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Does a Company Have the Right to Transfer an Employee’s Position?

May 5, 2020

Many companies have to adjust their structures and departmental settings because of changes in the markets or industries, so their employment relationships with their employees need to be changed accordingly. In light of this, the question arises, whether a company can negotiate with their employees to amend the employment contract? What options does the company have if an employee does not agree to desired changes? To answer those questions take a look at the case below.

Lily joined the business department of a company ( hereinafter “Company” ) in November 2012 and signed an open-ended employment contract with the Company. In March 2018, the Company issued a notice of termination of the contract, stating that the Company is planning to restructure its business and organizational structure and is negotiating with Lily to transfer her to the marketing department, however Lily refused to work there. As a consequence, the Company terminated the employment contract with Lily in accordance with the law.

Lily filed a labor arbitration on the grounds that the Company had illegally terminated the employment contract. She demanded that the Company pay her damages for illegally terminating the contract, which is two months’ wages for each year she was working for the Company. The final judgement was rendered by the appellate court in October 2019, after a labor arbitration and a first instance trial. The appellate court decided that the Company could terminate the employment contract legally under such circumstances and all it had to pay was severance, which was a one month’s salary per each year of employment.

To help our readers better understand applicable laws, we are sharing the Court’s views as follows:

The court of first instance held that: an objective situation generally refers to a situation which can’t be controlled by either parties. Major changes in the Company’s own economic situation such as adjusting operational procedures and strategic adjustments in order to adapt to changing market conditions should fall into the category of changes in an objective economic situation.

In this case, the Company’s adjustment over relevant departments and positions to adapt to the market condition and business operation is kind of a major change in objective economic conditions, but also belongs to the scope of internal adjustment. In addition, the reduction plan of employees has been filed with the local Human Resources and Social Security Bureau, which was in line with procedural labor law requirements.

Company’s adjustment of employee's position according to the change in objective business conditions is not only an act of employment autonomy

Lily’s position was abolished. The Company tried to negotiate with Lily about the adjustment of her position, however Lily wanted to continue working in her previous position. As a result, the Company had to terminate the employment relationship with Lily and paid compensation in line with the law. The court doesn’t think the Company had infringed Lily’s legitimate rights and interests by doing so.

The appellate court upheld the opinion of the court of first instance and further held that: the employment contract signed by the Company and Lily expressly specified that an employee’s job and position could be adjusted according to actual needs. The Company’s adjustment of Lily’s position according to the change in objective business conditions is not only an act of employment autonomy, but also is in line with the agreement of the employment contract between the two parties. There is no possibility for the employment to continue, as Lily expressly rejected the Company’s transfer decision. Hence, the Company’s decision to terminate the labor relationship is legal and valid.

Related provisions of the Labor Contract Law of the People’s Republic of China

Article 40 In the case of any of the following circumstances, the company may discharge the labor contract after it notifies the employee himself in writing 30 days in advance or after it pays the employee an extra month’s salary:

…

(3) The objective circumstance has altered significantly, on which the conclusion of the labor contract is based, which results in that the labor contract is unable to be performed. And no agreement concerning the modification of contents of the labor contract is reached after consultations between the employer and the worker.

Useful link:

The Supreme People’s Court of The People’s Republic of China

employment autonomy, transition of position

Breaking News! Measures for Network Security

May 1, 2020

On 27 April 2020, Measures for the Examination of Network Security (hereinafter “Measures”), were jointly released by the Cyberspace Administration of China, the National Development and Reform Commission and other related ministries and commissions, which will come into effect on 1 June 2020.

According to the Cyberspace Administration of China, a cybersecurity review shall be carried out based on the National Security Law and the Cybersecurity Act, the purpose of which is to:

a) detect and avoid risks and hazards to the operation of critical information infrastructure while procuring products and services;

b) secure critical information of the infrastructure supply chain; and

c) maintain national security.

The Measures make it clear that the cyber security review shall focus on assessing possible risks to national security caused by the procurement of IT products and services, mainly considering the following factors:

purpose of cyber security review is to detect and avoid risks to the operation of critical information infrastructure while procuring products and services;

（1） Risks of illegal control, interference or destruction of key information infrastructure caused by the use of products and services, as well as theft, leakage and damage of important data;

（2） The harm to business continuity of key information infrastructure due to product and service interruptions;

（3） Security, openness, transparency, source diversity of products and services, reliability of supply channels and risks of supply interruptions caused by political, diplomatic and trade factors;

（4） Compliance of product and service providers with China’s laws, administrative regulations and departmental rules;

（5） Other factors that may endanger the security of critical information infrastructure and national security.

As a consequence, if operators of critical infrastructure purchase IT products and services that affect or may affect national security, they shall conduct a cybersecurity review in accordance with the Measures. Related industries that are also covered by the new Measures include telecommunications, radio and television, energy, finance, road and water transport, railways, civil aviation, postal services, water conservancy, emergency management, health, social security, national defense science and technology industry and other industries.

Close Your Company Properly – Don’t Just Run Away!

April 26, 2020

Incorporating a company in China has become easier and faster now, but despite the government’s recent efforts to try and simplify the procedure, shutting down a company remains complicated and time consuming. Some foreigners think they can just give up their companies without annual inspection procedures and tax settlement. However, this is a grave mistake and they are extremely wrong by trying to “simplify” the process this way. Such an approach will only lead to more problems later on.

1. Legal consequences of not conducting annual inspections

a) Direct consequences

A direct consequence of not conducting the annual inspection procedures and tax settlement is that the business license of the company will be revoked and the company can’t do business anymore, but it doesn’t mean all obligations with regards to the company will cease. Many liabilities including taxes, government fees and employee salaries are still to be born. More importantly, the company will be put on a blacklist.

it’s strongly recommended that you make a sound plan with regards to both timing and funding of the entire winding-down procedure

b) Personal liability

First of all, the legal representative, directors and shareholders of the company will be put on a blacklist which will be issued to all SAIC offices in China, and to the border control authority of the PRC. Usually, people on the blacklist will not be permitted to do any investments or managing a company in China for three years. Furthermore, their entry to the PRC will be denied if they want to revisit China someday. Moreover, if the company owes taxes, fees, salaries or other debts, the legal representative and directors could be prosecuted by PRC authorities.

2. ABC – Always be closing – but properly

Technically, based upon the PRC bankruptcy laws anyone who does not have enough funds to operate the company can file for bankruptcy with the court. However, it seems that few companie are going through this procedure, likely because it is complicated as well as time and money-consuming. Most investors choose to deregister their companies with their local AIC.

3. The specific procedure is as follows:

1）Pay all debts, especially all debts to employees (salaries) and to the government (taxes);

2）Hire experienced accountants to review your books within three years till the final closure before you go through the drawn-out government audit. They will do an initial audit for you and will help to assess your tax risk and provide an opinion accordingly. If you are working with an experienced accountant, then congratulations! They can do it for you.

3) Only after aforementioned steps were taken you may finally start the winding-down procedures officially:

a) Make all required social insurance contributions and close the company’s social insurance account;

b) Go through a tax check and settlement and close the tax account;

c) Put a deregistration notice in the local newspaper and wait for 45 days;

d) Deregister your company with local AIC;

e) Close all your bank accounts.

4. Conclusion

The entire process could take 3 – 6 months or more. The most important part or tricky part is the tax settlement, and it’s mainly up to you- if your accountant has done a good job for you in the past. That’s why lawyers always say you should work with an experienced accountant instead of a cheap one ( You may check our previous article for more information: Why A Good Accountant Is So Important).

Considering all aforementioned points, it’s strongly recommended that you do it rather sooner than later and have a sound plan with regards to both timing and funding of the entire winding-down procedure.

Useful link:

State Administration for Market Regulation

Why A Good Accountant Is So Important

April 26, 2020

Small and medium-sized companies, usually hire an accounting firm to help them balance the books. This is a smart move. Hiring an experienced accountant full-time may not be necessary for every small company. However, “bookkeeping” is not as simple as some people might think. It’s not only a procedural job rather it necessitates a correct understanding of national tax laws and regulations and experience in the application of local tax policies. In other words, it’s a professional job for which, experience and care is very important.

That’s the most important reason to hire a good accounting firm.

According to applicable Chinese law, anyone who wants to take up this trade is supposed to incorporate a company and acquire an accounting agency license. In addition, the following requirements have to be met:

1. Not less than 3 full-time employees, who should master the basic knowledge and business skills of accounting, and who shall be able to deal with basic accounting tasks independently.

2. A reasonable staff configuration which comply with the regulations, make sure there is a team of field accountants, book-keeping accountants, audit accountants, tax accountants etc.

3. The staff in charge of the book-keeping should be qualified as an accountant or above and should have been engaged in accounting work for not less than three years.

4. There are fully established internal operational norms.

bookkeeping is not only a procedural job rather it necessitates a correct understanding of tax laws and experience in the application of local tax policies

However, mediocre accounting firms barely meet the above-mentioned requirements. They usually hire lots of sales people to get business and charge lower prices as selling points. As a consequence, they can’t afford to hire qualified and experienced accountants to get the job done. They can only hire unexperienced graduates or unqualified staff to do the job after a brief training.

Such employees don’t know how to handle accounting related matters properly. To make things even worse, the high turnover rate in such companies will often lead to a very bad outcome for its clients: there are too many different employees engaged on the same accounting matter, and the ways in which they handle the same matter is often totally different due to knowledge gaps, bad management, lack of training or missing internal guidelines.

A fact about accounting — however, often overlooked by people is, that it is a profession of which ordinary people often can’t tell whether it’s done properly and in line with industry standards. It means that people usually don’t realize that their accountants have made grave mistakes until it’s too late! Often business owners have to make extra efforts in time and money to get matters fixed.

From time to time, we hear that some businesses complain about being blacklisted by their local AIC because their accounting agency forgot to go through the annual compliance check on their behalf; or, they hired a “cheap” accounting firm when they started their business, however, as their business grows and they are looking for investors or try to merge with other businesses, they are told that their books are a mess!

It’s understandable for start-ups to want to control their “burn rate”, however, a lack in professional service is most probably not a suitable way of cost control in the long run.

Related regulations:

<Accounting Law of the People’s Republic of China>

Article 36 An organization which is not equipped to set up an accounting organisation shall entrust an intermediary established with approval to provide bookkeeping agent services, to handle the organization’s bookkeeping matters.

Useful link:

State Taxation Administration

accounting in China, bookkeeping in China, good accountant

Can a Company Fire an Employee Who Failed to Tell the Truth? –Case study on a labor dispute

April 15, 2020

Amy joined a company （“Company”）on 7 April 2017 as an Administration Assistant. Amy declared “No” in the marital status section of the <New Employee’s Entry Form > and promised in the form that “The content in the form is true and correct. If there is anything untrue, I promise to terminate the labor relationship with the company, accept the company’s disposal, and shall not requi re any financial compensation”.

However, on 14 May 2017, the Company terminated its labor relationship with Amy on the grounds that the “marital status” in the <New Employee’s Entry Form > submitted by Amy was inconsistent with the facts. Which is a serious violation of the relevant laws and regulations and the stipulation regarding the authenticity of personal information in the <New Employee’s Entry Form>.

Amy admitted that she had applied for the registration of her marriage on 28 September 2015, however she thought she would be officially married only after the wedding ceremony was held, which still didn’t happen yet. In addition, she believed that her marital status was personal information, she was not obliged to reveal to the company.

On 15 June 2017, Amy applied for a labor arbitration, requiring the company to pay compensation for firing her. However, the Arbitration Commission ruled against Amy’s request.

Amy appealed against the arbitral award and filed a case with the court.

The court of first instance held that the company should pay compensation for terminating the labor contract in violation of the law.

The company claimed that: “Providing false personal information while joining the company is in violation of the principle of good faith, hence it is not against the law for the company to fire such employees.” The company appealed.

Amy defended her action by stating: “The company should not treat married women differently when hiring employees”

After the court hearing, the appellate court held that: Article 8 of the <Labor Contract Law of the People’s Republic of China> stipulates that: “the company shall have the right to know the basic situation directly related to the labor contract, and the employee shall make a truthful statement.” Based on the above-mentioned provisions, the employee’s obligation to inform is conditional. The employee has the obligation to truthfully reply only when the company requires basic information which is directly related to the labor contract.

Generally speaking, the basic information directly related to the labor contract includes the health status, knowledge and skills, education level, job skills, work experience, professional qualifications, etc. An employee’s failure to explain this information truthfully may constitute not only a major misunderstanding but rather fraud, or an infringement of the company’s right to know. However, the company can’t infringe the privacy of employees for the purpose to acquire this basic information. For information which is not directly related to the work and if divulged infringes the privacy of individuals, employees have the right to refuse an answer or explain the situation further. For information that is not directly related to the labor contract, no element of fraud is given even if the employee has not replied truthfully.

For information irrelated to employment directly, the company can't terminate labor contract just because the employee made a false statement

An employer’s provision, such as “if there is any false statement, employee is willing to accept the company’s punishment or even dismissal unconditionally”, should be construed as follows: if employees fail to provide their basic information which is directly related to the labor contract, such as health status, education, professional, work experience, educational background, etc. untruthfully, the company may terminate the labor contract.

For information that does not relate to the labor contract directly, such as height, weight, marital status, blood type etc, even if the employee made a false statement, the employer can’t use this as a reason to terminate the labor contract, unless the company has made this a clear requirement during the recruitment process.

In this case, the company failed to prove that it had a clear requirement with regards to Amy’s marital status at the time of recruitment. In fact, as Amy’s position is an administration assistant, the marital status is not a factor affecting her ability to work, nor is it a necessary condition for Amy to engage in such a job. In addition, the company did not provide any of its rules and regulations to prove that Amy concealing the fact of her marriage is a serious violation of the company’s internal regulations.

Therefore, the company’s behavior of firing Amy on the basis that Amy’s statement of her “marital status” does not match the facts is not in line with the law. As a consequence, the company should pay Amy compensation for it’s illegal termination of the labor contract.

The appellate court therefore rejected the company’s appeal and upheld the original judgment.

Useful links:

Ministry of Justice of the People’s Republic of China

fire employee, labor case study, lying employee

Can I Ask for a Rent Reduction During the outbreak?

March 27, 2020

Since the outbreak of COVID-19, the implementation of epidemic prevention and control measures in each region has affected the normal use of houses and apartments by their tenants to some extent. The house we are referring to here, include commercial office buildings, shop houses, and residential houses restricted to be entered by non-local personnel.

So, the question arises, are the tenants of above mentioned houses entitled to terminate the lease or a reduction in rent?

First of all, the outbreak and the corresponding prevention and control measures can be identified as a “force majeure” event, which we discussed in our previous post: Force Majeure? – To be, or not to be, that is the question! Generally speaking, there supposed to be a clause about the definition of a “force majeure” event and agreement about how to deal with it in the event of an occurrence of force majeure based on the principle of freedom of contract such an agreement will be applied preferentially. So, in this blog post we are going to focus on the application of the law in the absence of a specific agreement between the two parties.

1. Can the lease contract be terminated earlier?

Although the outbreak of COVID-19 does have an impact on the tenant’s normal use of the house, however, this event is usually a short-term event during the term of the lease and does not reach a level that makes the purpose of the lease contract completely impossible to achieve, and therefore, this event does not constitute a reason for one party to terminate the contract in general. Of course, if the tenant originally rented the house only for a short period of time, which coincides with the outbreak of COVID-19, the tenant should be entitled to terminate the contract in that case.

2. Rent relief?

However, the tenant is entitled to request rent relief under the “principle of fairness” or the doctrine “change of circumstances”. As a matter of fact, the “principle of fairness” is one of the basic principles of civil law in China.

At the same time, Article 26 of the <Judicial Interpretation II of Contract Law of PRC> explains the “change of circumstances” as follows: Where any significant change in the objective environment has taken place after the formation of a contract which could not have been foreseen by the relevant parties at the time of entering into the contract, and does not belong to any commercial risk occasioned by any force majeure cause, rendering the continual performance of the contract manifestly unfair to the relevant party or rendering it impossible to realise the goal of the contract, the People’s Court shall confirm whether the contract shall be varied or dissolved in accordance with the principle of justice taking into account the actual circumstance, where a relevant party petitions a People’s Court to vary or dissolve the contract.

The tenant is entitled to request rent relief under the "principle of fairness" or the doctrine "change of circumstances" during the outbreak of COVID-19

In relation to the lease contract which is affected by the epidemic prevention and control measures resulting in the fact that the tenant can’t use the house normally, it would be unfair for tenants to require them to perform the contract in accordance with the original rent standards. According to judicial interpretation issued by the Supreme People’s Court and the corresponding cases during the outbreak of “SARS” in 2003（readers may refer to another article of ours for more information: Can I Terminate My Contract due to the NCP outbreak?), the tenant shall have the right to request a reasonable change of the contract and rent reduction accordingly.

Useful link:

The Supreme People’s Court of The People’s Republic of China

COVID-19, rent relief, terminate contract, terminate contract because of NCP outbreack

More on Social Insurance

March 25, 2020

All expats working legally in China (namely, expats holding a work permit) can participate in the social insurance scheme for employees. There are five types of social insurance in total:

a) pension;

b) medical insurance;

c) work injury insurance;

d) unemployment insurance; and

e) maternity insurance.

In the remaining part of this post we are going to share with readers individual requirements which are of most concern.

1. Pension

According to related regulations, the minimum contribution time for employees to receive a pension is 15 years, which means, if any employee has reached the statutory retirement age and had made pension contributions previously for 15 years cumulatively, the employee is eligible to receive a corresponding pension on a monthly basis upon retirement.

2. Medical insurance

Tere is no unified standard for the minimum contribution time for medical insurance. As a matter of fact, the minimum contribution time for men and women are different in some places. So, it depends on the local policy where the employees are retiring to determine whether they can enjoy medical insurance when they are going to retire, or how to meet the minimum contribution standard.

1) We researched some local standards as follows:

Shanghai: 15 years;

Hangzhou: 20 years;

Guangzhou: 10 years;

Beijing: 20 years for women, 25 years for men;

Suzhou: 25 years for women, 30 years for men;

Tianjin: 20 years for women, 25 years for men;

Chengdu: 20 years, or continuously for 15 years;

Wuhan: 25 years for women, 30 years for men;

Xi’an: 25 years for women, 30 years for men;

Yantai: 25 years for women, 30 years for men;

All expats working legally in China (namely, expats holding a work permit) can participate in the social insurance scheme for employees

2) What can employees do if they did not make sufficient contributions upon retirement?

(a）One-off make-up payment.

In some places, unpaid medical insurance premiums can be paid before the employee retires one-time

(b）Continue to pay.

In some places, unpaid medical insurance premiums will not affect the employee to retire once he reaches the retirement age. The employee may continue to pay for the medical insurance until it is up to the local standard.

It’s strongly recommended that you consult your local social security center for the latest information, if you are about to retire in the near future.

3. For maternity insurance, please check our previous post: Maternity Leave and Allowances in China

Related regulations:

《Social Security Law of the People’s Republic of China》

Article 27：Where an individual participating in employees’ basic medical insurance has made cumulative contributions for the period stipulated by the State when he/she attains statutory retirement age, he/she shall not be required to contribute basic medical insurance premiums upon retirement, and shall be entitled to basic medical insurance benefits pursuant to the provisions of the State; where an individual has not made cumulative contributions for the period stipulated by the State when he/she attains statutory retirement age, he/she may continue to make contributions up to the period stipulated by the State.

Useful link:

Ministry of Human Resources and Social Security of the People’s Republic of China

medical insurance in China, pention in China, ,

Life in Plastic, It’s Not Fantastic – Future Plastic Ban!

March 15, 2020

Western audiences might be familiar with the song “Barbie Girl” by the Scandinavian pop group “Aqua” who once famously sung that “life in plastic, it’s fantastic”. However, according to the “Opinions on Further Strengthening Plastic Pollution Control” (“Opinion”) which were issued by the National Development and Reform Commission & the Ministry of Ecological Environment on 19 January 2020, such a stance does not bode well for plastic’s future in China.

This is due to the fact that the Opinion seeks to advocate for an orderly banning and restricting of the production, sale and use of some plastic products, active promotion of alternative products, standardization of plastic waste, and the establishment of a sound management system for the production, circulation, use, recycling and disposal of plastic products. The Opinion has further introduced step-by-step timelines to reduce the use of single-use, non-degradable plastics and parcel packaging over the next five years.

By the end of 2022, the consumption of disposable plastic products shall be significantly reduced, substituted products will be promoted extensively. In addition, the energy-based utilization of plastic waste resources will be proportionately increased. A number of plastic recycling and green logistics models will be introduced in prominent areas of severe plastic pollution and emerging areas such as e-commerce, express delivery and takeaways.

The use of non-degradable plastic bags, for example, is expected to vanish in some major consumer areas, including shopping malls, supermarkets and restaurant takeout services. This is meant to happen, first in metropolises by the end of this year and then in all major Chinese cities and urban areas in coastal regions by the end of 2022.

Non-degradable single-use plastic straws will be banned by the end of 2020, while non-degradable single-use plastic tableware will be banned from dine inn restaurants in cities. By the end of 2022, the ban on plastic tableware will be extended to dine inn facilities in the counties respectively country side.

By the end of 2025, the management system for the production, circulation, consumption and recycling of plastic products shall be rolled out and as a multi-party management system basically established. The application of alternative product developments will be further enhanced, the number of plastic landfills in key cities will be greatly reduced, and plastic pollution shall be effectively controlled.

By the end of 2025, the use of non-degradable single-use plastic tableware for take-outs in cities should be cut by 30 percent, according to the Opinion.

Moreover, all hotels and guesthouses should stop using single-use plastic wares by 2025, while postal and express service outlets should cease using non-degradable plastic packaging, plastic tape and single-use plastic woven bags.

Comment from the author: Each time when a new law comes out, changes need to be undertaken. Some doors will be closed while others are being opened. The development or production of alternative products seems to be a promising business, given the continuing boom of online shopping in China.

Useful link:

THE STATE COUNCIL OF THE PEOPLE’S REPUBLIC OF CHINA

plastic ban

Does a Company Have the Right to Transfer an Employee’s Position?

Breaking News! Measures for Network Security

Close Your Company Properly – Don’t Just Run Away!

1. Legal consequences of not conducting annual inspections

a) Direct consequences

b) Personal liability

2. ABC – Always be closing – but properly

3. The specific procedure is as follows:

4. Conclusion

Why A Good Accountant Is So Important

Can a Company Fire an Employee Who Failed to Tell the Truth? –Case study on a labor dispute

Can I Ask for a Rent Reduction During the outbreak?

1. Can the lease contract be terminated earlier?

2. Rent relief?

Life in Plastic, It’s Not Fantastic – Future Plastic Ban!

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