China Labour Law Update (2026)

1. Substance Over Form in Determining Employer Responsibility

Judicial Interpretation II reinforces the courts’ focus on substantive employment arrangements rather than contractual form alone. In determining the employing entity, courts will consider factors such as labour contract execution, actual management and supervision, salary payments, and social insurance contributions.

For group enterprises and mixed employment arrangements, the Interpretation clarifies that:

• remuneration and benefits must be clearly agreed upon with the employee and confirmed in writing; and
• in cases of secondment or internal dispatch, the entity responsible for remuneration and benefits during the relevant period must be expressly specified.

Internal risk-allocation agreements within a corporate group will not shield enterprises from labour dispute liabilities. Employment structures should therefore be carefully designed from a compliance perspective.

2. Foreign Employees More Likely to Fall Within PRC Labour Law

Foreign nationals legally working and residing in China may be recognised as employees under PRC labour law, including those holding Chinese permanent residence, valid work permits and residence permits, or other legally required approvals.

Notably, resident representative offices of foreign enterprises may act as parties in labour dispute proceedings, and overseas parent companies may be joined where appropriate.

FIEs should be aware that reliance on overseas contracts or the foreign nationality of employees will not, in itself, exempt them from PRC labour law obligations.

3. Written Labour Contracts: Limited Room for Defence

Failure to conclude a written labour contract in a timely manner may result in double salary liability. Judicial Interpretation II clarifies that where the unsigned period is less than one month, the double salary shall be calculated based on actual working days.

Employers bear the burden of proof in such disputes and have limited defences. Proper execution of labour contracts and retention of communication records are therefore critical. Where an employee refuses to sign, employers should promptly follow up and issue formal reminders.

4. Non-Compete Clauses Subject to Proportionality

The Interpretation places clear restrictions on the scope and applicable subjects of non-compete obligations, aiming to curb overuse of such clauses.

Non-compete provisions will generally be unenforceable against employees who do not have access to trade secrets or confidential information. As a result, non-compete clauses should be carefully tailored, rather than applied uniformly across the workforce, and supported by robust internal trade secret protection measures.

5. Social Insurance Contributions: Mandatory and Non-Waivable

Judicial Interpretation II confirms that any agreement to waive statutory social insurance contributions—whether initiated by the employer or the employee—is invalid as it undermines public interests.

Employers remain legally obligated to contribute social insurance in accordance with the law. Where contributions are not made due to employee-related reasons, appropriate compensation arrangements should be clearly documented.

6. Procedural Risks in Labour Arbitration

From a procedural standpoint, statute of limitations defences must be raised at the arbitration stage. Failure to do so will generally preclude reliance on such defences in subsequent court proceedings, except where new evidence arises.

FIEs are advised to strengthen internal awareness of PRC labour dispute procedures to avoid irreversible procedural risks.

Key Takeaways

Recent legislative and judicial developments reflect a clear trend toward:

• greater emphasis on substantive compliance,
• stricter procedural requirements, and
• more detailed regulation aimed at protecting employee rights.

Early compliance reviews and adjustments to employment structures are essential for enterprises operating in China.

Dewit Law Office continues to assist foreign-invested enterprises with labour law compliance in China, supporting clients in navigating regulatory changes and managing employment-related risks.