Ratings will be A, B and C, with A being the highest rating. To assign a rating, the labor authorities will gather information about a company’s compliance status through routine on-site inspections, document reviews, labor complaints, etc. to determine whether the company complies with labor dispatch rules, contributes to the social insurance fund, etc.

The Measures specifically provide that a company will receive a “C” rating if the company has created labor conditions that give rise to collective unrest or other serious or negative consequences for society. After receiving the C rating, the company can expect to face more frequent inspections, and senior management can expect to receive visits from the labor authorities seeking guarantees of future compliance.

The ratings will be kept in the government’s labor inspection compliance files for at least three years. Furthermore, the Measures specify that the labor authorities should establish an information sharing mechanism with union and other government departments to share the company’s compliance information (which may include the ratings). By having access to this information, other government departments, such as administrations of industry and commerce bureaus, finance bureaus, housing and construction bureaus, and tax bureaus, can take further actions (including joint actions) against companies for non-compliance with labor regulations.

The Measures do not specify any fines or other specific monetary penalties for receiving “C” rating or otherwise creating conditions that lead to labor unrest. However, such companies may expect increased attention and scrutiny from the government.

Key Take-Away Points:

The Measures suggest that the PRC government is becoming more sensitive to labor unrest. Therefore, every company should exercise greater caution when dealing with matters that could lead to collective labor unrest, for example, mass lay-offs and employee transfers after asset transactions.