China has experienced an economic boom over the past decade. Massive increases in GDP output and continuous economic growth make it an attractive market. Over the past two years, however, the percentage of economic growth has slowed. Today, it remains steady at just over 6%. The decrease in growth has affected several sectors. Lower-wage workers are finding it difficult to find jobs with safe working conditions and labor law allegations around human rights abuses and corruption remain an issue.
Labor Law in China: The Basics
Although The People’s Republic of China is a communist country, the enforcement of ‘rights for workers’ is generally absent within its workforce. Chinese labor laws do ostensibly allow workers to form unions. These unions, however, are part of the state and are controlled by the Communist party. In reality, there is little recourse for workers who suffer abuse by management. Unions cannot collectively bargain for higher wages, nor are they allowed to fight to improve working conditions. Workers are not allowed to strike and cannot form any union that is independent of government control. As well, there is no national minimum wage. Any workers that unionize for fairer treatment are subject to punishment and ostracism.
The Contract Law and Human Rights Issues
In 2008, China passed new legislation aimed at increasing worker protection. The Chinese Labor Contract Law of 2008 instituted that employers must use either fixed-term contracts or open-ended contracts. Open-ended contracts require that employees only be terminated for due cause. The law instituted penalties for employers who wrongly terminate their workers, and introduced severance pay. On paper, the law is quite strict in comparison with other countries and is a primary reason China places third in Employment Protection Legislation.
Critics of the Contract Law complain that it offers no real protection to blue-collar workers, while making the lives of white-collar workers more difficult. Attempting to fire workers – even for obvious malfeasance – remains challenging. Since blue-collar workers are usually employed without formal contracts, there are typically no documents to prove an employer/employee relationship, thus limiting any possibility of a lawsuit. Due to this lack of law enforcement country-wide, China’s reputation regarding the rights of its workforce remains poor.
Additionally, labor activists advocating for improved workforce conditions have been silenced by Chinese authorities. Unrest remains widespread, while labor disputes have increased over 4% percent in one year. This is largely a result of a decrease in growth and less confidence in the market. In an effort to maintain worker satisfaction Chinese employers have raised wages but fail to empower their employees with a legitimate voice.
Those who organize labor strikes put themselves at risk for retaliation. Leaders who organize strikes are often silenced with dismissal, detention or harassment. The charges against these leaders are vague, often couched under terms like ‘creating disturbances’ or ‘subversion’. In recent months, the government has even applied these charges to lawyers who have helped workers secure privileges under China labor laws.
Amidst these ill-enforced labor laws, there are some laws effectively protecting workers. Laws regarding overtime is an area that has strict and inflexible regulations — and thus protects employees against abuse. Most employees are capped at working 8 hours per day, and they may not exceed 44 hours per week. Any hours above those are considered overtime under China labor laws. Employers must give advance notice to their employees and receive their consent before requiring them to work overtime. As well, employers cannot force employees to work overtime unless an exception applies. Reasonable exception cases include emergencies such as natural disasters, damages to public transportation or other circumstances as stipulated by law. Issues around overtime remain some of the most litigated aspects of employment law in China. Foreign companies need to both aware of, and compliant to, the strict regulations concerning employees working overtime.
Hiring & Firing Employees
Human resource managers cite attracting and retaining talent as one of the biggest challenges to working in China. Because background checks and references are not common, there is a general tendency among prospects to exaggerate or lie about their credentials. Due to a general shortage around qualified labor, salary expectations have been driven up. This creates an environment of low employee retention and high turnover as employees can easily move from job-to-job, securing more desirable compensation.
The process of terminating an employee in China is difficult under the Contract Law of 2008. Once an employee is under contract, it is difficult to prove the validity in terminating that person. China’s laws require significant evidence of the employee underperforming or behaving badly before they can be terminated. If an employer does undergo the process of terminating an employee, they must give 30 days’ notice to both the employee and his union. Employers are required to provide severance pay of a minimum of one month’s wages.
Expats into China usually desire to bring their own teams to work in-country. Foreign nationals are permitted to work in the People’s Republic if they are directly employed by a Chinese entity (hired directly), or if they are employed secondarily by the Chinese entity. If the expat is hired directly, then all the aspects of labor laws in China apply to that person. If they are hired secondarily, that person does not typically receive the benefits of Chinese labor laws, but should still receive standard benefits around working hours, annual leave, health and safety and social insurance funds.
A business operating in China must apply for an employment license and receive an official invitation letter for the expat called a ‘Z visa’. Then the expat must use the invitation letter to complete the Z visa application. Expats are also required to submit to a medical exam prior to entering the country. Once in China, the expat must apply for a work permit and a residence permit. It typically takes approximately four to six weeks for a Z-visa to be issued, and approximately ten working days for the processing of an employment license.
Though it is evident that China’s labor-protection conditions are weak, China is sensitive about the accusations lodged against them by other global leaders. The People’s Republic is still dependent on cooperation and trade with the West and the broader world. These relationship dependencies mean the West can apply pressure on the Chinese government to improve = protections for workers under Chinese law.
As companies ranging from multi-national corporations to small and medium enterprises continue to actively expand into global markets, it should be expected that China will evolve and increase the legal protection of their workers to remain an attractive destination.
For those companies considering the opportunity that China represents, Blueback Global can help you gain a thorough understanding of Chinese labor laws and how to navigate them compliantly and profitably.