On August 1st, China’s Supreme Court issued a new directive on handling labor dispute, which will take effect starting from this September. In this directive, there are several articles related to foreigners working in China, things like how to define labor relation, the effect of mutual agreement not to pay social insurance, the applying of non-competes. And we are going to talk about it in this article.
1. Labor relation
Different from the previous directive saying that only those work in China with work certificate or expat certificate plus work permit can be seen as labor relation, this new directive enlarges the scope of labor relation to the following scenarios:
Scenario 1: you are a China permanent residence status( the so called China Green Card) bearer, and you work in China.
We know that with a China permanent residence status, you are basically seen as a Chinese, only without the political rights. You can live, work, travel in China like a Chinese, no more visas, no more work permits, no more denies from hotels. So this directive is emphasizing this point.
Scenario 2: you have legal work permit and residence permit, and you work in China. This is the standard model of foreigners work in China legally.
Scenario 3: you have got a permit to work by other granted procedure, and you work in China.
So we can say that the Chinese government is loosening the requirement for labor relation, bottom line is as long as you have legal permit to work in China, you will be seen as having a labor relation in China and your rights shall be protected as an employee, if the employer don't play by the rules, the law is there for you.
2. Social insurance
The new directive makes it clear that any private agreement waiving the duty to pay social security between the employer and the employee is invalid, thus the employee has the right to terminate the labor contract and claim compensation accordingly. After the employer repay the social security for the employee, the employer can ask the employee to refund the overpaid remedies part of the social security.
Some of you may know that there used to be a time, for some regions like Shanghai, if the employer and employee agrees that no need to pay social security, then there is no need to pay social security and the employee cannot use this as an excuse to terminate the contract and claim compensation. This time, the new directive has decided that no more exceptions and all employers in China shall pay the social insurance for their employees, otherwise there shall bear the consequences.
3. Non-competes
We know that China is competing with US in many tech areas like new energy, chips, robots and AI, and one of the key elements is competing with talents. There are more and more foreign talents working in Chinese tech companies, many of those have signed non-competes and NDAs. Sometimes, the non-competes is being abused. There are cases showing that even junior sales or fresh graduate employees who have no chance of getting anywhere near the so called classified information are bind by the non-competes. In this new directive, no more abuse with the non-competes. The scope, place, term of the non-competes should be based on the facts, anything beyond that is invalid.
4. Perks for service term
We know that in China,by law employee has the right to terminate the labor contract before the term if he or she give a one month advance notice, and there is few cases that the employer can claim any compensations, which causes a lot of disputes. This time, the new directive specifically mentions that if the employer has offered perks beyond the salary for the employee to work for a certain term, and the employee breaks the agreement, then the employer is entitled to claim compensations from the employee.
All right, I'm your Chinese lawyer friend Deron, if you have any questions regarding working, investing or doing business in China, you are welcome to contact me.
