China Employment Laws: Get Them Right or Face PUBLIC Consequences

The PRC Ministry of Human Resources and Social Security recently released a set of rules regarding providing public notice of China employer labor violations (《重大劳动保障违法行为社会公布办法》). The goal of these new rules is to deter employers from violating China’s labor and employment laws and regulations. These rules are set to take effect on January 1, 2017 and will apply to all China employers, domestic and foreign. The following rulings/decisions on employer violations of China’s labor laws may become public:

  • Failing to pay “substantial” employee remuneration
  • Failing to pay an employee’s social insurance and the circumstances are “serious”
  • Violating the laws on working time or rest or vacation and the circumstances are “serious”
  • Violating the special rules on protecting female workers and underage workers and the circumstances are “serious”
  • Violating the child labor laws
  • Causing significantly bad social consequences due to violations of labor laws
  • Other serious illegal conduct

Neither “substantial” or “serious” are anywhere defined.

When publishing these labor law decisions, the following information will be released to the public (with exceptions for national security, trade secrets or individual privacy):

  • The employer’s full name, integrated social credit code/registration number, and address
  • The name of the legal representative or the person-in-charge
  • The main facts of the violation
  • The decision made by the authorities

The above information will be published on the labor authorities’ portal as well as in major newspapers, magazines and TV and other media each quarter at the city/county level and twice a year at the provincial and national level. This information will go into the employer’s credit file on integrity and legal compliance and may be shared with other governmental departments. The employer can file a petition with the relevant labor authorities if it does not agree with what has been published and the authorities will render a decision within 15 working days and notify the employer. If the published information has been modified or withdrawn according to law, the relevant authorities will modify the published content within 10 working days.

The rules are not very detailed, which comes as no surprise. China’s local human resources and social security bureaus will be responsible for implementing these rules and they presumably will have considerable discretion in how they do so. Note though that they don’t get to “cherry pick” what to publish: if a violation meets the applicable standard, it will be published.

Beginning January 1, 2017, if a China employer commits a serious violation of Chinese labor and employment laws, it may be made public by the labor authorities. Make sure you are in compliance and you stay in compliance. And if you do not know whether you are in compliance, figure it out. NOW.

To say we are concerned for our clients for whom we do not conduct regular employer/employee audits is an understatement. It is getting progressively more difficult for foreign companies doing business in China to compete with domestic companies on hiring Chinese workers and a foreign company that gets public excoriated for employer misconduct will no doubt find it even more difficult and expensive to find good workers. We see far too many foreign companies doing business in China with little to no clue about its employment laws. Some still believe China today is the same as China a decade ago, where unhappy employees could be “bought off” with a month or two of wages because they knew they could (and they did) easily move on to another job.

Those days are over and we fear foreign employers will be disproportionately singled out for public approbation.

As we have been pointing out pretty much since we started this blog, going after foreign companies in China is simply good politics. It always has been and it always will be. Read Machiavelli.  Read Sun Tzu.  Read Animal Farm.  Read 1984. Just look at what pretty much every country in the world does.

And going after foreigners virtually always picks up during economic slowdowns, for generally political reasons. Just look at the U.S. election.

Many years ago, in a Wall Street Journal article China’s Slowdown and You, one of my law firm’s China lawyers asserted, among other things, the following on doing business in China during a slowdown:

  • The Chinese government “is much more concerned with social harmony than with economic numbers” and that is why it is continuing to encourage wage growth even though higher wages make China’s factories less competitive.
  • China’s prioritization of its citizens’ contentment means China is going to get tougher on foreigners, just as it (and nearly every other country) has always done when times are tough. Everything foreign businesses do will be under heightened scrutiny.
  • The key to weathering China’s slowdown will be for foreign companies to go back to basics: think afresh about what your company contributes to China’s economy and how that is likely to shape policy makers’ opinions; focus on scrupulous regulatory compliance; and renew focus on due diligence at a company-to-company level.

Way back in 2006, in an article entitled, Register Your Company In China NOW [link no longer exists}, we noted a crackdown on unregistered companies doing business in China and stressed how foreign companies in China will never be treated like domestic companies:

Failing to abide by the law in the country in which you do business is the surest way to lose your business without any basis for complaint.

In many emerging market countries, local businesses take advantage of corruption to avoid complying with laws. This may work for the locals, but it won’t work for you. The easiest way for a local rival to drive you out is for you to do something illegal. Neither you nor your government will have good grounds to complain if your rival gets your business closed down due to your illegal activity. It might even be your own partner who reports you so he can assume full ownership and control of your business.

The strength of my views on this has only increased as my firm has been contacted far too many times by companies driven out of countries for having engaged in illegal conduct no different from thousands of other foreign companies in the same country.  These companies assume they have legal redress, but in reality they almost never do. So long as the law of the country in which the company was operating allows for closures and/or penalties (and in every such situation my firm has encountered, it has), the company is essentially out of luck.

There was a time where most foreign business was illegal in China, particularly as a Wholly Foreign Owned Enterprise (WFOE).  Those days are pretty much over now and the Chinese government knows it.  If you came into China as a representative office (rep office) back when that was the only way, and your “registered office” is engaged in business activities that are improper for such an office, the time is now to get that right also.

If your local people in China are telling you this is not how Chinese business is conducted, you need to remind them you are not Chinese and the government will treat you differently.  Also remember that your employee’s knowledge that you operating illegally in China gives them tremendous leverage.

Then in 2007, we wrote of this same disparate treatment issue back in the context of China’s environmental laws, in an article entitled, China Warns Foreign Companies On Pollution [link no longer exists]:

China has always and will always (at least for the foreseeable future) enforce its laws more strictly against foreign companies than against domestic companies. I am constantly writing about this not to complain about it, but simply to point out the reality. Just because your Chinese domestic competitors are getting away with something does not in any way mean you will be allowed to do so.

Beijing is also now at the stage where it is pretty much neutral about all but the largest foreign companies remaining in China. I am not saying it is neutral about foreign direct investment (FDI) in general, but I am saying that it really could not care less about whether your individual business stays in China or goes. And if your business is a polluter, it actually would probably rather see you leave.

Lastly, going after foreign companies is politically popular.

Bottom Line: Obey the law, particularly the environmental laws. It is good business.

As long time readers of this blog know, one of our consistent themes has always been that foreign companies in China should not expect to be treated the same as Chinese domestic companies, no matter what the laws may say. The reality (not just in China) is that it is usually good politics to go after foreign companies and it is usually bad politics to go after domestic companies. The reality also is that when a large number of citizens have a particular problem, it is very good politics for the government to show that it is trying to solve it.

Don’t end up on social media for violating Chinese employment laws.

For more on how to handle the employer-employee relationship in China, check out the following:

Just get it right!