China v UK - a comparison of key employment law principles

08 June 2015


In this article, Wragge Lawrence Graham & Co's employment & equalities lawyers compare key areas of Chinese and UK employment law and consider some of the issues most likely to affect managers and HR professionals operating internationally.

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Background

China has seen stratospheric economic growth in the six years since it implemented the ground-breaking Employment Contract Law (ECL). Significant numbers of international investors have established bases in China during this period, recruiting Chinese workers. The ECL has aligned the People's Republic of China (PRC) labour law more closely with international standards, and Chinese employees are becoming more aware of their rights.

Evidence of China's evolving economy can also be seen closer to home. Increasingly, Chinese companies are expanding into foreign markets, and the United Kingdom is often the destination of choice. The UK presents exciting opportunities for Chinese investors and companies looking to employ workers locally need to understand and comply with the country's complex employment law framework.

1. Applicable law

China

Chinese employment relationships are principally governed by two key statutes, being a) the PRC Labour Law 1995 (which constitutes the fundamental statutory framework for employment law issues); and b) the ECL (which regulates contractual relations).

UK

In the UK, employment relationships are governed by contract law but within a statutory framework comprising both domestic and EU law. New entrants to the UK labour market should be aware of key statutes such as the Employment Rights Act (1996), Trade Union and Labour Relations (Consolidation) Act 1992 and the Equality Act 2010, as well as the key rights afforded to workers pursuant to European law.

2. The employment contract - basics

China

Written employment contracts are mandatory for full-time employees and, pursuant to the ECL, employers are granted a period of one month in which to finalise contractual terms. After the expiry of this period, an employee is entitled to claim double salary for the period of work which is not covered by a written contract, up until the first anniversary of their employment. If this period exceeds one year, the employment relationship is deemed to be permanent and indefinite. Despite these regulations, it is not uncommon for employers to overlook this requirement for a written contract.

UK

In the UK, a written statement of the key terms of employment must be provided within two months of commencement of employment. This must cover terms such as working hours, pay, place of work and job title. These are known as the 'Particulars of Employment'.

However, to ensure that both parties are clear about the expectations of the employment arrangement, a more detailed form of contract is usually put in place and will typically set out a range of additional provisions governing matters such as Intellectual Property rights, the protection of confidential information and the provision of additional benefits to employees.

3. The employment contract - content

China

The parties to a contract of employment are to a large extent free to negotiate commercially appropriate terms, although the ECL provides that the following key matters must be covered:

  1. employer's name and domicile and details of the employer's legal representative (or other responsible person);
  2. employee's name, domicile and identity card (or other valid identity document) number;
  3. term of employment;
  4. job description and place of work;
  5. working hours (generally no more than eight hours per day and forty per week), rest time and holidays (up to 15 days' allowance per year, starting after the first year of employment);
  6. pay;
  7. social insurance;
  8. labour protection, working conditions and protection against occupational hazards; and
  9. other matters, as required by laws and regulations.

UK

As is the case in China, the parties to an employment contract are generally free to negotiate suitable terms. Provided an employee has been provided with written Particulars of Employment (referred to at paragraph 2, above) there are no specific rules governing content, save that some minimum statutory requirements can override contractual provisions in relation to matters such as pay, working hours and notice periods.

Also both employers and employees should be aware that there are certain terms implied into all employment contracts. For example, employees must exercise reasonable care and skill, carry out reasonable orders and not divulge confidential information or work for competitors. Employers, in turn, must preserve a relationship of trust and confidence with their employees.

4. Termination of the employment contract

China

Parties to an employment contract should refer to its termination provisions in the first instance. In the absence of a contract, and failing negotiation, the ECL provides the statutory framework for termination situations, and stipulates as follows:

Termination by employee

Employees are generally free to terminate their employment by giving 30 days' written notice to the employer. In certain limited circumstances, an employee can terminate his/her employment contract without notice. These circumstances include failure by the employer to pay wages or social security premiums and the use of violence or coercion by the employer as a means of compelling the employee to work.

Termination by employer

Termination on 30 days' notice is permitted in various situations, including an employee's inability to perform work duties (as a result of, e.g. a non-work related injury or illness). Permissible grounds for dismissal without notice include serious violation by the employee of employment rules and regulations and commission by the employee of a criminal offence.

UK

Termination provisions are generally included in employment contracts. In their absence, legislation (including the Employment Rights Act 1996 (ERA)) and case law set out applicable law. Employers should be aware that employment contracts may provide for notice periods which are longer, but not shorter than those prescribed by law. Minimum notice periods are as follows:

Termination by employee

Where an employee has been engaged in at least one month's continuous employment, he/she must provide a minimum of one week's notice to his/her employer. Employees may also have the right to terminate without notice if an employer had committed a 'repudiatory breach' of an express or implied term of the employment contract. A repudiatory breach is a breach of a fundamentally important term of the employment contract. In this situation, an employee may have grounds to bring a claim for 'constructive dismissal', explained at paragraph 5, below.

Termination by employer

For employees with one month to two years' service the statutory minimum notice period is one week. For employees with more than two years' service, one week's notice must be provided for each completed year of service, up to a maximum notice period of 12 weeks.

Contracts may include a payment in lieu of notice (PILON) clause which allows employers to pay employees instead of requiring them to work their notice. Service of such notice (or payment in lieu) will satisfy an employee's contractual rights, but further statutory rights against the employer may arise on termination. Much longer periods of contractual notice, binding on both parties, are common.

Similar to the position under Chinese law, dismissal without notice is acceptable when an employee has committed gross misconduct (such as bribery, theft, violence etc.).

Note that an analysis of the law on termination of fixed-term contracts is beyond the scope of this alert, but please contact our Employment & Equalities team should you require more information on this topic.

5. Unfair dismissal and protected employees

China

If an employer unilaterally terminates an employment contract for any reason other than one of the prescribed statutory grounds, then the employee may claim he has been unfairly dismissed.

In the first instance, the ECL gives an unfairly dismissed employee the right to claim reinstatement. If reinstatement is not possible or desirable, the employee is entitled to receive double the amount of ordinary severance pay. Any further disputes must first be arbitrated locally (with the Labour Dispute Arbitration Commission). If the employee is still unsatisfied with the outcome of the arbitration he can then litigate on the dispute.

Certain categories of employee also enjoy an enhanced level of protection from termination, meaning their employment may only be terminated due to acts of crime or serious misconduct or in certain other prescribed circumstances. Categories of 'protected' employee include:

  • women who are pregnant or on maternity leave;;
  • employees who have worked continuously for their employer for 15 years, and who will reach the statutory retirement age in less than five years (the current retirement age is 60 for men, and 50 or 55 - depending upon the job - for women); and
  • employees who have lost (fully or partially) the capacity to work due to an occupational illness contracted

UK

In certain circumstances, termination of the employment contract may give rise to claims for unfair or constructive dismissal.

Unfair dismissal

The ERA provides that employees with two years' service or more must not be unfairly dismissed. To avoid a claim for unfair dismissal, employers must ensure that dismissal is made for one of five potentially fair reasons, being conduct, capability, redundancy, illegality or 'some other substantial reason' and that they act reasonably in all circumstances in dismissing the employee.

There are also various reasons for dismissal including: pregnancy, maternity leave, union membership, protected disclosures and jury service for which the two years' rule does not apply and which are automatically unfair (ie.an employer will have no grounds on which to argue that the dismissal was reasonable).

Constructive dismissal

One of the fundamental differences between UK and Chinese employment law is that a UK employee can claim they have been dismissed even if the employer has not taken steps to dismiss them. If the employee can show he or she was entitled to resign due to the conduct of the employer, (e.g. discrimination in the workplace or some other major breach of contract by the employer, including a breach of duty of trust and confidence which is very wide ranging), he or she can resign and claim that he or she has been dismissed and is entitled to compensation for unfair dismissal, even if the employer had no intention of terminating the employment.

6. Collective dismissal

China

A collective dismissal or redundancy arises where an employer reduces its workforce by 10% or by 20 or more workers. This can occur in one of several permitted situations, namely; as a result of operating difficulties, restructuring under the Enterprise Bankruptcy Law, or a change in production methods or technology. Alternatively, and most commonly, an employer will rely on the catch-all provision to justify redundancies, i.e. that there have been major changes to the circumstances which existed at the time of entry into the employment contract.

In a collective redundancy situation, an employer must give 30 days' notice of the proposed dismissal either to a relevant trade union or to all the employees in question. The employer must also consult the trade union/all employees throughout the collective dismissal process. The redundancy plan must be submitted to the labour administrative department.

Note that specific categories of employees should be retained in priority to others, including those with contracts for an indefinite term or longer fixed-term and employees who are the sole earners in a family which includes dependents (either children or the elderly). If the economic situation improves and the employer decides to recruit again within six months of a collective redundancy exercise, the employer is obliged to recruit the employees previously made redundant if their qualifications are appropriate.

UK

A collective redundancy situation may arise where an employer proposes to makes 20 or more employees redundant within a period of 90 days or less. Under these circumstances, employers must consult (individually) with affected employees and seek to place them in alternative positions within the business where possible. The employer must also comply with a strict obligation to inform and consult a recognised trade union or (in the absence of a union) with elected employee representatives prior to serving notice on any affected employee. Failure to do this may lead to the employment tribunal ordering the employer to pay a penalty of up to 90 days' pay per affected employee.

No entitlement to a redundancy payment arises until an employee has completed two years' service, although shorter serving employees will still count towards the threshold for collective consultation. It is relatively common for employers to invite volunteers for redundancy and to supplement the statutory minimum redundancy payment. Note that there are different definitions of redundancy depending on whether it is a collective or individual redundancy situation. 

7. Maternity & paternity

China

Female employees are entitled to 98 days' (14 weeks) maternity leave, 15 of which may be taken immediately before the child's birth. This period of 15 days may be extended in the event of complications with the pregnancy.

During their maternity leave, female employees are entitled to receive full pay and are exempt from termination of their contracts. Mothers are also entitled to one hour's leave per day (per child) for the first year of the child's life, for breastfeeding.

There is no statutory paternity leave in China. In some cases, fathers may be entitled to one or two days' paid leave, depending on local regulations.

UK

All women are entitled to 52 weeks of maternity leave, made up of 26 weeks' 'Ordinary Maternity Leave' (OML), during which period the employment contract continues and a further 26 week period of 'Additional Maternity Leave' (AML). Where consistent with a period of maternity leave, any relevant contractual obligations and benefits will also apply.

During AML, although the contract of employment continues, contractual obligations in relation to normal remuneration cease to apply. Note that a woman must take the two weeks' maternity leave immediately after the birth of the baby.

Provided a woman has worked for her employer for a continuous period of 26 weeks, she will be entitled to 'Statutory Maternity Pay' (SMP) for 39 weeks. The period of 26 weeks must have accrued by the time a woman reaches the end of the 15th week before the week in which childbirth is expected. We will not consider the complicated criteria which govern rates of maternity pay in this briefing.

Fathers are also eligible for paternity leave of two weeks, which can be taken in a continuous period at any point within 56 days of the child's birth. In many cases, employees will also be entitled to receive statutory paternity pay for a period of two weeks. Where a mother returns to work after OML, a father has a right to a 26 week period of Additional Paternity Leave, subject to certain conditions.

Employers should be aware that new rules on parental rights were introduced in October 2014 in relation to babies whose expected due date is on or after 5 April 2015. Broadly speaking these will allow parents to share the statutory maternity leave and pay that until now has only been available to mothers and abolish Additional Paternity Leave.

For more information on the complex criteria which govern rates of maternity and paternity pay, or for details on adoption leave, please contact our employment lawyers, who will be happy to assist.

8. Sickness

China

In China, the duration of sick leave and level of sick pay are dependent on whether or not the illness or injury is work related. In a non-work related situation, employees are entitled to between three and 24 months' leave for medical treatment depending on the length of service with the employer, and the number of years in general employment.

Sick pay will be awarded in accordance with both regulations and employer-specific policy, but must not fall below 80% of the local minimum wage. In cases of occupational illness or injury, employees are entitled to a maximum of 12 months' leave at full pay, for medical treatment.

UK

UK employers are required to provide employees with written terms and conditions relating to sickness and ill-health. Employees who are off-sick for four or more consecutive days are eligible to receive Statutory Sick Pay (SSP). SSP is currently payable at a weekly rate of £87.55, for a maximum of 28 weeks. Before paying SSP, an employer has the right to require proof of incapacity. Note that the rate of sick-pay offered by many UK employers exceeds the SSP and is commonly paid from the commencement of any period of illness though this is not mandatory.

Unlike in China, SSP is payable at the same rate and for the same duration for both work-related and non-work related incapacity. It is possible that employment contracts will provide contractual remedies for employees who suffer injuries or contract illnesses at work. Otherwise, UK employees may have the option of bringing legal proceedings against their employer in respect of any loss sustained as a result of occupational illness or injury arising from any lack of care on the employer's part in relation to its obligation to ensure a safe working environment for its workers.

9. Discrimination and harassment

China

Although China has no law dealing exclusively with discrimination, discrimination on the grounds of race, ethnicity, religion, gender and disability is prohibited, pursuant to the country's 'Employment Promotion Law'. There are also provisions in Chinese Labour Law preventing discrimination against carriers of infectious diseases or immigrant employees from rural areas. In addition, China has ratified the International Labour Organisation's Discrimination (Employment and Occupation) Convention.

By virtue of China's Law on the Protection of Women's Rights and Interests, women have some additional protection from discrimination. This statute enshrines in PRC law the concept of 'equal pay for equal work'. This female specific legislation also includes provisions relating to sexual harassment. Specifically, women who experience sexual harassment in the workplace have the right to complain to their employer and/or any relevant authority. Chinese law does not deal directly with any other type of harassment.

UK

The law on discrimination is very well established in the UK and is now consolidated in the Equality Act 2010. Employees are protected against discrimination on the grounds of sex, marital status, civil partnership, race, religion/belief, disability, sexual orientation, pregnancy, gender reassignment and age.

Employers are bound by these discrimination laws not just during the employment relationship, but also during the recruitment process and even after the employment relationship ends. Diversity training for staff and implementing a diversity/equal opportunities policy to avoid discrimination in the workplace are essential for all companies employing staff in the UK who wish to be able to defend discrimination claims successfully.

10. Overseas nationals

China

There are two types of visas that foreign nationals coming to live and work permanently in the PRC need; Z visas and R visas. Of these, the Z visa is the most common.

Procedure for obtaining a Z visa

In order for a foreign national to come to work permanently in the PRC under a Z visa, the company or entity inviting him to work must apply for an employment licence and obtain an official Z visa invitation letter for the foreign national before they enter the PRC.

The foreign national should then apply for a Z visa at a PRC embassy or consulate in their home country, and normally must undergo a medical examination.

Once the Z visa has been obtained, the foreign national may then enter the PRC. They must then apply for:

  1. A work permit within 15 days of entering the PRC. The employment licence, the employment contract and the foreign national's passport are required for this; and
  2. A residence permit from the local public security bureau within 30 days of entering the PRC.

It generally takes roughly ten working days to issue an employment licence and four to six weeks to issue a Z visa. The cost of this varies depending on the nationality of the applicant.

Procedure for obtaining an R visa

The PRC has also recently introduced a new form of visa, the R Visa. This visa is intended for high-level foreign talents and those with specialised skills that are sought by the PRC in urgent matters. The authorities are yet to provide detailed guidance on the procedure for obtaining an R visa, however approval is needed from the relevant department of the government at provincial level or above.

Procedure for working at a PRC representative office

If a foreign national is to work at a PRC representative office they must follow the procedure set out above to obtain a Z visa and additionally register with the local administration for industry and commerce as the representative office's representative or chief representative and obtain a Representative Certificate.

UK

Certain overseas workers, principally those from the European Economic Area (the EEA), are exempt from the requirement to obtain permission to work in the UK. However all other overseas workers must obtain permission before coming to the UK to work and live.

Workers not requiring permission

Workers from the EEA countries (EU Member States, as well as Iceland, Liechtenstein and Norway) together with Switzerland have the right to work in the EU without having to apply for a visa (the only exception to this are Croatian nationals, who despite Croatia joining the EU in July 2013 do not currently have right to work in the UK without permission).

Other categories of workers that do not require permission to work in the EU include spouses and civil partners of those with permission to work. Some Commonwealth nationals with UK ancestry can apply for an ancestry visa which will be granted if the individual qualifies on ancestry grounds, without having to meet the qualifying criteria typical of other visa categories.

Workers requiring permission

All other workers will require a visa to work in the UK. There is a tiered, points - based system which applies to people coming to work in the UK. A migrant worker must have enough points in order to get permission to live and work in the UK. The points requirements are complex and vary depending on which of the five tiers the migrant comes under and can reflect the worker's ability, experience and age

Workers other than those classified as tier 1, or high value migrants (investors, entrepreneurs and exceptionally talented migrants), must also be sponsored by a prospective employer which is registered with the Immigration Authorities as a sponsor of migrant workers before they can apply to enter or remain in the UK.

The various tiers and the points system are complex and beyond the scope of this note, but if you require more information please do not hesitate to contact our UK employment team.

Conclusion

China is beginning to model its employment laws on Western standards, and is making strides to improve employee rights. However, there are still significant differences between the respective laws of the UK and China. It is therefore crucial for employers operating internationally to familiarise themselves with applicable law and custom.

Hiring locally offers countless benefits and costs-savings, but a failure to understand and implement relevant labour law could easily prevent investors from realising these potential gains.

Both our China and UK-based lawyers would be very happy to discuss your employment law concerns in more detail.


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