The 19th National Congress of the Chinese Communist Party concluded in October 2017. Although labor relations is not the main focus of the discussions, President Xi did make passing comments in his report. These comments, together with recent legal developments in Beijing, Guangdong and Shanghai, give us a glimpse into how potential labour law reforms may look like in China. Chinese labour law is known to be rigid and heavily pro-employee. Developments in the past 12 months suggest that there may be a relaxation of the law in certain situations where employers want to adjust employees' work location or role or even terminate the employment, but the pace of reform will be gradual and slow.

President Xi's report

President Xi's report at the 19th Congress made a few brief comments on employment issues, specifically, as part of the objective to improve people's living standards:

  • prioritising employment and job upgrades as a means to improving people's livelihood;
  • improving vocational education and training, putting more students into higher education institutions, and large scale development of professional skills training;
  • resolving structural issues in employment by encouraging business start-ups and removing systematic barriers to the mobility of labour and talents; and
  • continuing to build on the consultation mechanisms among government, union and companies to achieve harmonious labour relationships.

The plan advocated by President Xi shows that the Chinese government is walking on a fine balance between maximising employment and implementing structural changes, which will result in short term unemployment but improve people's livelihood in the longer term. The government is also keen to minimize the amount of labour unrest caused by any potential structural changes.

Similarly, local governments and courts have been walking on this fine balance and are slow in implementing any reform that may be seen to open the floodgates for employers to start large scale employee laying offs.

Supreme Court circular

On 30 November 2016, the Supreme Court issued a circular on dealing with civil litigation matters. The circular advocates that laws should be interpreted not only in a way that protects employee's interests but also ensures that businesses can survive and develop. The objective is to support innovation and the development of new businesses.

However, since then, local courts have been slow in implementing this circular.

Beijing court opinion

On 24 April 2017, the Beijing Higher People's Court and Labour Arbitration Commission issued a paper on the interpretation of laws in labour dispute cases in Q&A format.

Change of work location and role

The Beijing court opinion prohibits employers from adjusting employees' work location simply on the basis of an imprecise work location agreed in the employment contract such as "China" or "Beijing". However, where an employment contract permits unilateral adjustment of work location by the employer, the court may allow such adjustment after taking into account factors such as impact on employee's life and any remedial measures (provision of transportation subsidy by employer) to determine the reasonableness of the adjustment.

The Beijing court opinion also provides that an employer may adjust its employee's role if it can prove that its business and operation situation has changed, the role is appropriate for the employee and the remuneration remains substantially unchanged. In such situation, the court will not force the employer to put the employee back in the original role if this would give rise to difficulties.

Termination based on major objective change and professional ethics violation

The Beijing court opinion states that an employee can be terminated for serious disciplinary offence or breach of professional ethics, even where the company's internal rules and policies or the employment contract do not specifically provide for this. (In the past courts have often adopted the position that there must be violation of a specific written policy in order to justify disciplinary action.)

The Beijing court opinion also outlines the circumstances that may be regarded as a major objective change that justifies termination of employment. Although it largely summarizes existing rules, for the first time it states that it could be considered a major objective change if continued performance would result in excessive costs.

Possibility of reinstatement

On the possibility of reinstatement in a wrongful termination case, the Beijing court opinion again largely echoes what is understood to be the prevailing judicial practice. But certain situations that were previously uncertain is clarified. For example, reinstatement will not be ordered if:

  • the employing entity is deregistered, dissolved or bankrupt;
  • the employee reaches retirement age;
  • the contract terms expires in the course of a dispute and no mandatory extension circumstances exist;
  • the employee has started to work for a new employer; or
  • the employee's role is relatively unique or senior and another person has taken over the role.

Nevertheless, an employer may not rely on having another person take over the role alone to refuse reinstatement.

Guangdong court opinion

On 19 July 2017, the Guangdong Higher People's Court and Labor Arbitration Commission also issued a paper on the interpretation of laws in labour dispute cases in Q&A format.

Company relocation

Similar to the Beijing opinion on change of work location above, the Guangdong opinion states that if a company needs to relocate its premises due to its business development plans, it would be regarded as a major objective change. Further, if such relocation does not result in material impact on the employee and the employer has taken remedial measures (e.g. provided transportation or subsidies), but the employee still refuses and terminates employment with the employer, the employee cannot claim severance pay from the employer.

Shanghai regulations

On 23 November 2017, the Shanghai People's Congress Standing Committee passed the Amendment to the Shanghai Workers' Representative Council Regulations, which will take effect from 1 January 2018.

The Amendment echoes President Xi's statements in the 19th Congress about building up the consultation mechanisms among government, union and companies to achieve harmonious labour relationships.

Specifically, the matters that require consultation of the workers' representative council has expanded. Where a company decides on major issues such as changing its type of business structure, merger, division, relocation, suspending operations or applying for bankruptcy, it will be required to consult the views of its workers' representative Council or its employees. The Shanghai government expressly stated that the aim of the change is to reduce labour unrest by providing employees with more information and opportunity to express their views on such decisions through the employee representative congress.

The Amendment will have a significant impact on companies planning on mergers or suspensions in China. Currently, the usual practice is to announce the decision to the employees and then enter into consultations or individual negotiations on changes to terms and conditions or termination of employment.

However, the Amendment has not provided any hard penalty for violation of the above consultation requirement. Union federation officials may monitor compliance and recommend remedial action, and if non-compliance is not rectified within 30 days, the company's name will be published in an information sharing platform.

Proposals to amend the Labour Contract Law

In November 2016, the National People's Congress Financial and Economic Affairs Committee recommended stepping up research and drafting efforts for amendments of the Labor Contract Law. The Labor Contract Law is the main legislation governing employee relations in China.

After the 19th Congress, in early November 2017, the National People's Congress Financial and Economic Affairs Committee published a report which recommended endeavouring to include amendment of the Labor Contract Law into the legislative agenda for the next National People's Congress Standing Committee, which will form in March 2018 for a term of 5 years.