Labour Law, Social Laws, Employee Representation in China

This text deals exclusively with employment relationships between companies and their employees with permanent contracts, part-time contracts or even day labourers and short-term workers without employment contracts.

It does not deal with self-employed smallholders, whose situation is dealt with in our text on the structures of the Chinese tea industry.

In addition to the Labour Law, which came into force in 1995, and to a large number of regulations, the Labour Contract Law, in force since 2008, forms the basis of Chinese employment law.

Fairbiotea only works with tea producers whose employees are covered by Chinese employment law. Independent smallholders cannot become Fairbiotea members. This would not be in line with Fairbiotea's sustainability principles.

Legal regulations at a glance:

Some provinces have introduced special schemes whereby single children can take up to 20 days of paid leave per year to care for their parents under certain conditions.

As a rule, permanent employees and professionals with permanent contracts receive salaries that exceed the minimum wage several times over. Furthermore, additional voluntary benefits provided by employers are common in order to attract and retain staff.

Legal basis of Chinese Labour Law:

Chinese labour law recognises fixed-term, open-ended and project-based contracts. In principle, it only allows two successive fixed-term employment contracts with the same employee. If the employee does not leave the company at the end of the contract, his or her employment is automatically considered to be for an indefinite period. It is possible to agree on a probationary period with limited protection against dismissal. The permissible probationary period depends on the duration of the contract.

The standard working time are 8 hours per day and 40 hours per week, with at least one day off per week. Overtime is only permitted within certain limits (up to three hours per day, maximum 36 hours per month) and must be compensated (150 per cent of contractual allowances on working days; 200 per cent of contractual allowances or time off on rest days; 300 per cent of contractual allowances on public holidays).

A flexible working time system can be introduced for certain groups of workers such as senior managers or sales staff. This allows for a heavier workload over individual periods while at the same time relieving the workload on other days. The flexible system must be registered with the local labour authority, whose approval is required.

Conclusion of contracts

Labour law must be observed when drafting employment contracts. Both national and local regulations apply, which do not always coincide. In practice, local standards may apply. In principle, it must contain: Name, address and legal representative of the hiring entity; name, address/identification number of the employee; duration of the contract; salary; duties; place of work; rules on working hours/rest days; absence of the employee; working conditions (including safety, protective measures); social security. A probationary period may be regulated.

In principle, employment contracts must be in writing. Verbal contracts are only permitted for short-term part-time employment (up to four hours per day). If no written employment contract has been concluded within one month of starting work, the employee is entitled to payment of double salary from the second month until the end of the first year. If there is still no written contract, the employment relationship is deemed to be for an indefinite period.

Rights and obligations of the contracting parties

The core obligations of both parties include: the employee works, the employer pays the wage and pays the legally required social security contributions. In addition, the employer must ensure a safe working environment. For example, the employer must observe the occupational health and safety regulations and must not expose the worker to unreasonable dangers (e.g. he must provide appropriate training, protective clothing).

The worker must comply with company regulations (e.g. laid down in the employee handbook). For example, he or she must follow instructions if they are permissible, fulfil his or her duties of loyalty, not carry out any secondary employment with the competitor and, if applicable, comply with confidentiality obligations.

In the context of recent developments on the topic of cybersecurity and data protection, employers are increasingly obliged to safeguard and keep confidential personal data of employees. As a precaution, it is advisable to obtain written consent from employees to store their personal data and, if necessary, to transfer it abroad and store it there as well.

Termination of contract

The employee may terminate the employment relationship in writing at any time with 30 days' notice - during the probationary period with three days' notice. Labour law regulates termination without notice.

The employer can terminate the employment relationship if there is a legal reason for termination. Ordinary termination is effective with 30 days' notice. In principle, the trade union or the secretary in charge must be informed. However, their consent is not required.

On the employer's side, extraordinary dismissals are possible in the event of violations of the law or gross misconduct by the employee against the company's internal regulations or the company's interests. The employer must prove the employee's misconduct. In the event of ordinary dismissal by the employer, severance pay must be paid. This entitlement also exists if the employee is not to continue employment after the expiry of a fixed-term employment contract. The amount of severance pay is one month's salary per year of employment (maximum twelve). For periods of employment after 1 January 2008, severance pay is capped at three times the local average gross monthly salary per year of employment.

There is protection against dismissal in the event of illness. Ordinary dismissals can be pronounced if the treatment period in the first year of employment exceeds three months. For each additional year, one month is added (up to 24 months). There is an obligation to continue to pay wages, which is based on salary, length of service, etc.

In the event of ordinary termination, the above-mentioned severance payments must be paid. The determination of incapacity for work can be made by a state agency. If an occupational accident is the cause, the occupational accident insurance takes effect from the time of the determination.

Local labour authorities must be involved in dismissals for operational reasons. Workers must be paid severance pay.

Chinese Labour Law is interpreted somewhat differently in different provinces or is supplemented by more or less benefits. For example, the minimum wage is higher in the large, well-developed economic regions (big cities) than in the rural regions.

Since the tea gardens are only located in rural areas with low minimum wages, we only give such example data.

Child labour

The Chinese Labour Law includes health and safety conditions for young workers and prohibits the employment of children. One regulation sets a fine of 500 Yuan (approx. 47 euros) per month per child employed, as well as the revocation of the employer's licence (14.03.2021).

Women's rights

China has revised the Law on the Protection of Women's Rights and Interests. The amendments to the law take effect on 1 January 2023 and also affect employer obligations. The 1992 law covers various areas of women's lives. According to the revised version, special protection clauses must be included in employment contracts.

Employers are prohibited from discriminatory acts in the hiring process: Priority may not be given to hiring men, questions about private life and health may not be asked. Employers may not reduce salary or social benefits because of pregnancy, breastfeeding, etc.

Employers must take measures against sexual harassment of women, develop codes of conduct and establish complaints bodies.

Employers must offer and organise regular health checks for women employees, e.g. for gynaecological diseases.

Legal basis of the Social Security Act:

Since 2010. The payment of social security contributions is mandatory. However, there is no uniform national social insurance system. Regionally, the shares of the costs of employees and employers vary, and the level of benefits varies accordingly.

Pension insurance benefits

China follows a three-pillar model for pension insurance. The old-age insurance is to consist of a state pension insurance as well as a company pension insurance and a private supplementary insurance.

Women at 55, men at 60 and after at least 15 years of insurance receive 20% of the local average wage and the 120th part of the accumulated contributions per month as a state pension. Further benefits can be acquired through private supplementary insurance. There are regional differences in the rules.

Health insurance benefits

Under the state health insurance scheme, insured persons receive services in certain hospitals, pharmacies and from doctors who conclude contracts with the health insurance institutions. In case of illness, health costs are reimbursed on a percentage basis. Lists of recognised diseases and medicines are published by the state.

Accident insurance benefits

Accident insurance is financed solely by the companies. In the event of an insured event, i.e. an occupational accident, occupational disease or commuting accident, insured workers are reimbursed for medical expenses and receive a pension in the event of disability.

Unemployment insurance benefits

The funds of this insurance are used for unemployment benefits, sickness allowances while receiving unemployment benefits, funeral allowances and survivors' pensions in the event of the death of the recipient of unemployment benefits, for the costs of job placement and training or other benefits as determined by the State Council.

One way to reduce unemployment is to promote self-employment, e.g. in the form of a fruit stand or small start-up. Loans are provided by the Chinese government for this purpose.

Maternity insurance benefits

Insurance is financed by the company alone and amounts to about 0.7-1% of the payroll of the workforce, depending on local regulations: Women receive financial support for maternity and childbirth.

If employers violate contractual agreements with workers, drastic fines or revocation of the operating licence can be imposed after prior notice to correct.

Federation of Trade Unions and enterprise unions:

The All-China Federation of Trade Unions (ACFTU) is the national trade union organisation of the People's Republic of China. It is the largest trade union in the world, with 134 million members in 1.7 million local trade union organisations. The ACFTU is divided into 31 regional trade union organisations and 10 national trade unions.

The organisation was officially founded in Guangzhou on 1 May 1925. Under the Nationalist rule (Chiang Kai-Shek) in 2027 thousands of communist cadres and trade unionists were executed, and all communist-led unions were banned and replaced by yellow unions.

The rise of Mao Zedong in 1949 restored the ACFTU as the only trade union, but it was dissolved again in 1966 during the Cultural Revolution. After Mao's death in 1976, the ACFTU held its first congress since 1957 in October 1978. Since the early 1990s it has been governed by the Trade Union Law of the People's Republic of China, which was revised in 1992, 2001 and 2009.

The union must comply with the Constitution and focus on it as a criterion of activity. It must adhere to the socialist path for economic construction, to the democratic dictatorship of the people, to the leadership of the Communist Party of China, to Marxism-Leninism, to the thought of Mao Zedong, to the theory of Deng Xiaoping and to the reform and opening-up policy. It must work independently in accordance with the Trade Union Charter.

The right to strike was removed from the Chinese Constitution in 1982.

The International Trade Union Confederation's position is that the ACFTU is not an independent trade union organisation and cannot be considered the authentic voice of Chinese workers.

In recent years, sub-organisations of the ACFTU have actively participated in labour disputes at the local level, attempting to channel strike and protest movements. This phenomenon is new, isolated and not networked nationwide. Thus, it seems questionable to what extent it can be interpreted as the future overall development of the federation.

Enterprise unions/works councils - employee participation

With the entry into force of the 2008 Labour Contract Law, works councils have come into focus as actors in employment law. The trade unions support the establishment of works councils at company level, which, unlike the representatives of the enterprise trade unions, are elected by all employees.

The Labour Contract Law has brought the issue of worker participation to life. According to this, all regulations that affect important interests of employees are subject to co-determination by the works council or the entirety of all employees. The works council is to have the opportunity to make proposals and comments based on Labour Contract Law and internal regulations (employee handbook). These employee proposals must at least be included in the decision-making process.

The enterprise trade union, as the executive body of the works council, must be consulted in the decision-making process. The enterprise trade union (if existing) acts as an executive body of the works council, which is not itself permanently active, but only meets at certain intervals. Particularly in the context of social stability, the Chinese government supports trade unions in their efforts to hastily expand trade union organisation in enterprises.

Enterprise unions must be established when there are 25 or more union members in the enterprise. The establishment of a trade union at enterprise level requires the consent of the relevant trade union organisation at the regional level.

It can be assumed that in rural enterprises, e.g. tea plantations, there are hardly 25 workers in the union. As a rule, there is no interest in setting up a works council there. Intra-firm co-determination is still new and unfamiliar to rural workers and membership fees are unpopular.

The main task of trade unions is to bundle and represent the interests of workers, while always taking into account the overall economic development. Ideally, a balance of interests should be created so that workers' and employers' interests are not in conflict, but holistic solutions are sought.

International Labour Organisation ILO (Organisation of the UN)

China has been a member of the ILO since June 1919.

China agreed to ratify the ILO's core labour standards in April 2021 as part of the EU-China Investment Agreement, but without a specific deadline for implementation. The investment agreement was ratified. After much hesitation, China's parliament ratified two ILO conventions against forced and compulsory labour in April 2022.

Core Labour Standards and Principles: The ILO is the UN organisation that aims to create decent and productive work for women and men in an environment of freedom, justice, security and human dignity. Its main objectives are to develop workers' rights, promote decent work and improve social protection, and strengthen industrial relations.

The ILO is the only specialised agency of the United Nations that brings together representatives of governments, employers and workers around the table to jointly shape the organisation's policies and programmes. Working with its 181 member states, the ILO seeks to ensure that labour standards are respected in principle and in practice.

With the adoption of the Declaration on Fundamental Principles and Rights at Work in 1998, ILO member states have chosen to respect a set of core standards, whether or not they have ratified the relevant conventions. These are fundamental human rights. And the core of decent work.

List of ILO conventions

Updated 2 May 2023