China: Labour authorities tighten enforcement activities

The Chinese government recently issued three sets of measures to strengthen labour law enforcement in China. These measures are aimed at cracking down on material violations of labour laws and regulations and improving compliance by employers. Companies need to pay close attention to their employment activities and rectify non-compliance practices in a timely manner.

Background

The three new measures are:

• Measures for Publicizing Acts in Material Violation of Labour Protection Laws (Publicizing Measures), issued on 1 September 2016 and effective on 1 January 2017
• Measures for the Credit Rating of Enterprises for Labour Protection Compliance (Rating Measures), issued on 25 July 2016 and effective on 1 January 2017
• Notice on Promotion of Making Random Inspection Relating to Human Resources and Social Security Matters (Random Inspection Notice), issued and effective on 1 August 2016

These new measures, aimed at linking employers' non-compliance with their credit ratings, are significant steps taken by China to meet its Social Credit System Construction Plan (2014-2020).

In addition to imposing administrative penalties on non-compliant employers, the regulators may publicize their material non-compliance acts, give them a lower credit rating and put them under closer regulatory scrutiny.

Highlights

I. Publicizing Measures

Types of material violations

• deduction or late payment of wages without cause in large amount; refusal to pay wages where the case has been transferred to the judicial authorities for investigation of criminal liabilities;
• serious failure to participating in social insurance or making social insurance contributions;
• serious violations of working hours, rest and leave rules;
• serious violation of female and underage employees' protection rules;
• using child labour;
• violations that cause serious adverse social impact; and
• any other material violation of the labour protection laws.

Consequences in addition to usual labour administrative penalties

• publication of the non-compliance on the labour authorities' official websites and local major newspapers, TV and other media;
• blacklisting in the employer's labour protection compliance and credit archives and system; and
• sharing non-compliance information with other government authorities and social organisations, and subjecting the employer to further penalties by other authorities.

II. Rating Measures

Factors for rating

The labour authorities will conduct a credit rating of employers on an annual basis based on their compliance records of the previous year.

Compliance in the following areas will be taken into consideration:

• internal labour protection rules;
• execution of labour contracts with employees;
• compliance with labour dispatch rules;
• prohibition on child labour;
• compliance with female and underage worker protection;
• compliance with working hours, rest and leave rules;
• wage payment and minimum wage standards;
• participation in social insurance and the payment of social insurance contributions; and
• compliance with other labour protection laws, regulations and rules.

Consequences

Employers will be rated A, B or C based on their labour law compliance status. C-rated employers will be subject to increased scrutiny and more routine inspections by labour authorities, while supervision over A-rated employers will be lessened.

An employer having certain non-compliance acts will be rated C, for example:

• having received sanctions more than three times for violation of labour protection laws;
• violation that causes mass incidents, extreme events or serious adverse social impacts; or
• refusal to make timely rectification or honor the decision or punishment from labour authorities.

The rating will be incorporated into the employer's labour protection compliance and credit archives for at least 3 years. The information will be shared with other government authorities (such as administration of industry and commerce, finance, land, construction, tax, etc.), which may impose further sanctions on non-compliant employers.

III. Random Inspection Notice

The Random Inspection Notice introduces a "dual-random" inspection mechanism, under which, both target and enforcement officials may be randomly selected for compliance check and inspection. This mechanism will help promote transparency and efficiency of the enforcement activities.

Our Observations

In light of the above, employers are suggested to:

• review the compliance status of all aspects of employment, covering recruitment, execution of contracts, staff management, labour protection and termination;
• pay extra attention to those "high-risk" areas as mentioned under the new measures, such as the payment of wages and social insurance contributions, working hours, female and child protection;
• take immediate action to rectify any non-compliance acts once discovered;
• cooperate with the labour authorities' investigation and enforcement activities;
• take lawful procedures to challenge any decisions or penalties issued by government authorities if you have issues with them; and  provide necessary internal employment compliance trainings to management.

Written by Nanda Lau and Alizee Zheng