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On 1 August 2025, the PRC Supreme People’s Court (“SPC”) released the Opinions (II) on Several Issues Concerning the Application of Law in the Trial of Labor Disputes (the “Judicial Opinion II”) and several typical labor dispute cases. The Judicial Opinion II has taken effect from 1 September 2025.
The Judicial Opinion II consists of 21 Articles in total. They clarified many long-standing controversies in implementing employment law and inconsistencies in judicial practice at different locations. To help companies better understand the practical implications, we will publish four newsletters to interpret the Judicial Opinion II from the following perspectives (i) implementation of non-competition obligations; (ii) conclusion and renewal of employment contracts; (iii) workforce engagement and social insurance issues; (iv) labor disputes. This newsletter focuses on the new updates on workforce engagement and social insurance issues in China.
In the Judicial Opinions II, Article 1 to Article 3 and Article 21 are related to workforce engagement and Article 19 is related to social insurance issues. We would like to explain their practical implications for companies as follows:
1. New Updates on Workforce Engagement
a) Engagement of retirees will no longer be uniformly deemed as a service relationship, even if the retirees have already started to enjoy pension benefits.
According to the Judicial Opinions I effective on 1 January 2021, the work relationships with individuals who have enjoyed pension benefits shall be deemed as service relationships. However, this provision is abolished by Article 21 of the Judicial Opinion II. It indicates that in the future, if companies engage retirees, the work relationships between companies and the retirees will become more complicated.
Under PRC employment law, if an employee reaches statutory retirement age and/or starts to enjoy pension benefits, he/she is no longer qualified to be an employee. If such a retiree continues to work, he/she shall be deemed as providing services for the company and will be subject to the PRC Civil Code, i.e., legally speaking, the retirees will no longer be protected by the employment law regarding minimum wage, working hours, leave and rest and termination, etc.
However, there is a tendency in the society that companies engage more and more retirees who want to continue to work, and the Chinese government pays more attention to protecting their rights and interests. On 31 July 2025, the PRC Ministry of Human Resources and Social Security released a draft of the Interim Provisions on Safeguarding the Basic Rights and Interests of Laborers Beyond the Statutory Retirement Age for public discussion. According to this draft regulation, individuals beyond the statutory retirement age including retirees who continue to work will be able to enjoy labor protections to some extent in respect of minimum wage, working hours and work-related injury insurance, etc., and individuals who have not enjoyed pension and/or medical insurance benefits can continue to join the statutory social insurance scheme upon reaching agreements with companies. I.e., the work relationships between the company and individuals beyond statutory retirement age including retirees will become more complicated, and especially for retirees, it will no longer be a simple service relationship. The change provided in Article 21 of the Judicial Opinion II verifies such tendencies.
Therefore, in the future, if a company decides to engage individuals beyond statutory retirement age including retirees, the company shall conclude a proper agreement with them to clarify the rights and obligations of both parties in accordance with the applicable law.
b) Companies shall make proper legal arrangements for employees who concurrently work for several companies or are assigned to work for associated companies to avoid potential legal risks.
In practice, especially in a company group, it is common that an employee is arranged to work concurrently for two or more associated companies, or to be assigned to work for an associated company within the group. Normally in such situations, the employee will have work relationships with several companies, which may cause confusions when verifying which company shall have an employment relationship with the employee. A labor dispute might occur accordingly.
Article 3 of the Judicial Opinion II makes clarification on this topic:
(1) If a written employment contract has been concluded, the employment relationship of the employee shall be determined based on such contract;
(2) If no written employment contract has been concluded, the employment relationship of the employee shall be determined based on the actual work relationship of the employee with the related companies by taking into account factors such as working hours, job duties, salary payment and social insurance contributions. In such a case, the employee is entitled to request the related associated companies to jointly assume liabilities towards the employee including paying remunerations and providing benefits., etc., except if the related associated companies have reached an agreement with the employee on the arrangement of his/her remuneration and benefits.
Based on the above, if a company arranges for an employee to concurrently work for several companies or to assign him/her to work for associated companies, the company should sign proper legal documents with the employee to clarify the employee’s multiple roles and duties across different related associated companies as well as the remuneration and benefits arrangements for the employee. This can avoid the potential legal risks that all related companies become jointly liable for the employee in case of a labor dispute.
c) Companies that act as contractors shall ensure that their subcontractors hold proper legal operating qualifications for the subcontracted business. Otherwise, the companies may face potential legal risks of sharing the employer’s liabilities towards the employees engaged by the subcontractors for remuneration and work-related injury benefits etc.
According to Article 1 of the Judicial Opinion II, where a company acting as a contractor with legal operating qualification subcontracts its business to an organization or individual without legal operating qualification, the employees engaged by such organization or individual are entitled to claim against the company for the employer’s liabilities including paying remuneration and providing the insurance benefits of work-related injury., etc. A similar provision is provided in Article 2 of the Judicial Opinion II, which applies to the situations where the organization or individual without legal operating qualification conducts business in the name of the company.
In the past, this topic was more related to companies in the construction industry. However, in recent years, more and more companies have introduced outsourcing into their business, i.e. companies outsource a part of their business to third-party service providers so that the third-party service providers assign their employees to provide the outsourced services on the site of the companies. Strictly speaking, if a company itself is a contractor to the business, then the third-party service provider should be the subcontractor to such business.
Based on our observations, many companies engaged human resource agencies to provide outsourcing service, which may not have proper legal operating qualifications to conduct the business outsourced by the company. With the implementation of the Judicial Opinion II, in addition to the administrative legal risks that the outsourcing service can be considered as circumventing labor dispatch regulations, such companies may also face potential risks to bear liabilities towards the outsourced employees for their remuneration and work-related injury benefits, etc., if the outsourcing service providers do not have proper legal operating qualifications for the services.
Based on the above, companies which have been using outsourcing services may wish to check if the outsourcing service contracts signed with the outsourcing service providers comply with the law and if the outsourcing service providers have proper legal operating qualifications for provision of the services.
2. New Updates on Social Insurance Issues: commitments or agreements made by employees on not participating in statutory social insurance scheme are invalid, and an employee is entitled to unilaterally terminate the employment contract with the company immediately and at the same time require the company to pay statutory severance payments due to the reason that the company fails to provide statutory social insurance according to law.
Under PRC law, companies are obliged to provide statutory social insurance for their employees during their employment including basic pension insurance, medical insurance, unemployment insurance, maternity insurance and work-related injury insurance according to law.
In practice, some companies do not provide statutory social insurance for their employees according to law, while the employees do not raise objections because they also do not want to pay the part of social insurance contributions payable by employees so that they will be able to receive more net income every month. For this purpose, some employees even have made commitments or reached agreements with the companies. In some cases, some companies even agreed to pay a certain amount of compensation in cash to employees for not providing statutory social insurance for them.
Article 19 of the Judicial Opinion II clarifies that the employees’ commitments or agreements on not participating in statutory social insurance scheme are invalid. It further clarifies that the employees are entitled to unilaterally terminate the employment contract with the company immediately according to Article 38 of the PRC Employment Contract Law because the company fails to provide statutory social insurance according to law and, at the same time, to require the company to pay statutory severance payments.
Article 38 of the PRC Employment Contract Law provides the statutory reasons which allow employees to unilaterally terminate the employment contract and ask for economic compensation due to the employers’ breach of statutory obligations such as not duly paying salaries etc. In practice in the past, such provision was implemented very cautiously. The claims for economic compensation will only be supported if an employee could prove that the company breached the law deliberately or with gross negligence. But Article 19 of the Judicial Opinion II will change such situation, especially in case the employee is not provided with statutory social insurance according to law. Currently it is not clear yet whether Article 19 of the Judicial Opinion II will only be applicable to those companies which did not provide statutory social insurance for the employees at all or will also be applicable to those companies which did not fully pay social insurance contributions according to the statutory standards.
The provision of Article 19 of the Judicial Opinion II shows the determination of the Chinese government to implement statutory social insurance policies strongly and strictly. Based on the above, if any company fails to provide statutory social insurance for their employees according to law, in addition to making up the outstanding social insurance payments for the employees, as requested by the employee, the company may have to pay statutory severance payments. Based on the above, companies may wish to review their social insurance policies to ensure their full compliance. If not being fully compliant, it is recommended that companies shall make rectification as soon as possible.
