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 will take effect on January 1, 2017, and they 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 child labor laws
- Causing significantly bad social consequences due to violations of labor laws
- Other serious illegal conduct
Neither “substantial” nor “serious” are anywhere defined.
When publishing these labor law decisions, the following information will be released to the public:
- 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 and 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 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 If the published information has been modified or withdrawn according to law, the relevant authorities will modify the published content within 10 working days.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 detailed, which comes as no surprise. China’s local human resources and social security bureaus will be responsible for implementing these rules and they will have considerable discretion in how they do this. Note that they don’t get to “cherry pick” what to publish: if a violation meets the applicable standard, it will be published.
Make sure you are in compliance with China’s labor and employment laws and you stay in compliance. And if you do not know whether you are in compliance, you should 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 find it even more difficult and expensive to find good workers. We see too many foreign companies doing business in China with little to no knowledge about its employment laws.
As we have been pointing out pretty much since we started this blog, going after foreign companies in China is good politics. It always has been and it always will be.
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 continues encouraging wage growth even though higher wages make China’s factories less competitive.
- China’s prioritization of citizen contentment means China will get tougher on foreigners, just as it 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 by focusing on scrupulous regulatory compliance and by renewing their 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 a great 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 so they can assume full ownership and control of your business.
My law firm is constantly getting contacted by companies driven out of countries for having engaged in illegal conduct no different from what thousands of other foreign companies do in the same country. These companies that are getting pushed out 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.
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 Chinese government will treat you differently from the way it treats Chinese companies. Also remember that your employees’ 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 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 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 does not care whether your individual business stays in China or goes. And if your business is a polluter, it would prefer that you leave.
Lastly, going after foreign companies is politically popular.
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. And when a large number of citizens have a particular problem, it is very good politics for the government to show 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:
- Eight Keys for Navigating China’s Employment Laws
- China Employment Law: Local and Not So Simple
- China Employment Contracts: Ten Things To Consider
Just get it right!
