Hiring a Retired Person in China: The Legal Issues

Foreign companies doing business in China fairly often ask our China employment lawyers whether they can legally hire someone who has passed the legal retirement age. The short answer is that doing so is legal, but somewhat complicated.

Consider this hypothetical. Employer employs Employee (male) for several years. Employee turns 60, the statutory retirement age, but continues to work for Employer. Employee is not eligible for a pension. A few years later, Employer informs Employee that Employee’s services are no longer needed. Employee brings a labor arbitration claim demanding statutory severance for the termination.

In a recent case in Chongqing with facts similar to those set forth above, the employee lost. The Chongqing High People’s Court noted 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 which provides that an employment contract ends when an employee reaches the statutory retirement age. The court then went on to say that after the employee reached the statutory retirement age, the employment relationship no longer existed between the parties and the employee’s post age 60 relationship with the employer was pursuant to a labor relationship. Because an employer’s obligation to pay statutory severance to an employee is generally only applicable in an employment relationship and because at the time of termination the parties did not have an employment relationship, the employer did not owe statutory severance to the employee.

So if your China entity has an employee approaching mandatory retirement age and you do not want to retain that employee, what do you do? You send a written notice (in Chinese) to the employee letting him/her know that the employment contract will end on the [date] the employee reaches his or her statutory retirement age and you cite the applicable law. Generally speaking, when an employee retires, no statutory severance is owed to the employee.

What though do you do if you want to retain the employee beyond his/her statutory retirement age? You still send a written notice (in Chinese) to the employee but with different content. You first let the employee know that his/her employment contract with your China entity will end on the date of his/her statutory retirement, but you also state that you would like the employee to enter into a labor services relationship that involves your company engaging his/her services after his/her retirement. If the employee is open to this, you then present a well-written labor services agreement to the soon-to-be former employee to review and sign. This agreement should, among other things, provide clarity on how the employee termination works and eliminate surprises and disputes down the road. This agreement should also address all other issues pertaining to both the retirement and the new labor services arrangement, such as the term of the agreement, the person’s work responsibilities, the person’s compensation and the payment method, and the person’s working hours and how insurance will be handled.

As is true with any employment relationship (or any sort of contractual relationship), it will be crucial that your company has a proper written agreement in place. In other words, you do NOT want to be like the employer in the above case. Sure, that employer eventually won its legal battles, but it had to unnecessarily incur huge legal fees to fight through a long series of legal proceedings to do so when an enforceable agreement almost certainly would have avoided all that.

Last but not least (and as is nearly always the case) there are substantial local differences in the court decisions on the above issues so you should (as always) make sure that whatever you do complies with what your local authorities expect to see.