Removing a worker from payroll when their employment contract expires is not always legal in China. Pregnant or sick employees may qualify for legal protection from having their contracts canceled due to expiration or events such as bankruptcy. Chinese courts have ordered employers in these kinds of cases to reinstate the employee and pay back pay. These remedies can be particularly disruptive because they require more than paying damages. In this article, we will provide an explanation of when an employment contract expiration may be ineffective, and offer compliance strategies to navigate these rigid protections.

Contents

• Protected Classes of Employees
• Employees Awaiting Occupational Illness Screening
• Medical Observation or Medical Leave
• Pregnant or Breastfeeding Employees
• Employees Near Statutory Retirement Age
• Compliance Strategies

Protected Classes of Employees

Employment contracts in China are fixed-term, with a specified expiration date on the contract, which when reached legally cancels the contract, a legal state that has greater legal finality than termination. However, even if the contract is eligible for cancellation, some employees may be protected from discharge. Before we explain this, note that there are several events other than expiration that cancel a contract. Employment Contracts Act § 44 provides that an employment contract is canceled when:

• The contract expires;
• The employee starts receiving retirement benefits;
• The employee dies or is declared dead or missing by a court;
• The employer is declared bankrupt;
• The employer’s business license is revoked, the employer is ordered to shut down, or the employer winds up the business.

Under Chinese employment law, termination and cancellation both lawfully end employment. China’s employment law is complex, encompassing the China Employment Act, China Employment Contracts Act, administrative regulations, judicial interpretations, local laws, and other rules. This makes interpreting the law difficult for both parties. New delayed retirement age rules effective January 1, 2025, further complicate cancellation rules. Because employers usually hold greater power, misunderstanding or negligence in cancellation may infringe employee rights. Common issues include unlawful terms, breaches of cancellation protections, unpaid severance, and unlawful cancellation, exposing employers to legal action.

The China Employment Contracts Act further requires employers to extend the contract term for certain classes of employees, under a legal policy to protect them from unemployment and hardship caused by contract expiration. Notably, this protection applies only to contract expiry, not other grounds for contract cancellation.

For example, contracts cannot be canceled for employees engaged in hazardous work who have not received occupational illness screenings, are undergoing diagnosis or medical observation, or have an occupational illness or work-related injury causing partial or total loss of fitness to return to work. In addition, contracts are extended for employees on statutory medical leave, who are pregnant, on maternity leave, or breastfeeding, and for employees with over 15 years of continuous service who are within 5 years of statutory retirement age.

Chinese employment law is highly technical and difficult to navigate on your own. If you have significant exposure, ask CBL for help connecting you with one of our specialized and affordable lawyers.

Employees Awaiting Occupational Illness Screening

Employers are obligated to respect workers’ rights to health. Therefore, employers cannot cancel the employment contracts of employees engaged in hazardous work on the basis of contract expiry until they have received occupational illness screenings. Under Chinese law, occupational illness hazards may be chemical, physical, or biological. Under the Occupational Illness Prevention Act, it is unlawful to cancel the employment contract of an employee engaged in hazardous work before the employee undergoes an occupational illness screening.[3] The employee has the right to seek reinstatement or damages for wrongful cancellation. If an employee is diagnosed with an occupational illness, the employer is also liable under the Act.

Typical occupational illness liability problems are illustrated in Shanghai Case No. 02-cv-2013, where the court ordered reinstatement of employment based on its finding that cancellation of an employment contract at expiry without the required occupational illness screening was void as a matter of law.[1] In the case, Lu was assigned to hazardous work and the employer failed to adequately protect Lu’s health. Lu developed leukemia due to prolonged exposure to benzene, was hospitalized, and then had his contract canceled by the company before an occupational illness screening. The Occupational Illness Diagnostics Board found that Lu had an occupational illness caused by benzene poisoning and a Grade 6 disability.

Lu sought reinstatement of his employment with the company. The court held that Lu worked as a painter and was exposed at work to occupational illness hazards, including volatile toxic and harmful gases. The company was obligated to provide health protection measures and occupational illness screenings before employment and before termination under the Occupational Illness Prevention Act. According to the findings of fact, the court held:

1. The company did not prove that Lu had an occupational illness before employment and did not furnish evidence that a third party was liable for Lu’s occupational illness.
2. Employers are obligated to recognize the risks of employees’ exposure to occupational hazards and take action to prevent and treat occupational diseases, but the company failed to do so.

At trial, the company introduced no evidence that it had given Lu regular medical exams during his employment and refused an occupational illness screening despite Lu’s request, which was a clear violation of statutory requirements. The company also acted unlawfully by canceling Lu’s contract without completing a screening. The company argued that contract expiration was a factual event and required no negotiation.

The court held that although contract expiration is a lawful ground for contract cancellation, the China Employment Contracts Act provides that cancellation is governed by national work-injury compensation law when an employee suffers an occupational illness or work-related injury causing total or partial disability. The Work Injury Insurance Regulations require employers to retain employees with a Grade 5 or 6 work-related disability and provide suitable work.[2] The Regulations also provide that the employment relationship may be terminated only at the employee’s request. The court therefore rejected the company’s claim and granted Lu’s request to reinstate the employment relationship.

Medical Observation or Medical Leave

Occupational Illness Prevention Act § 35(a) requires employers to provide occupational illness screenings for workers assigned to hazardous work in compliance with State Council requirements.[3] Employers must pay for the screenings and notify workers of the results in writing. § 55(b) of the same Act requires employers to arrange diagnosis for employees with a possible occupational illness and prohibits canceling their employment contract during diagnosis or medical observation, even if the contract expires.[3]

A contract expiring during statutory medical leave for a non-work illness or injury must be extended until the medical leave ends. Under the China Non-Work-Related Injury or Illness Business Employee Medical Leave Rules, employees are entitled to 3 to 24 months of medical leave, determined based on their total accumulated working time and years of service with their current employer. For example, an employee with fewer than 10 total years of service is entitled to 3 months of medical leave if they have worked for their current employer for less than 5 years.

Medical leave is cumulative, and a 3-month medical leave is calculated over a 6-month period. The contract may be canceled when the medical leave period ends even if the employee has not fully recovered. The contract may also be canceled in cases where the employee has fully recovered within the medical leave period, a physician concludes that further treatment is unnecessary, and the condition does not affect the employee’s work and quality of life.

Pregnant or Breastfeeding Employees

There is a statutory protection for women employees under the China Employment Act Enforcement Opinion (Ministry of Labor No. 309, 1995) § 34. The Opinion provides that, except under China Employment Act § 25, an employer may not cancel a contract when the employee is on medical leave, is pregnant, is on maternity leave, or is breastfeeding, and any expiring contract must be extended until those periods end.[4] The following case illustrates that an employer may not cancel an employee’s contract during pregnancy, maternity leave, or breastfeeding on the grounds of expiration.

In Guangdong Case No. 0104-cv-13540, Duan and an employer entered into an employment contract from October 1, 2016, to September 30, 2017. [5] On August 25, 2017, the clinic notified Duan that her one-year probationary contract was about to expire and that management had decided to give written notice one month in advance that it will not be renewed at expiration, and to negotiate unresolved matters. On September 4, 2017, Duan went to a hospital for an examination and was confirmed to be pregnant. A September 12 ultrasound at the hospital showed that Duan had a uterine fibroid and an intrauterine pregnancy of more than five weeks with a viable embryo. On September 20, 2017, the clinic issued another notice stating that Duan’s employment contract would not be renewed. Duan submitted a Memorandum of Contract Renewal on the same day and mailed her medical proof of pregnancy to the health center’s responsible person on September 21, 2017.

On September 22, 2017, the employer nevertheless sent another notification requiring Duan to assist with preparing a successor. Duan was hospitalized and underwent induced labor from March 12 to 16, 2018. The parties disagreed on the cancellation, and Duan filed for arbitration seeking ¥12,210 as damages for unlawful cancellation. The employer was ordered to pay ¥8,140 for unlawful cancellation. Duan, dissatisfied with the result, filed a lawsuit. The court held that Duan’s pregnancy was confirmed on September 4 and 12, 2017, and that Duan notified the health center before contract expiration. Duan underwent labor induction surgery in March 2018, so her contract should be extended until her maternity leave ends under the China Employment Contracts Act §§ 42 and 45. However, despite knowing about her pregnancy, the employer sent three notices stating that the employment contract would not be renewed, which clearly constituted unlawful cancellation. Therefore, the employer was ordered to pay damages for unlawful cancellation under China Employment Contracts Act § 87.

Employees Near Statutory Retirement Age

The contract must be extended until the employee reaches statutory retirement age or qualifies for retirement benefits. Failure to do so constitutes unlawful cancellation. The legislative intent here is to protect employee rights by tying years of service to job protection. For example, in Guangdong Case No. 01-cv-13598 (2019), Liu had worked for Company A for 17 years and was less than one year from statutory retirement age as of December 31, 2017.[6] The company issued a certificate of termination on December 25, 2017, and claimed the employment contract would be canceled on December 31, 2017, due to expiration.

The court held that under China Employment Contracts Act § 42, the employment contract must be extended when an employee has worked for the same employer for more than 15 years and is within 5 years of statutory retirement age. Liu met the above requirements when their contract expired, so the contract could not be legally canceled on the grounds of expiration. The company claimed Liu agreed to the cancellation, but Liu denied agreeing to the cancellation, and the company failed to introduce corroborating evidence. Therefore, the court held the company liable for unlawful cancellation and supported Liu’s claim for damages.

Compliance Strategies

Before the contract term ends, you should determine whether the employee qualifies for termination protection under China Employment Contracts Act § 42. If the employee qualifies for protection, the contract must be extended. During the extension, the employment relationship continues, and the contract cannot be canceled at its expiration, although contract renewal is not mandatory. You may send a written cancellation notice to the employee when the contract expires, clearly state your intent to cancel the contract, and set the cancellation date for when the employee is no longer protected. If you need help navigating these kinds of challenging employment law questions, CBL can help you find a lawyer to make sure you are on the right track.

FURTHER READING

Get more insights about Chinese employment law:

• Labor Unions Must Get Notice of China Employee Terminations
• Terminating Employees for Disciplinary Violations in China

FOOTNOTES

[1] Shanghai Case No. 02-cv-2013, (2018)沪02民终2013号 (Shanghai Second Appeals Court, May 18, 2018), text available on Zhihu (in Mandarin).

[2] Work Injury Insurance Regulations, 工伤保险条例 (Ministry of Human Resources and Social Security, Dec. 20, 2010) (in Mandarin).

[3] Occupational Illness Prevention Act, 中华人民共和国职业病防治法 (National Health Commission, Nov. 5, 2017) (in Mandarin).

[4] China Employment Act Enforcement Opinion (Ministry of Labor No. 309, 1995), 关于贯彻执行中华人民共和国劳动法若干问题的意见 (Ministry of Labor, Aug. 4, 1995), text available on Baidu Encyclopedia (in Mandarin).

[5] Guangdong Case No. 0104-cv-13540, (2018)粤0104民初13540号 (China Judgements Online, Jun. 5, 2019) (in Mandarin).

[6] Guangdong Case No. 01-cv-13598 (2019), (2019)粤01民终13598号 (China Judgements Online, Sept. 17, 2019) (in Mandarin).