China Employment Law Update August 2018

Executive Summary

1. Work Permits abolished for Taiwan, Hong Kong and Macao residents
2. Social insurance premiums will be uniformly collected by the tax authorities from 1 January 2019
3. Guangdong publishes the 'Several Opinions on the Connection between Arbitration and Litigation in respect of Labour Disputes'

Work Permits abolished for Taiwan, Hong Kong and Macao residents

On 3 August 2018, the State Council issued its Decision to Abolish a Batch of Administrative Licences (the "Decision"). The application and issuance of work permits which enable Taiwan, Hong Kong and Macao residents (the "THM Residents") to legally work in Mainland PRC is due to be abolished, meaning the THW work permit will be withdrawn from use. This measure is seen as the central government extending a warm welcome to THM Residents who plan to work and live in Mainland PRC.

Following the issuance of the Decision, work permits are no longer needed by THM Residents, however, a Mainland Travel Permit for Taiwan Residents (台胞证) or a Mainland Travel Permit for Hong Kong and Macao Residents (回乡证) will still be required for THM Residents to legally enter into and stay in Mainland PRC.

The Decision also instructs the Ministry of Human Resources and Social Security to endorse regulations governing the details of the matters to be abolished and the employment rights of THM Residents in Mainland PRC, however, detailed implementation regulations are yet to be published. It is expected that such regulations may come out in the following weeks. We will pay close attention to this matter and report promptly on any updates.

Social insurance premiums will be uniformly collected by the tax authorities from 1 January 2019

On 20 July 2018, the General Office of the State Council endorsed the Regulations on the Reform of the Taxation and Administration System of National Taxes and Local Taxes (the "Regulations"), which clarifies that social insurance premiums will be uniformly collected by the tax authorities from 1 January 2019; the most stringent form of social security collection in the history of Mainland PRC.

On 20 August 2018, the State Administration of Taxation, the Ministry of Finance, the Ministry of Human Resources and Social Security, the National Health and Health Council, and the National Health Insurance Bureau jointly held a mobilisation and deployment meeting to discuss social insurance premiums and non-tax revenue collection and management duties in Beijing. During this meeting, it was decided that the transfer of social insurance premiums and the first batch of non-tax revenue collection and management duties must be completed by 10 December 2018. From 1 January 2019, these will be officially administered by the taxation department.

Social insurance premiums will be collected and managed by the taxation department, however, the payment base, rate or equivalent will remain governed by current social insurance laws and regulations and, therefore, will not cause any major change.

In China, the national network of tax authorities has the highest administrative efficiency in the collection of fees compared to human resource and social security authorities. It is expected that this transformation will strengthen the collection of social insurance. Paying social insurance is a statutory obligation of any enterprise in Mainland PRC. Enterprises are advised to review their payment process and correct any non-compliant behaviour as soon as possible in order to avoid associated legal penalties.

Guangdong publishes the 'Several Opinions on the Connection between Arbitration and Litigation in respect of Labour Disputes'

Recently, Guangdong High Court and the Labour and Personnel Disputes Arbitration Commission jointly issued the Several Opinions on the Connection between Arbitration and Litigation in respect of Labour Disputes (the "Opinions"), providing guidance on how to handle the relationship between service providers and O2O platforms (i.e. "Online to Offline platforms" to connect traditional business via online marketing), together with other common employment matters of concern. The following should be specifically noted:

• The working relationship between service providers and O2O platforms should be construed as equal. For example, if a service provider and O2O platform enter into a business cooperation contract, by which the parties manage and share the risks and interests associated with the business, then the relationship should not be deemed to be labour relations. If a service provider and O2O platform enter into a labour contract, by which the O2O platform manages the work of the service provider and pays monthly salaries to employees of the service provider, then the relationship will be deemed to be labour relations. Where the form of an agreement differs to its actual operation, the substance of the actual operation should be analysed in order to determine whether the relationship between the service provider and O2O platform is deemed to be labour relations or non-labour relations.

• If a major change in objective circumstances causes an employer to have serious difficulties with production and business operations which will likely lead to the suspension or restriction of production, the employer may:

1. terminate an employee's employment contract and pay them a severance package in accordance with to Article 40.3 of the Labour Contract Law of the People's Republic of China; or,
2. negotiate with employees to agree on a period of suspension. If the suspension period is less than one month, employees shall continue to be paid their normal salary. However, if the suspension period is longer than one month, the employees' salaries shall be paid in accordance with the actual workload carried out. Where the employer is unable to provide work for its employees, it will still be responsible for covering the costs of their living expenses (a minimum 80% of the local minimum wage). Such living expenses will be paid to employees until the enterprise resumes production or terminates the labour relationship with its employees.

• It is illegal for an employer to terminate an employee's employment on the ground that the employee has violated a family planning law. Historically, any violation of family planning laws could result in an employee's employment being terminated with immediate effect. Following amendments to China's family planning laws, the labour regulations of Guangdong now expressly forbid any employer from terminating an employee's employment as a result of illegal child-birth.