Originally from Business Disputes In China - 3rd Edition

The continuing growth of the Chinese economy means that even more foreign companies are looking to the People’s Republic of China (or the PRC) to expand their operations. However, while many new operators in China are focused on lower labor costs or the vast potential market, these foreign businesses often neglect to fully educate themselves about Chinese employment laws and rules critical to their operations’ success.

Indeed, the rapid evolution of the Chinese labor environment in the face of ongoing social changes presents many challenges for both foreign and domestic companies. Below, we summarize 10 key considerations for global businesses with employees in China and highlight some common mistakes.

Background

Workplace laws in modern China do not have a long history. It was not until 1995 that the PRC’s first labor legislation, known as the “Labor Law,” came into effect. This law focused on basic employment law issues, outlined general employment obligations, and set out a framework of employees’ rights.

In 2008, the development of labor protections advanced considerably with the introduction of the “Employment Contract Law” (ECL) and its implementing regulations. Among other major innovations, the ECL made written employment contracts mandatory and instituted new severance requirements. Together, this statute and its implementing regulations have markedly increased the burden of employment law compliance and overall costs of doing business in China.