[China] The legal issues around hiring a retiree

For foreign companies operating in China, many queries arise about the practical impact of the country’s laws on business. One common concern is whether it is permitted to employ a worker who has passed the legal retirement age, China Law Blog addresses the question and details the pitfalls.

Their short answer is that hiring a retiree is legal but now without complexities.

The blog offers this hypothetical situation: an employer employs a male employee for several years. The employee reaches the statutory retirement age of 60 but continues to work for the same employer. The employee is not eligible for a pension. A few years later when the employer informs the employee that his services are no longer required the employee brings a labour arbitration claim to demand statutory severance for his termination.

China Law Blog gives the example of a recent case in Chongqing with similar circumstances to the hypothetical. The employee lost the case. In reaching its decision, the Chongqing High People’s Court took note that the main issue, in this case, was whether the parties had an employment relationship after the employee reached the statutory retirement age of 60. The court cited Article 21 of the Regulation on the Implementation of the Employment Contract Law of the PRC. Article 21 states that an employment contract ends when an employee reaches the statutory retirement age. 

The court reportedly said that after the employee reached the statutory retirement age the employment relationship no longer existed between the parties and that the employee’s relationship with the employer was pursuant to a labour relationship after the age of 60. This decision was reached because generally an employer’s obligation to pay statutory severance to an employee only applies during the employment relationship. At the time of termination, the parties did not have an employment relationship therefore the employer did not owe statutory severance to the employee.

If your China-based business has an employee approaching mandatory retirement age and you want to let that employee go, China Law Blog offers the following advice: 

• Send a written notice (in Chinese) to the employee informing them that their employment contract will end on the [date] the employee reaches their statutory retirement age, citing the applicable law
• Be aware that, usually, when an employee retires they are owed no statutory severance

If you want to keep the employee on beyond their statutory retirement age:

•  Send a written notice (in Chinese) to the employee with different content
• First, inform the employee that their employment contract with your China entity will end on the date of their statutory retirement but also state that you would like the employee to enter into a labour services relationship with your company after the employee’s retirement
• If the employee would like to continue with your company, produce a clearly written labour services agreement for the soon-to-be-former employee to review and sign
• The agreement should set out how employee termination works to avoid future surprises and disputes down the road
• The agreement should also cover any issues arising about both the retirement and the new labour services arrangement, like the term of the agreement, the person’s work responsibilities, their compensation and payment method, working hours and how insurance will be handled

As with any employment relationship (or any contractual relationship),  it is essential that your company has a proper written agreement in place to avoid behaving like the employer in the example case. The company may have eventually won their legal battles but they did so at the expense of considerable legal fees and lengthy legal proceedings when an enforceable agreement could have avoided all that.

Finally, the blog highlights that there are substantial local differences in court decisions on such matters and cautions foreign companies to always ensure that any actions taken are in complete compliance with your local authorities.

For foreign companies operating in China, many queries arise about the practical impact of the country’s laws on business. One common concern is whether it is permitted to employ a worker who has passed the legal retirement age, China Law Blog addresses the question and details the pitfalls.

Their short answer is that hiring a retiree is legal but now without complexities.

The blog offers this hypothetical situation: an employer employs a male employee for several years. The employee reaches the statutory retirement age of 60 but continues to work for the same employer. The employee is not eligible for a pension. A few years later when the employer informs the employee that his services are no longer required the employee brings a labour arbitration claim to demand statutory severance for his termination.

China Law Blog gives the example of a recent case in Chongqing with similar circumstances to the hypothetical. The employee lost the case. In reaching its decision, the Chongqing High People’s Court took note that the main issue, in this case, was whether the parties had an employment relationship after the employee reached the statutory retirement age of 60. The court cited Article 21 of the Regulation on the Implementation of the Employment Contract Law of the PRC. Article 21 states that an employment contract ends when an employee reaches the statutory retirement age. 

The court reportedly said that after the employee reached the statutory retirement age the employment relationship no longer existed between the parties and that the employee’s relationship with the employer was pursuant to a labour relationship after the age of 60. This decision was reached because generally an employer’s obligation to pay statutory severance to an employee only applies during the employment relationship. At the time of termination, the parties did not have an employment relationship therefore the employer did not owe statutory severance to the employee.

If your China-based business has an employee approaching mandatory retirement age and you want to let that employee go, China Law Blog offers the following advice: 

• Send a written notice (in Chinese) to the employee informing them that their employment contract will end on the [date] the employee reaches their statutory retirement age, citing the applicable law
• Be aware that, usually, when an employee retires they are owed no statutory severance

If you want to keep the employee on beyond their statutory retirement age:

•  Send a written notice (in Chinese) to the employee with different content
• First, inform the employee that their employment contract with your China entity will end on the date of their statutory retirement but also state that you would like the employee to enter into a labour services relationship with your company after the employee’s retirement
• If the employee would like to continue with your company, produce a clearly written labour services agreement for the soon-to-be-former employee to review and sign
• The agreement should set out how employee termination works to avoid future surprises and disputes down the road
• The agreement should also cover any issues arising about both the retirement and the new labour services arrangement, like the term of the agreement, the person’s work responsibilities, their compensation and payment method, working hours and how insurance will be handled

As with any employment relationship (or any contractual relationship),  it is essential that your company has a proper written agreement in place to avoid behaving like the employer in the example case. The company may have eventually won their legal battles but they did so at the expense of considerable legal fees and lengthy legal proceedings when an enforceable agreement could have avoided all that.

Finally, the blog highlights that there are substantial local differences in court decisions on such matters and cautions foreign companies to always ensure that any actions taken are in complete compliance with your local authorities.