On 25 July 2016, China’s Ministry of Human Resources and Social Security (MOHRSS) issued the Measures on Evaluating and Rating Enterprises’ Compliance and Credibility of Labour Protection, which will come into effect on 1 January 2017.
Pursuant to article 6 of the measures, the MOHRSS will evaluate and categorize enterprises based on the following criteria:
(1) Internal labour protection rules and policies of the employers;
(2) Execution of labour contracts by and between employers and employees;
(3) Compliance with labour dispatch regulations;
(4) Compliance with regulations banning child labour (under 16 years);
(5) Compliance with regulations protecting female employees and juveniles (above 16 years but under 18 years);
(6) Compliance with regulations pertaining to working hours, rest days and holidays;
(7) Payment of wages and implementation of minimum wage standards;
(8) Participation in social security schemes and payment of premiums; and
(9) Compliance with other applicable labour protection laws, rules and regulations.
Enterprises will then be categorized into three ratings – A, B and C. Only enterprises with a clean record will be rated A. Any enterprises that are punished due to any violation of labour protection laws and regulations one or two times will be rated B. The measures set out the following circumstances in which an enterprise will be rated C:
(1) Being punished three times or more for violations of labour protection laws;
(2) Causing mass disturbances, aggressive events or any severe negative social influence due to the violation of labour protection laws and regulations;
(3) Being punished for severe violations of labour protection laws such as employ- ment of child labour and forced labour;
(4) Refusing to perform order of rectification, administrative decisions or administrative sanctions relating to labour protection supervision within a prescribed period;
(5) Interfering or resisting without reason the implementation of labour protection supervision by authorities; and
(6) Being criminally liable for violation of labour protection laws.
The frequency of supervision (e.g., spot checks) will be adjusted based on the rating of the enterprise. Enterprises rated C will be subject to frequent and enhanced supervision by the authority. The authority will also meet the person-in-charge of C-rated enterprises to ensure it complies with labour protection laws, regulations and rules.
All non-compliance by enterprises found during the evaluation process will be recorded for at least three years. Any significant non-compliance recorded will be announced to the public by virtue of article 22 of the Regulations on Supervision of Labour Protection. This will have an adverse effect upon the reputation of the enterprise.
An information exchange mechanism will also be established by virtue of article 13 of the measures, allowing the MOHRSS to share information with other major authorities such as the administration for industry and commerce, the tax department and other government authorities regulating finance, housing and urban-rural development, as well as with trade unions.
This is for the purpose of jointly motivating good enterprises and penalizing those with poor compliance records. So far, there is no clear indication or elaboration of how authorities will “motivate” or “penalize” the enterprises. Nevertheless, to prevent any operational issues (note that most, if not all, of the governmental applications and approvals are subject to the discretion of authorities), it is imperative for enterprises to ensure a good compliance record for the smooth operation of the company.
Employers are advised to review the internal policies and relevant documents relating to labour protection to ensure the employment practice of the enterprise is in compliance with labour laws, regulations and rules of the People’s Republic of China. Special attention should be paid to criteria regarding the evaluation and rating of enterprises, namely working hours, rest days, holidays, minimum wages, social security schemes, etc. It is good practice to have proper filings of all executed labour contracts and ensure that the renewal of expired labour contracts is done in writing.
Labour protection rules and employment regulations – such as rules pertaining to holidays, mandatory marriage leave, and payable wages during sick leave – may vary from province to province in China, as administrative authorities of different provinces may prescribe different rules and have different stances on certain employment issues. Such rules may also change from time to time, so enterprises should keep a close eye on the development of labour laws in different provinces to avoid the risk of non-compliance, which could cause significant impact on the enterprise’s business operations.
Mah Soon Sin is a foreign legal consultant at AllBright Law Offices in Shanghai, and Helen Hu is a senior associate at the firm
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