month of the establishment of the employment relationship. Where an employer fails to conclude a written contract within one year, Article 82 provides for double wage liability, requiring the employer to pay the employee twice the monthly wage. The law requires that labour contracts specify the employer’s name and address, the employee’s name and address, the term of the contract, the job description, the place of work, working hours, rest and leave, remuneration, social insurance, and conditions for termination.

Types of Labour Contracts

The Labour Contract Law establishes three categories of labour contracts: fixed-term contracts, open-ended contracts without fixed term, and project-based contracts measured by the completion of a specific work task. Article 14 sets out the conditions for mandatory conversion to an open-ended contract. An open-ended contract must be offered where an employee has completed ten years of continuous service with the same employer, where two consecutive fixed-term contracts have been concluded and the employee continues to be employed, or where the employer fails to conclude a written contract within one year of the establishment of the employment relationship. The law thus incentivises employers to offer open-ended contracts and penalises attempts to circumvent employment protections through serial fixed-term contracting.

Probation Period

Article 19 of the Labour Contract Law imposes strict limits on probation periods. A probation period of one month applies to contracts with a term of three months to less than one year; two months for contracts of one to three years; and six months for contracts of three years or longer and open-ended contracts. Probation periods are prohibited for contracts with a term of less than three months and for project-based contracts. The wage during the probation period must be at least 80 per cent of the agreed wage in the labour contract or the local minimum wage, whichever is higher. The employer may terminate the contract during the probation period only where the employee is genuinely found unsuitable for employment.

Working Hours and Overtime

The Labour Law establishes a standard working week of 44 hours and a standard working day of eight hours. Overtime is subject to strict limits and premium pay requirements. The rate of overtime pay is 150 per cent of the normal wage for extended working hours on ordinary working days, 200 per cent for work on rest days where compensatory leave is not provided, and 300 per cent for work on statutory public holidays. The Labour Law prohibits the extension of working hours for certain categories of workers including pregnant women and minors.

Social Insurance

The Social Insurance Law of 2010 codifies the mandatory social insurance system comprising five types of insurance: pension insurance (yanglao baoxian), medical insurance (yiliao baoxian), unemployment insurance (shiye baoxian), work-related injury insurance (gongshang baoxian), and maternity insurance (shengyu baoxian). Both employers and employees are required to contribute to the social insurance funds. The Housing Provident Fund System (zhufang gongjijin) requires employers and employees to contribute to a housing fund administered by local housing fund management centres. Social insurance contributions are calculated as a percentage of the employee’s wage, subject to regional contribution ceilings and floors.

Dispute Resolution

Labour disputes in China are subject to a mandatory arbitration procedure before a labour dispute arbitration commission within one year of the date on which the parties became aware of the infringement of their rights. The Labour Dispute Mediation and Arbitration Law of 2007 establishes the arbitration procedure and provides for judicial review of arbitration awards by the People’s Courts. Certain categories of disputes are subject to a final and binding arbitration award from which no appeal lies. The system reflects the policy preference for non-judicial dispute resolution and the limitation of court involvement in labour disputes.

Collective Labour Relations

Collective contracts may be concluded between trade unions or employee representatives and employers to regulate wages, working hours, rest periods, and occupational safety and health. The Labour Contract Law permits collective bargaining at the enterprise level and industry level. The All-China Federation of Trade Unions is the sole legally recognised trade union organisation in China operating within a single-union framework. The 2014 regulations on labour dispatch limited the use of dispatched workers to three types of positions: temporary, auxiliary, and substitute, and required that the proportion of dispatched workers not exceed 10 per cent of the total workforce.