“996” is Ruled Illegal: Understanding China’s Changing Labor System

China’s top court has ruled that the controversial “996” overtime work policy (working 9am to 9pm, 6 days a week) is illegal, taking aim at the excessive working hours commonly practiced at Chinese Internet companies.

On August 26, 2021, the Supreme People’s Court (SPC) and Ministry of Human Resources and Social Security (MOHRSS) jointly released a guideline illustrating 10 typical cases of overtime work, all of which were won by employees. The authorities unpacked the legal basis behind the verdict of each case.

In one case, a worker at a parcel delivery company was fired after refusing to work overtime under the company’s “996” policy. The worker applied for labor dispute arbitration and the arbitration committee ordered the company to compensate the worker RMB 8,000 (US$1238). The parcel delivery company’s “996” work policy seriously violated China’s Labor Law, the court said.

Other cases revolve around workers’ overtime pay and related compensation, including payment for injuries incurred while working overtime.

In another example, a worker surnamed Li was dispatched by a service company to work at an unidentified media company. Li was regularly working for more than 300 hours per month and took no more than three days off in a typical month. On December 1, 2020, Li fainted in a bathroom at work and died of a heart attack as he neared the end of a 12-hour overnight shift. Li’s employers did not buy injury insurance for him. In its ruling, the court affirmed that both the service company and the media company were responsible for Li’s death and ordered the two companies to compensate Li’s families RMB 766,911.55 (US$118,671).

The top court’s guidelines and labor dispute cases have signaled China’s move to take on the grueling overtime work culture of the tech industry. It comes amid the country’s wide-ranging crackdown on the sprawling private tech sector, the “common prosperity” campaign to reduce inequality, and the public discontent with immense societal pressure.

Key trends in China’s labor system

Crackdown on the brutal overtime culture

Since Alibaba’s Jack Ma first called the “996” culture a “blessing” in 2018, the public backlash against the extreme overtime work culture seems to have never stopped in Chinese society. Earlier this year, two employees of the fast-growing e-commerce platform Pingduoduo (PDD) died unexpectedly, reviving the debates over “996”. A young female employee of PDD dropping dead after working a string of excessively long shifts again stirred public outrage.

It’s no wonder then that Beijing’s voice is becoming louder on labor rights. The recent developments may well lead to strengthening supervision of the labor market. In fact, on June 23, Siemens Numerical Control Ltd. was fined by the local government in Nanjing for violating regulations on working hours. Some administrative regions, such as Beijing, are also reportedly starting to review the implementation of labor laws and regulations of locally registered enterprises.

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In the face of such heightened external regulatory pressure, China’s prominent technology players have finally just started to roll back tough working conditions.

Since June, popular short-video apps Douyin (Chinese Tiktok) and Kuaishou have scrapped the “big week/small week” policy – a practice of mixing five-day work weeks and six-day work weeks.

The Tencent-backed gaming studio Lightspeed & Quantum Studios, which has developed popular games like Game for Peace (Chinese version of PUBG), decided to allow its employees to leave the office at 6pm on Wednesdays and no later than 9pm on other weekdays.

Nevertheless, not all workers are in favor of the overtime working policy change, especially those who need to hit key performance indicators (KPIs) or are eager for more overtime pay.

According to a report from Caixin, employees at ByteDance, the owner of TikTok and Douyin, found that their paychecks shrank 10 to 20 percent from previous months as overtime pay withered under the less-demanding work policy.

Safeguarding rights and interests of gig workers

Compared with formal employees who can rely on labor arbitration and local supervision to defend their labor rights, millions of gig workers, such as couriers, food delivery riders, and ride-hailing drivers, face greater difficulties in protecting their rights.

In January, a food deliveryman for the Alibaba-owned takeout platform Ele.me set himself on fire outside a shop in the eastern Chinese city of Taizhou over a pay dispute. Last September, an investigation report titled “delivery workers, trapped in the system” went viral on popular Chinese social media platforms and sparked a heated discussion about how tech companies’ algorithm shrank delivery time limits for delivery drivers, propelling them to race against time on the road. In April, Beijing Satellite TV broadcasted a bureaucrat who disguised himself as a food delivery guy, worked for a day, and earned just US$6. All these news events have caused public uproar.

In response, Chinese regulators have compelled tech companies to put greater emphasis on gig workers’ rights by rolling out a string of policies.

On July 27, seven authorities, including the State Administration of Market Regulatory (SAMR), rolled out a guideline, calling for online food delivery platforms to optimize remuneration rules and establish a reasonable working time mechanism for food delivery persons.

On July 22, eight authorities published a guideline for safeguarding the rights and interest of workers in “new forms of employment”, such as couriers, food delivery riders, and ride-hailing drivers.

On June 23, seven authorities, including the Ministry of Transport, announced an opinion concerning the rights and interests of couriers. The opinion encourages courier companies to hire workers directly and pay injury insurance for courier employees in proportion to the average local salary or turnover.

Reaction in the capital market

Meanwhile, the capital market has been sensitive to the sudden regulatory pressure.

Meituan, one of China’s biggest food delivery platforms, saw its shares plunge by nearly 14 percent – its worst on record, after new rules required the company to pay social insurance covering accidents and sickness for food delivery drivers and pay no less than the local minimum wage to them.

Stocks in other courier companies also fell, by 5.8 percent at YUNDA Holding and percent at STO Express in the two days following the release of the guideline by the Ministry of Transport to ramp up courier protection.

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In contrast, short video app Kuaishou’s shares jumped 4.8 percent on June 25, the day after it announced the cancellation of its “big/small weeks” policy, according to Caixin.

From an investors’ perspective, these policies are threatening to drive up the operation costs of their invested companies and drive down investment returns.

To stay competitive, the affected companies may also need to reconsider their competitive pricing strategies.

What China’s labor law says about overtime

Chinese law says that employees should not be asked to work more than eight hours a day or 40 hours a week. Businesses must restrict overtime to 36 hours a month. Despite the written law, employees are frequently discouraged from filing for overtime.

For those new to China’s labor landscape, laws regulating working hours can be categorized according to the following systems.

The standard work hour system

Under this system, an employee’s workday should not be more than eight hours and an average work week is not more than 40 hours, which equates to a five-day work week.

Workers are entitled to at least one rest day per week and longer working hours are subject to established overtime rates. Most white-collar work falls under this category.

The comprehensive work hour system

This system accumulates work hours over a specified period (weekly, monthly, quarterly, or yearly). The average number of hours is then calculated based on this accumulation period. Broadly speaking, this system is most suited to work roles with irregular shifts, such as seasonal or project-based work.

Overtime is applicable for hours worked above the standard set per cycle. Such rates match those of the standard work hour system for extra hours worked and work on public holidays. However, no rest day is outlined under this system. Before a company can implement this system, it must first submit its plan to the local labor bureau and get approval.

The non-fixed (flexible) work hour system

This system accommodates employees whose working hours are difficult to measure. Employees on such a work hour system will generally be paid as a salaried employee. This salary is a fixed amount paid per period, often monthly.

No overtime cost is associated with the non-fixed work hour system. While employers are required to observe appropriate work and rest schedules, it is up to the employer’s discretion. This system also requires the approval of the local labor bureau prior to implementation.

How companies should prepare

China’s changing labor system may directly affect the recruitment processes, employment policies, organizational restructuring, and the specific business promotion arrangements of many companies in the technology and allied sectors.

To understand more about labor law compliance in China and to avoid labor dispute lawsuits, please view our HR and Payroll in China guide or contact our HR experts and lawyers at China@dezshira.com.

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