Employers’ Misconducts can now go Public and be Graded in China

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Employers’ Misconducts can now go Public and be Graded in China

As of January 1, 2017, two new Measures regarding labor protection in China have simultaneously entered into force. They include publicizing violations of employer on governmental websites or newspapers, etc. which will have an impact on the reputation and image of the Company. Also, employers are also getting graded on their compliance with China’s labor and employment laws, which will result in different level of supervision under relevant government. As both the publicizing and grading results will be shared with various Chinese governmental authorities and eventually a joint incentives and punishments will be implemented, foreign employers shall pay more attention to these new Measures.

In spite of the decreasing economic growth in China, the Chinese government is still not in favor of the foreign employers to ease their heavy burden on HR matters, instead, the Chinese government is still working on improving the employment environment for the employees, which leads foreign employers to face more and more stringent rules than before. On January 1, 2017, two new Measures regarding labor protection in China have simultaneously entered into force. The first one is Measures for Publicizing Material Violations of Labor Security promulgated by PRC Ministry of Human Resources and Social Security (the “MOHRSS”) on September 1, 2016. The second one is Measures for the Credit Rating Evaluation of Enterprises in Labor Security Compliance promulgated by MOHRSS on July 25, 2016. The two Measures are together a further attempt to mitigate occurrences of material violations of Labor and Employment Laws and act as a deterrent to employers. Below are the main highlights of the Measures.

1. How will the misconducts be published?

The violations will be published via various platforms, such as publishing on the website of the administrative departments of MOHRSS, as well as be made public by mainstream newspapers, television and other media in their respective administrative areas. Since the Measures is still at the early stage of implementation, till now, only a few regions have released such publications. Among these publications, most of them are released on the official online website of administrative department of MOHRSS, others are also published on governmental website or mainstream News Websites.

With regard to the frequency of the publicizing, it contains both regular publicizing and irregular publicizing. For regular publicizing, the administrative departments of MOHRSS at municipal and county level shall publicize acts in material violations of labor security that occur in their respective administrative areas to society once on a quarterly basis. MOHRSS and the administrative departments of MOHRSS at provincial level shall publicize acts in material violations of labor security once on a semi-annual basis.[1] Material violations of labor security may also be publicized from time to time when needed.[2] That is to say, the administrative departments of MOHRSS has the discretion for the irregular publicizing.

2. What kind of misconducts of the employers will trigger publicizing?

Labor security supervision shall be conducted by the administrative departments of MOHRSS in the forms of making direct daily inspections, of examining the written documents submitted by the employer as well as of accepting the reports and complaints from any organizations or individuals.[3] Upon receipt of relevant material misconducts of employer, the administrative departments of MOHRSS shall publicize to society the following acts:[4]

  1. Reduction or delay in payment for large amounts of employee’s remuneration without reason, or refusal to pay labor remunerations and being transferred to judicial authorities for investigation of criminal liability;
  2. Failure to contribute social insurance pursuant to law;
  3. Material violation of limitation on working hours and leave policies;
  4. Material violation of special labor protection provisions for female employees and underage employees;
  5. Violation of the prohibitive regulation of engaging child labor;
  6. Violations resulting in serious adverse social influence;
  7. Other acts in material violation of labor protection laws.

We can see that the above violations are a bit vague for the employer to infer whether they are within the scope of material violations. For example, it is hard to define “other acts in material violation”. To have a better understanding of what kind of material violations have already been publicized as of the effectiveness of the Measures from January 1, 2017, we made below an analysis by researching online website of relevant administrative departments of MOHRSS. Till now, we can see that five material violations have already been publicized, which are (i) refusal to pay labor remunerations (e.g. Hubei Province[5]), (ii) delay in payment of labor remunerations (e.g. Qianshan County[6] and Inner Mongolia Autonomous region[7]), (iii) failure to contribute social insurance (e.g. Wujiang District[8]), (iv) refusal to execute a labor contract with employees (e.g. Inner Mongolia Autonomous region[9]), and (v) engaging child labor (e.g. Inner Mongolia Autonomous region[10]). Specifically, for material violations in relation to labor remuneration, the lowest amount of unpaid salary is RMB 2060. The employer concerned is an enterprise located in Inner Mongolia Autonomous region (Baotou Meijia Property Service Ltd. with registration number 91150223397297032A) who delayed to pay three employees’ salaries amounting to RMB 2060 Yuan.[11]

3. What kind of information of employer will be publicized?

Below are the information to be publicized[12]:

  1. Full name, unified social credit code (or registration number) and address of employer;
  2. Name of legal representative or person-in-charge of employer;
  3. Details of violations;
  4. Fines or other sanctions imposed by relevant authorities (if any).

It is also mentions that information pertaining to state secrets, trade secrets and personal privacy shall not be disclosed; however, based on the recent publicized violations, the personal privacy was also publicized in some regions. For example, information in relation to ID card number of personnel who are in charge of the employers is disclosed on the official website of administrative department of MOHRSS in Hubei Province on January 9, 2017 and such publicizing is due to that the employers refuse to pay the labor remuneration of employees.[13]

4. What if the employer disagrees with the publicized contents?

 If an employer disagrees with the publicized contents, they may submit an application for review. The administrative departments of MORHSS will process the objection within 15 days upon receipt of the application. If the objection is founded to be valid, corrections to announcements will be made within 10 working days upon receipt of change or cancelation.[14] However, it is not specified what kind of documents the employer shall submit for defending himself.

5. How the employer is impacted by labor laws violations: credit rating system

 Employers materially violated labor law can be graded as class C employer (Employers shall be classified into Class A, Class B and Class C depending on the level of compliance with the labor law[15] and such credit rating grades will affect the level of supervision from MOHRSS) and will be subject to tight regulation and inspection by MOHRSS pursuant to the new credit rating system. More seriously, for Class C employer, MOHRSS will schedule interviews and meetings with the personnel directly in charge (such as the legal representative or general manager) in which they will be reminded of the labor laws compliance and urged to abide by labor and social security laws and regulations.[16]

To have a better understanding of the credit rating system, upon occurrence of any of the following, employers shall be classes as Class C:

  1. Employers have been found in violation of labor and social security laws three time times or more;
  2. Employers have violated any labor and social security law, causing a group unexpected incident or an extreme event or event has serious adverse social impacts;
  3. Employers have been found in serious violation of labor and social security laws for the investigation of child labor or forced labor or others;
  4. Employers refused to make rectification within a specified time limit as required by an order or an administrative order/penalty decision made by a labor and social security supervision authority;
  5. Employers unreasonably resisted or obstructed the performance of labor and social security supervision by an administrative department for human resources and social security;
  6. Having been prosecuted for criminal liability for violation of labor and social security laws.

6. What shall foreign employers do in face of the two new Measures?

 Both the two Measures states that the violations/grading result will be included in the compliance and credit record of employer, entered into the MOHRSS credit system, and shared with other social organizations and governmental departments, such as the departments for industry and commerce, finance, housing and urban-rural development, and taxation, as well as labor unions. They will establish a credit information sharing mechanism so as to implement credit-based joint incentives and penalties on enterprises.[17] The two Measures can certainly be considered as a strong sign by the government to establish a harsher regime against violations of labor law and are also in line with the China’s strategy for gradually building a social credit system in China. For avoidance of damaging the employer’s reputation or suffering any other potential losses, below we list some major precautions that an employer can take:

  1. The employer shall make sure that the enterprise has set up internal rules and the internal rules shall have gone through the democratic process and publicizing process;
  2. The employer shall make sure that all employment contracts are correctly executed;
  3. The employer shall fully pay the salaries of its employees on time;
  4. The employer shall fully pay the social insurance premium of its employees on time.
  5. The employer shall make sure that they are in compliance with the labor law concerning female employees and underage employees, child labor, minimum wage standards, working hours, breaks and vocations.

Should you need any assistance in this regard, and/or have inquiries regarding the two new Measures, please do not hesitate to contact us at asiallians@asiallians.com.

[1] Article 8 of Measures for Publicizing Material Violations of Labor Security
[2] Article 8 of Measures for Publicizing Material Violations of Labor Security
[3] Article 14 of Regulations on Labor Security Supervision
[4] Article 5 of Measures for Publicizing Material Violations of Labor Security
[5] See http://www.hb.hrss.gov.cn/hbwzweb/html/xwzx/xwdt/stfb/74849.shtml
[6] See http://rs.qsx.gov.cn/2017/gongshigonggao_0217/6760.html
[7] See http://www.nm12333.cn/ecdomain/framework/nmrsw/aojkighgfaoibboelcaflebclcpnhekp.jsp
[8] See http://www.wjrs.gov.cn/wjrsj/zxzx/20170220/001002_b63550bd-8484-4c24-a3d9-6896d7f542a1.htm
[9] See http://www.nm12333.cn/ecdomain/framework/nmrsw/aojkighgfaoibboelcaflebclcpnhekp.jsp
[10] See http://www.nm12333.cn/ecdomain/framework/nmrsw/aojkighgfaoibboelcaflebclcpnhekp.jsp
[11] See http://www.nm12333.cn/ecdomain/framework/nmrsw/aojkighgfaoibboelcaflebclcpnhekp.jsp
[12] Article 6 of Measures for Publicizing Material Violations of Labor Security
[13] See http://www.hb.hrss.gov.cn/hbwzweb/html/xwzx/xwdt/stfb/74849.shtml
[14] Article 11 of Measures for Publicizing Material Violations of Labor Security
[15] Article 7 of Measures for the Credit Rating of Enterprises in Labor Security Compliance
[16] Article 7 and 11 of Measures for the Credit Rating of Enterprises in Labor Security Compliance
[17] Article 13 of Measures for the Credit Rating of Enterprises in Labor Security Compliance; and article 10 of Measures for Publicizing Material Violations of Labor Security