Introduction
Retirement policy can apply to qualified foreign employees
Employers may end employment of retirement-age foreign employees
Continuing employment with valid work and residence permits
Comment
In China, employment ends at the statutory retirement age, which is generally 50 or 55 years old for women and 60 years old for men.
As the number of foreign employees grows in China, many employers will need to understand how to handle the employment contracts of those who reach retirement age, considering that this differs from Chinese nationals.
This article discusses, with specific focus on Shanghai rules and practices, how to handle the employment of such employees who are locally employed and have properly obtained work and residence permits in China.
Retirement policy can apply to qualified foreign employees
In accordance with the relevant law,(1) employees in Shanghai must fulfil the following requirements to apply for retirement and the associated pension benefits:
- reach the statutory retirement age (ie, 60 for males and 55 for females in technical or managerial positions); and
- have made cumulative contributions to social insurance (pension insurance) for 15 years.
In accordance with the relevant regulation(2) on social insurance for foreigners, foreign employees who fulfil the above requirements are also entitled to pension benefits.
Employers may end employment of retirement-age foreign employees
The law(3) provides that employment contracts end automatically when an employee reaches the statutory retirement age.
However, in practice, it is still disputed whether a foreign employee's employment contract can be ended when they reach the statutory retirement age in China. The arguments that support the continuation of their contracts after this age limit are that:
- the requirement on foreign employees to contribute social insurance has only recently been implemented in Shanghai (the requirement on foreign employees to contribute social insurance has been in place since 2011 in other cities). Therefore, most foreign employees have not made the cumulative 15-year contribution, meaning that they are unable to apply for retirement and enjoy pension benefits; and
- when a foreign employee reaches the statutory retirement age, they may still hold an effective employment contract and a valid work permit. Therefore, some courts may hold(4) that the employer and the foreign employee have reached a mutual agreement on continuing the employment contract after the employee passes the retirement age. Therefore, the employer is not required to end such employees' contracts.
Nevertheless, based on the opinions of the Shanghai High People's Court on the employment of foreign nationals and subject to the specific employment contracts that exist between employers and foreign employees, employers may end their contracts with foreign employees when they reach the statutory retirement age. The reasons for this are as follows:
- In accordance with a decision of the Shanghai High People's Court,(5) in addition to the five basic labour standards (ie, minimum wage, working hours, rest and vacation, work safety and hygiene, and social insurance requirements), employers and foreign employees are entitled to agree to other labour rights and obligations, including the termination terms of their employment contract. The Court's decision in this regard has been reconfirmed in recent rulings.(6)
- Employment contracts between many employers and their foreign employees in Shanghai often provide that "the contract can be ended when the foreign employee reaches the retirement age or starts to enjoy the basic pension insurance treatment", which is consistent with the terms of employment of nationals. Based on the Court's decision, if the contract sets out that employment could end when the foreign employee reaches retirement age, the employer is entitled to follow through with this, with respect to other provisions of the contract.
- In its decision, the Court did not rule in the employers' favour, as the relevant employment contract did not expressly set out that the employee's contract could be terminated at the age of retirement. Without such express agreements, the Court held that the end of the employment contract was illegal on the grounds that the work permit was still valid.
- As many employers and foreign employees contribute to social insurance, foreign employees can be entitled to pension benefits. For example, a foreign employee who holds a Chinese permanent residence permit may continue their social insurance contribution after the end of their employment and receive pension benefits after at least 15 years.
Continuing employment with valid work and residence permits
On the other hand, if a foreign national holds a valid work and residence permit, their employer could continue their contract. In practice, it is common that foreign professionals who are close to retirement age already hold valid permits or will receive new permits or renewals.
In order be more flexible when handling the employment relationship with foreign employees and to mitigate risks, the following should be considered:
- When applying for or renewing a foreign employee's work permit, employers may consider applying the expiration date of the work permit as the date of the employee's "retirement age". On the other hand, it may be easier to arrange for the term of the work permit to expire on the date that the foreign employee reaches the national retirement age.
- If an employer decides to end the employment contract and not to renew the work permit, employers should inform the foreign employee at least two or three months in advance, so that the foreign employee has time to prepare for their departure, return or subsequent job.
- Although employers may not be required to pay severance for ending the employment contract of retirement-age foreign employees, they may consider doing so in accordance with the Employment Contract Law in order to avoid disputes and if the employee in question has served the company for many years.
- When hiring new foreign employees or renewing the employment contract with foreign employees (if applicable) in Shanghai, employers could agree on detailed conditions of the employment termination in the employment contract as it is being written.
For further information on this topic please contact Jianjun Ma or Zhen Lu at JunHe by email ([email protected] or [email protected]). The JunHe website can be accessed at www.junhe.com.
Endnotes
(1) Article 16 of the Social Insurance Law – an individual who participates in the social pension insurance scheme is entitled to receive a basic pension on a monthly basis if they have made cumulative contributions for 15 years by the time that they reach the statutory retirement age.
(2) Article 5 of the Interim Measures for the Participation of Foreigners Employed in China in Social Insurance – foreigners who participate in the social insurance scheme are entitled to social insurance benefits in accordance with the law if they fulfil the relevant requirements.
(3) Article 21 of the Implementing Regulation of the Employment Contract Law – the employment contract will be ended when the employee reaches the statutory retirement age.
(4) (2013) Shanghai No. 2 Intermediate Court Civil Three (Min) Final 527 and (2014) Shanghai No. 2 Intermediate Court Civil One (Min) Final 1188.
(5) In accordance with article 2 of the Holdings of Shanghai High People's Court on Several Issues Concerning the Labour Dispute, the Shanghai High People's Court holds that:
with respect to the application of PRC labor standards to foreigners employed in China, if an party requests to apply such standards in respect of minimum wage, working hours, rest and vacation, labor safety and hygiene, social insurance, etc., the labor dispute handling authority may support such request. The labor dispute handling authority may determine other labor rights and obligations agreed or performed by the parties in accordance with the written employment contract, additional agreement or other agreement between the parties or their actual performance.