Llinks Corporate Compliance & Legal Alert (June 2026)

Contents

 Spotlight on News

1. State Council issued the outbound investment regulations to strengthen oversight and set overseas labor
2. Huangpu Court of Shanghai released White Paper on Foreign, Hong Kong, Macao and Taiwan Labor Disputes, covering foreign labor relations confirmation, employee rights and interests.

Case Study

1. Shanghai No.2 Intermediate People's Court Released Typical Case: Cross-regional dispatch employer fails to insure at work site, liable for denied social security benefits.
2. Beijing No.1 Intermediate People's Court Released Typical Case: Employer must pay overtime wages without clear agreement on all-inclusive salary system and pay standards.
3. Guangdong High People's Court Released Typical Case: Employer may in good faith verify sick leave info, refusal to cooperate with follow-up exam and continued absence justifies lawful dismissal.

Spotlight on News

1.         State Council issued the outbound investment regulations to strengthen oversight and set overseas labor standards.

 On June 1, 2026, the State Council promulgated the Regulations of the State Council on Outbound Investment (hereinafter referred to as the "Regulations"). The Regulations, consisting of 34 articles, shall take effect on July 1, 2026, and apply to activities in which domestic investors in China directly or indirectly acquire equity, assets, or other related interests in enterprises in other countries (regions). The investment management for Hong Kong, Macao, and Taiwan of China shall be implemented with reference to these Regulations. As China's first comprehensive administrative regulation in the field of outbound investment, the Regulations represent a major reform and enhancement of China's outbound investment system.

According to the requirements of the Regulations on overseas labor and employment, compliance with overseas employment requires close attention to local labor laws and cultural customs, while also safeguarding China's overseas image and the bottom line of national security. Enterprises should pay special attention to the "deemed export" restrictions that may be involved in cross-border movement of personnel, technical exchanges, and training. They should strictly control the cross-border transmission of sensitive information such as employee data, emails, and R&D information, and properly conduct compliance review of evidence materials when responding to overseas investigations in accordance with the law. At the same time, enterprises should improve their overseas assignment systems, improve risk prevention plans, insurance coverage, evacuation arrangements, and other risk-related content, comply with anti-sanctions and anti-discrimination regulations, and prevent employment risks related to foreign personnel. On the whole, enterprises should incorporate assignment management, confidentiality authority, safety plans, and other elements into a unified internal control system, and build a comprehensive compliance system for outbound operations that covers the entire chain of labor and employment.

To provide regulatory support for the above arrangements, the Regulations also stipulate that the state shall establish a categorized, tiered, and whole-process regulatory mechanism for outbound investment, requiring compliance with procedures such as approval and filing, information reporting, and cross-border fund registration. They stipulate that relevant State Council departments shall formulate, adjust, and implement outbound investment policies, and provide guidance and supervision over investment and business operations. At the same time, the Regulations establish systems for overseas comprehensive services, monitoring, early warning and risk assessment, investment barrier investigation, and dispute resolution. These systems are conducive to improving the outbound investment management and service framework, effectively implementing outbound investment administration, promoting high-quality development of outbound investment, and providing strong legal safeguards for high-level opening-up.

2.         Huangpu Court of Shanghai released White Paper on Foreign, Hong Kong, Macao and Taiwan Labor Disputes, covering foreign labor relations confirmation, employee rights and interests.

On June 16, 2026, the Huangpu District People's Court of Shanghai promulgated the White Paper on the Adjudication of Labor Dispute Cases Involving Foreign, Hong Kong, Macao, and Taiwan Elements (2021–2025) (hereinafter referred to as the "White Paper"). The White Paper, presented in both Chinese and English, systematically reviews the adjudication of labor dispute cases involving foreign, Hong Kong, Macao, and Taiwan elements by the Huangpu District People's Court during the period from 2021 to 2025. Based on statistical data, it analyzes the main characteristics and existing issues of such cases, and further proposes measures and plans to standardize and improve the adjudication of these labor disputes.

Statistics show that the Huangpu District Court accepted a total of 426 relevant cases from 2021 to 2025, with the overall number exhibiting a fluctuating upward trend. The parties' claims and points of contention were highly concentrated, with core demands being relatively common. Within the statistical scope, disputes concerning unlawful termination of labor contracts and remuneration and benefits accounted for over 90% of the cases, representing the core conflicts in this category.

Labor disputes involving foreign, Hong Kong, Macao, and Taiwan elements bear both the attributes of ordinary labor disputes and cross-border factors, presenting notable particularities and complexities in aspects such as subject identification, application of law, factual investigation, and protection of rights and interests. For cases where foreign workers bring actions seeking confirmation of the existence of labor relationships, the court should focus on examining whether the foreign worker has legally obtained a work permit and the corresponding start date of such permit, whether there is genuine mutual consent between the worker and the employer to establish a labor relationship, and whether the worker is actually under the employer's management. The White Paper further clarifies the key points of court review in determining foreign-related labor relationships, and also provides guidance for enterprises on compliant employment practices and for foreign workers on the protection of their rights.

Case Study

1.         Shanghai No.2 Intermediate People's Court Released Typical Case: Cross-regional dispatch employer fails to insure at work site, liable for denied social security benefits.

•  Facts

 Wang entered into a labor contract with a Shanghai branch of a manpower company and was enrolled in Shanghai's social insurance. The branch later assigned Wang to a third-party company in Guangzhou as a promoter. On October 10, 2020, Wang sustained a work-related injury. On September 9, 2021, Wang resigned. On October 28, 2022, Wang was officially assessed with a Grade 10 disability due to the injury. When Wang applied to the Shanghai social security authority for work injury benefits, the authority denied the claim, stating that "as a cross-regionally dispatched worker, Wang's contributions were made in Shanghai by the dispatch unit, in violation of the Interim Provisions on Labor Dispatch" Wang then filed for labor arbitration, seeking from the Shanghai branch payment of the one-time medical subsidy and the one-time disability subsidy for work-related injuries. The arbitration commission ruled in Wang's favor, holding the Shanghai branch liable. Dissatisfied, the branch appealed to the court.

•  Judge’s Viewpoint

 The Jing'an District People's Court of Shanghai held that, regarding the one-time medical subsidy and one-time disability subsidy for work-related injuries, under the Social Insurance Law of the People's Republic of China and the Interim Provisions on Labor Dispatch, where a labor dispatch unit dispatches workers across regions, it shall enroll the dispatched workers in social insurance at the place where the employing unit is located. If the employer fails to pay work injury insurance premiums in accordance with the law and a work-related injury occurs, the employer shall bear the work injury insurance benefits. The Interpretation (II) on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases, effective September 1, 2025, further reinforces the statutory nature of the social insurance contribution obligation and affirms the judicial position that employers shall not circumvent or alter the insurance participation obligation in any form.

In this case, the Shanghai branch dispatched Wang to work for a third-party company in Guangzhou. Therefore, the Shanghai branch should have enrolled Wang in social insurance in Guangzhou in accordance with the law. Instead, it enrolled Wang in Shanghai, violating the Interim Provisions on Labor Dispatch and preventing Wang from claiming work injury benefits from the work injury insurance fund. The resulting losses should be borne by the Shanghai branch. Accordingly, given the social security authority's denial of

payment, the Jing'an Court ruled that the Shanghai branch shall bear the full amount of the one-time medical subsidy and one-time disability subsidy for work-related injuries, ensuring that the injured worker does not lose substantive relief due to the dispatch unit's non-compliant enrollment. Dissatisfied with the first-instance judgment, the Shanghai branch appealed. The Shanghai Second Intermediate People's Court dismissed the appeal and affirmed the original judgment in accordance with the law.

2.         Beijing No.1 Intermediate People's Court Released Typical Case: Employer must pay overtime wages without clear agreement on all-inclusive salary system and pay standards.

•  Facts

 Liu joined a Company as a chef with a monthly salary of RMB 9,000. Liu worked six days a week, with Saturdays off and Sundays on, totaling four rest days per month. A dispute arose over overtime pay, and Liu filed a lawsuit against the Company. Liu claimed that he worked 15 Sundays between September 2 and December 13, 2023, and sought overtime compensation calculated based on his monthly salary of RMB 9,000. The Company contended that Liu's monthly salary of RMB 9,000 was a lump-sum payment covering a special work schedule of 26 working days per month, and thus no additional overtime pay was required.

• Judge’s Viewpoint

 The court held that the lump-sum pay system is a compensation arrangement in which regular working hours and overtime pay are bundled into a single salary package, commonly adopted in industries with frequent and relatively fixed overtime schedules. To fully protect workers' legitimate rights, employers must clearly agree on the lump-sum pay system in writing with workers, ensuring that workers explicitly understand the adoption of such system. The agreement should specify in detail the amounts of base salary and overtime pay, as well as the applicable rates, and separately clarify the wage rate for normal working hours, which must not fall below the local minimum wage. Otherwise, the lump-sum pay system should not be deemed applicable.

Moreover, to safeguard workers' basic right to rest, Article 41 of the Labor Law stipulates that where working hours need to be extended due to special reasons, the extended hours shall not exceed three hours per day and shall not exceed 36 hours per month, subject to the protection of workers' health. Therefore, if the monthly overtime hours agreed under the lump-sum pay system exceed the 36-hour statutory limit, the excess portion is invalid as it violates mandatory legal provisions, and the employer shall pay additional overtime compensation at statutory rates. If the wages actually earned by the worker based on actual working hours exceed the wages actually paid by the employer, the employer shall make up the difference.

In this case, neither party expressly agreed on the adoption of the lump-sum pay system or the applicable wage rates. The Company's method of calculating rest-day overtime pay based on single-rate wages fell below statutory standards. Therefore, the Company should compensate Liu for the shortfall in rest-day overtime wages.

3.         Guangdong High People's Court Released Typical Case: Employer may in good faith verify sick leave info, refusal to cooperate with follow-up exam and continued absence justifies lawful dismissal.

•  Facts

 Li was an employee of an auto parts company and sustained a work-related injury in February 2023. Li submitted hospital diagnosis certificates successively, claiming a sick leave of four months. However, the Initial Assessment Report issued by the Guangzhou Labor Capacity Assessment Committee showed that his paid medical treatment period extended only until March 29 of the same year. Upon discovering the discrepancy between the sick leave certificates and the assessment conclusion, the company sent three written requests to Li, asking him to return to work for a re-examination and promising to arrange work based on the diagnosis results, with all expenses borne by the company. Li refused to comply and remained absent for 10 consecutive days. The company terminated his labor contract on the ground of absenteeism. Li then filed claims against the company for compensation, unused annual leave pay, and medical expenses, among others.

•  Judge’s Viewpoint

 The Guangzhou Intermediate People's Court held that, on the basis of fully safeguarding workers' health rights, an employer may take reasonable and good-faith verification measures, such as timely notification, accompanied re-examination, and cost coverage, when it has reasonable doubts about an employee's sick leave, rather than directly denying the leave. In this case, the company's request for Li to return for a re-examination was based on the discrepancy between the medical certificate and the assessment conclusion, rendering the request reasonable. Moreover, the company proactively offered to bear the re-examination costs, fulfilling its duty of good-faith management. Li refused to cooperate without justifiable cause and remained absent, constituting a serious violation of labor discipline. The court accordingly dismissed Li's claim for compensation for unlawful termination.

Introduction of Llinks Corporate Compliance Practice

 Llinks provides clients with efficient solutions and pragmatic corporate compliance advice based on clients’ business needs. Our services include: providing daily corporate compliance advice and training; designing strategies and plans for mass layoffs and participating in on-site negotiations; assisting in solving personnel replacement in mergers and acquisitions, and providing on-site support and crisis management for strikes and other collective action; representing clients in labor arbitrations and litigations involving terminations of employment contracts, bonus payments, etc.; advising on issues of white-collar crime, anti-corruption and anti-bribery, anti-discrimination, personal information protection, protection of trade secrets and non-competition obligation, equity incentives, and senior-level employee dismissals, etc.

Awards and Honors:

• In 2024, 2025 and 2026, Patrick Gu was recommended as a Ranked Lawyer in the Greater China Region Guide by Chambers and Partners.
• In 2023, 2025 and 2026, Patrick Gu was recommended for Regulatory and Compliance, Labor and Employment by The Legal 500 Greater China Ranking.
• In 2024, Patrick Gu was recommended for Labor and Employment by The Legal 500 Greater China
• In 2023, Patrick Gu was recommended as a Leading Lawyer by The Legal
• In 2023, Llinks Law Offices received the Labor & Employment PRC Firms of the Year award from The Legal
• In 2021, 2020 and 2019, Patrick Gu was consecutively recommended as a Leading Labor Lawyer by China Law &
• In 2023, 2022, 2021, 2020 and 2019, Patrick Gu was consecutively recommended as a Top-Tier Labor Lawyer by
• In 2020, Llinks Law Offices received the Best Law Firm for Client Service (China Awards) from Chambers and

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.