To maintain unified product market positioning and stable sales channels, many manufacturers adopt control measures in distributor management, such as setting minimum retail prices and imposing penalties for parallel gray-market shipments. However, such practices carry significant risks of being deemed vertical monopolistic conduct. Since China’s first administrative penalty case involving vertical monopoly agreements in 2013 — in which the National Development and Reform Commission imposed fines of over RMB 200 million each on Moutai and Wuliangye for mandating minimum resale prices on distributors — administrative and civil litigation cases concerning vertical monopolistic conduct have remained frequent.

The Anti-Monopoly Law, revised in 2022, introduced a safe harbor regime. The Provisions on Prohibiting Monopoly Agreements (revised in 2025), which took effect on February 1, 2026, further clarified quantitative thresholds for determining eligibility for the “safe harbor”.

Article 17 of the revised 2025 Provisions on Prohibiting Monopoly Agreements stipulates that two typical categories of vertical monopolistic conduct are presumed to have no anti-competitive or competition-restricting effects and thus shall not be prohibited, provided specific criteria are satisfied throughout the term of the relevant agreement:

1. Vertical price-restricting agreements (e.g., fixing retail prices). The quantitative safe harbor thresholds require that the market share of both the undertaking and its counterparty shall be below 5%, and the annual turnover of the covered goods shall not exceed RMB 100 million.
2. Vertical non-price-restricting agreements (e.g., restricting resale counterparties). The quantitative safe harbor thresholds require that the market share of both the undertaking and its counterparty shall be below 15%.

The release of these quantitative safe harbor thresholds has drawn clear legal red lines. It partially alleviates enterprises’ dilemma of needing to regulate distributors while hesitating to impose explicit controls due to ambiguous assessment standards, representing a moderate relaxation of oversight over vertical monopoly agreements. Meanwhile, it guides enterprises to administer vertical distribution agreements in a more objective, appropriate manner and avoid inadvertent violations.

What practical steps should be taken by enterprises? In short, enterprises could conduct an immediate self-assessment to verify whether business falls within the “safe harbor” scope.

Three core elements must be reviewed during self-assessment.

1. Define the “relevant market” in accordance with the Guidelines of the State Council Anti-Monopoly Commission on the Definition of Relevant Markets.
2. Determine the denominator used to calculate market share. This calculation is highly complex. In administrative enforcement and judicial practice, the denominator is normally derived from data published by national statistical authorities, industry associations and independent research institutions. In addition, enterprises could also engage industry and economic experts to provide market research reports and economic analysis opinions. For instance, Article 11 of the Judicial Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Monopoly Disputes permits parties to apply to courts for industry and economic experts to testify on specialized technical matters. For internal compliance self-assessment, enterprises may first reference data from the National Bureau of Statistics, reputable industry associations and professional research firms. Besides the most prevalent metrics of sales volume and turnover, denominators may also be defined based on unit sales, output, production capacity, active users of internet platforms and other indicators. It is critical to note that market denominator data may fluctuate, so enterprises are advised to establish a dynamic market data monitoring system.
3. Determine the numerator for market share calculation, which shall align with the selected denominator metric. One unresolved legal ambiguity persists when calculating distributors’ market share, whether the calculation shall only include sales of the manufacturer’s own products. For example, if Company A manufactures toothpaste under Brand A, and its distributor sells toothpaste of both Brand A and Brand B, should the distributor’s market share be calculated solely based on Brand A’s sales revenue, or aggregate sales revenue of both brands? The Provisions on Prohibiting Monopoly Agreements does not contain any explicit provision on this point. Our prevailing interpretation is that total sales revenue of all products shall be included, as enforcers generally do not define the relevant market as a single-brand market when calculating distributors’ market shares.

If the self-assessment confirms the enterprise fails to meet the quantitative safe harbor thresholds, the enterprise must promptly implement corrective measures and revise clauses in distribution agreements and internal distributor management policies.

A final critical reminder is that the quantitative safe harbor thresholds laid out in the Provisions on Prohibiting Monopoly Agreements apply to most industries. Special sectors including intellectual property and the automotive industry are governed by separate rules. For example, the Guidelines on Anti-Monopoly Enforcement in the Field of Intellectual Property Rights and the Guidelines on Anti-Monopoly Enforcement in the Automobile Industry set a 30% market share threshold, rather than the standard 5% cap.

Company A adopted AI for map data collection and resolved to abolish its Navigation Product Department, which previously handled manual data collection. So Company A negotiated with Lau on amending his employment contract, but Lau refused. Company A unilaterally terminated Lau’s contract. The arbitral tribunal and the courts of both instance all held that the dismissal was unlawful. (See (2024) Jing 01 Min Zhong No. 11896).

Company B replaced part of Yu’s job responsibilities with AI, and negotiated cutting his monthly salary from RMB 25,000 to 15,000. Yu refused this proposal. Company B unilaterally terminated Yu’s contract. Both the labor arbitration tribunal and the court held that the dismissal was unlawful. (This case was listed as one of the Model Cases on Protection of Rights and Interests of Enterprises and Practitioners in the AI Industry released by Hangzhou Courts on April 28, 2026.)

Company C negotiated employment contract amendments with hundreds of its employees. It proposed transferring Zhu from a production line management position to an operator position with unchanged pay, but Zhu refused. Company C unilaterally terminated Zhu’s contract. Zhu initiated labor arbitration, arguing that Company C had maintained steady revenue in recent years, and the staff reduction by half after launching fully automated AI production lines did not constitute a “material change of objective circumstances”. To prove the alleged material objective change, Company C submitted evidence including records of idle production lines, client emails notifying discontinuation of relevant products, and client order correspondence from 2022 to 2024. The arbitral tribunal and courts of both instances accepted Company C’s statement and held that the dismissal was lawful. (See (2025) Yue 2071 Min Chu No. 38360).

All three cases involve redundancies arising from AI, but why the judicial rulings differ drastically?

The core point is that staff surplus solely causing by AI is not equated with a “material change of objective circumstances”. To prove a “material change of objective circumstances” requires more objective factors.

In the Beijing case, the court held that Company A’s shift to AI map data collection, driven by predictable operational factors including technological advances and market shifts, merely represented an adjustment to its business strategy and scope, which shall not be deemed as a “material change of objective circumstances”. Another noteworthy detail cited in the judgment is that, although Company A claimed to abolish the Navigation Product Department, other employees of this department remained employed, and the company never offered Lau a specific alternative position after restructuring.

Likewise, the Hangzhou court ruled that AI technology constituted a market competition driven technical upgrade, which would not automatically be deemed as a “material change of objective circumstances” that renders performance of an employment contract impossible. The court further noted that Company B’s proposed salary cut was unreasonable, leading to a final finding of unlawful dismissal.

By contrast, Company C prevailed in the Guangdong case because it substantiated a chain of objective facts: idle production lines, shrinking order volumes, mass layoffs of hundreds of line workers, as well as a concrete transfer offer to Zhu with identical compensation terms.

Based on the rationales behind the three cases, the following preliminary conclusions can be drawn:

1. Where AI is the only reason for staff surplus, it shall not be deemed as a “material change of objective circumstances”.
2. If AI is the reason for staff surplus, but alongside there are some other adverse operational conditions (e.g., declining orders, operating deficits, production suspension and so on), supported by objective documentary evidence, there is a relatively higher possibility that the circumstance will be recognized as a “material change of objective circumstances”.
3. On the premise of Item 2 above, the possibility of judicial recognition rises further if the company conducts equal negotiation for contract modification with all affected employees. If salary adjustments are proposed, the reduction margin shall be kept as minimal as possible (a 20% pay cut is generally regarded as the acceptable upper limit).

From the employer’s perspective, a smarter workforce planning is more important. Companies shall plan ahead, forecast workforce demand fluctuations reasonably in line with medium and long-term corporate development strategies, and conduct overall allocation and redistribution of staff numbers and positions in a timely manner. Meanwhile, companies shall refine employee performance appraisal systems and establish workplace rules that reward dedicated high-performing staff while enabling lawful management of underperforming employees.

The revised Company Law (2023) came into force on July 1, 2024. It imposes restrictions on the capital contribution period, triggering a wave of corporate capital reductions. Meanwhile, due to the backdrop of the economic environment in recent years, numerous enterprises have opted for capital reduction for various reasons. Although the Company Law prescribes relevant procedural requirements for capital reduction, specific rules vary across practical scenarios. We have compiled key matters concerning capital reduction for limited liability companies for reference.

Firstly, the procedures for capital reduction differ depending on the reasons for such action.

Secondly, documentation requirements for capital reduction vary according to the reduction ratio.

Where a company has multiple shareholders, capital reduction falls into two categories: pro rata capital reduction and targeted capital reduction. Targeted capital reduction means the reduction applies only to specific shareholders, or the reduction ratio for certain shareholders differs from that of others. Article 66 of the Company Law stipulates that unless otherwise provided for in the articles of association, a capital reduction resolution shall be adopted by shareholders holding more than two-thirds of the voting rights. If this rule were applied to targeted capital reduction, majority shareholders could easily override minority shareholders. To address this issue, Article 224 of the Company Law makes special provisions, that is, targeted capital reduction is permissible only if otherwise stipulated by law or separately agreed upon by all shareholders. In other words, targeted capital reduction shall obtain unanimous consent of all shareholders.

Thirdly, procedural rules for capital reduction differ due to varying industrial regulatory requirements. For instance, capital reduction in the financial sector (including banking, insurance, securities, futures, etc.) is subject to prior approval. Relevant approval documents must be obtained before proceeding with subsequent procedures. State-owned enterprises are also governed by special rules. For example, an asset appraisal is mandatory prior to targeted capital reduction for state-owned enterprises.

Lastly, directors, supervisors and senior management personnel shall fully perform their fiduciary duties. The Company Law (2023) strengthens the liabilities of directors, supervisors and senior management for maintaining the company’s registered capital. Article 266 of the Company Law prescribes that where an unlawful capital reduction causes losses to the company, the liable directors, supervisors and senior management personnel shall be held liable for compensation.

In judicial practice, there are four major categories of circumstances widely recognized as grounds for determining that the contract cannot be further performed:

• Disqualification of the parties, such as, the employer goes bankrupt, the employee reaches the statutory retirement age, or the contract expires with no legal obligation for renewal.
• The employee has a new job, which indicates the employee has no actual intention to continue performing the contract. This ground is subject to certain disputes in practice, yet the mainstream judicial stance confirms that the contract cannot be further performed.
• The position has been abolished or replaced. This is a highly contentious ground, as courts hold varying views on whether the employer’s abolition or replacement of the position is reasonable. Additionally, if the employer offers a new position under such circumstance and the employee refuses, most courts will rule that the contract cannot be further performed.
• Complete breakdown of mutual trust between the parties. This is the most controversial ground in judicial practice. Even in Beijing, where courts tend to uphold requests for reinstatement of the contract, judicial opinions and considerations vary from case to case. For example, in case No. (2023) Jing 01 Min Zhong No. 11628, the court held that both parties are entitled to pursue remedies via arbitration or litigation in accordance with the law, and such proceedings do not objectively render the contract unenforceable. By contrast, in case No. (2025) Jing 03 Min Zhong No. 16197, the court held that prolonged litigation and confrontation between the parties had destroyed mutual trust, so there was no foundation for continued performance of the contract.

Article 76 of the Answers to Issues Concerning the Trial of Labor Dispute Cases (I) issued by the Higher People’s Court of Beijing and the Beijing Labor and Personnel Dispute Arbitration Commission, summarizes six specific circumstances, alongside the general rule that “the parties have lost the foundation of mutual trust”. These six circumstances cover the four categories mentioned above.

Article 16 of the Judicial Interpretation (II) of the Supreme People’s Court on the Application of Law in the Trial of Labor Dispute Cases, which took effect on September 1, 2025, prescribes six circumstances under which an employment contract cannot be further performed.

From the employer’s perspective, unilateral dismissal carries the risk of being deemed an illegal termination, which may even lead to an order to reinstate the employment relationship. Hence, employers must exercise caution throughout the entire process.

First, employers could take the following measures to minimize the risk of a ruling of unlawful termination: (1) Ensure the company’s rules and regulations have undergone due democratic procedures and that their provisions are reasonable. (2) Enforce the rules and regulations strictly on a daily basis. Many employers lose litigation cases because they adopt a lax management style in daily operations but impose harsh penalties when dismissing employees. (3) Follow all due procedural requirements for dismissal.

Second, if an employer planned to fire an employee, it shall identify and organize valid grounds and supporting evidence proving the employment contract cannot be performed in advance.

1. Does the new standard specify a transition period?

Article 35 of the “Measures for the Administration of National Standards (2022)” and Article 21 of the “Measures for the Administration of Industry Standards (2023)” stipulate that a reasonable transition period shall be reserved between the issuance and implementation of the new standards.

The “Measures for the Administration of Local Standards (2020)” does not prescribe a transition period. In practice, however, provincial and municipal authorities generally set a transition period in their local standard administration rules.

The “Provisions on the Administration of Association Standards” also does not prescribe a transition period. Nevertheless, association standards only apply to enterprises that have joined the relevant association, resulting in limited impact scope.

In terms of normative hierarchy, the validity period of industry standards and local standards may be affected by the implementation of national standards. For instance, Article 21 of the “Measures for the Administration of Industry Standards (2023)” stipulates: “After the implementation of the corresponding national standards, industry standards shall be abolished by the competent administrative departments of the State Council on their own initiative.”

In practice, enterprises still need to check whether a transition period is specified in the updated standard, and make appropriate plans and arrangements for raw material procurement, production, sales and other business links in advance.

2. Which standard shall be applied during the transition period?

In accordance with Article 35 of the “Measures for the Administration of National Standards (2022)”, Article 39 of the “Measures for the Administration of Mandatory National Standards” and Article 21 of the “Measures for the Administration of Industry Standards (2023)”, enterprises may choose to implement either the original standard or the updated standard from the issuance date to the implementation date of the standard.

3. How to handle unsold inventory manufactured under the old standard before the new standard takes effect?

Article 25 of the “Standardization Law” stipulates that products and services that fail to comply with mandatory standards shall not be produced, sold, imported or provided. After an updated mandatory national standard comes into force, there is no one-size-fits-all rule on whether inventory goods manufactured under the old standard prior to the implementation date can be sold. For example, upon the implementation of China’s National VI Emission Standard, National V vehicles were prohibited from both production and subsequent sale of existing inventory. By contrast, the “Requirements for Restricting Excessive Packaging of Fresh Edible Agricultural Products” (GB43284-2023) stipulates that fresh edible agricultural products produced or imported prior to the implementation date may be sold until the end of their shelf life.

In principle, enterprises may independently choose the applicable non-mandatory standard. However, it shall be noted that some local regulations may impose non-mandatory standard from the local regulatory perspectives. For example, Hainan province has stipulated that milk tea cups must use fully degradable paper cups. In addition, voluntarily adopted association standards are binding on member enterprises of the association.

4. Are there special points related to imported products?

Enterprises shall pay special attention to the following two points in practice:

First, there is no unified rule governing the applicable timing of new standards for import procedures, which needs case-by-case confirmation. For example, Announcement No. 41 of 2012 (abolished in 2025) previously required the customs to inspect all imported food in accordance with the new national food safety standard based on the inspection application date starting from the implementation date of the newly issued standard. General Administration of Customs Announcement No. 136 of 2022, “Announcement on Relevant Requirements for Import Inspection of Products Such as Infant Formula Foods and Processed Cheese in Compliance with National Food Safety Standards” clearly specifies that products manufactured and imported prior to the implementation of the new national standard and complying with the old standard may continue to be imported and sold within their shelf life in accordance with domestic standard implementation rules and WTO rules. It is recommended that enterprises keep an eye on announcements issued by the General Administration of Customs for specific import and export commodities, and consult the customs in a timely manner in case of ambiguity.

Second, to keep track of updates to both domestic and foreign standards. Article 7 of the “Import and Export Commodity Inspection Law (Revised 2021)” provides that catalogued import and export commodities shall be inspected in accordance with mandatory national standards; if no mandatory national standards are available, inspection shall be conducted in accordance with relevant foreign standards designated by the national commodity inspection authority. Therefore, the basis for inspection is not limited to mandatory national standards.

According to relevant provisions, the procedures for the conclusion and entry into force of a collective employment contract are as follows:

(1) Drafting Stage: Representatives of the employer and the employees reach a consensus through negotiation to formulate the draft.

(2) Voting Stage: The draft shall be submitted to the employee representative congress or all employees for discussion. The discussion shall be attended by more than two-thirds of employee representatives or employees, and the draft shall be adopted only with the consent of more than half of all employee representatives or all employees.

To be noted that, although the “Labor Contract Law” does not restrict the voting method, Article 20 of the “Provisions on Democratic Management of Enterprises” (Zong Gong Fa [2012] No.12) stipulates: “The election and voting on relevant matters at the employee representative congress must follow the principle of the minority submitting to the majority and be adopted by more than half of all employee representatives. Voting on important matters shall be conducted by secret ballot on an item-by-item basis.” Accordingly, some provinces and cities have imposed restrictions on the voting methods. For instance, Article 11 of the “Regulations of Shanghai Municipality on Employee Representative Congresses” prescribes: “The following matters shall be reported to the employee representative congress for deliberation and adoption: (1) Draft collective employment contracts involving labor remuneration, working hours, rest and vacation, insurance and welfare benefits, and other matters…” Meanwhile, Article 31 of the same Regulations states: “Matters deliberated and adopted by the employee representative congress shall be voted on by secret ballot and shall pass only with affirmative votes from more than half of all employee representatives.” Therefore, in Shanghai, it is recommended that such draft involving labor remuneration be adopted by secret ballot. Otherwise, the labor administrative authority may reject such draft at the review stage.

(3) Signing Stage: Upon adoption by voting, the draft shall be signed by the chief representatives of the employer and the employees respectively.

(4) Review Stage: Within 10 days from the date of signing the collective employment contract, three copies thereof shall be submitted to the labor administrative authority for review. The labor administrative authority shall complete the review within 15 days from the date of receiving the document. If any objection is raised, a Review Opinion Letter shall be delivered to the employer and employee representatives. If no objection is raised within the aforesaid time limit, the collective employment contract shall take effect automatically. In judicial practice, if a collective employment contract is not reviewed by the labor administrative authority, the court shall rule that it has no legal effect, such as (2025) Er 05 Min Zhong No.2364 and (2020) Jin 07 Min Zhong No.556.

(5) Publication Stage: The collective employment contract shall be promptly publicized to all employees in an appropriate manner from the date it takes effect.

What if the draft fails to pass the voting stage? For example, due to an economic downturn, a company intends to cut some benefits stipulated in the collective employment contract, while most employee representatives disagree. Article 49 of the “Provisions on Collective Employment Contracts” stipulates that if a dispute arises during the negotiation process, either party may apply to the labor administrative authority for negotiated settlement; even without such an application, the labor administrative authority may take the initiative to coordinate and settle the dispute when it deems necessary. This essentially transforms bilateral negotiation into tripartite negotiation and coordination. Nevertheless, the intervention of the labor administrative authority has its limitations. Its role is limited to coordination and mediation, which does not guarantee a negotiated settlement or the issuance of other binding administrative measures.

What if the term of the existing collective employment contract expires and the new one fails to pass the vote? Hainan province has explicitly stipulated that the relevant terms of the expired collective employment contract shall continue to apply. Although other provinces and cities have not issued similar regulations, they generally follow the same judicial and practical practice as Hainan province.

For employers, when formulating the terms of a collective employment contract, it shall be taken into account that most welfare benefits can generally only be raised rather than reduced. Hence, it would be a good choice to set conditional clauses on welfare benefits, such as, if the company’s revenue drops by X% or the company incurs losses, some welfare benefits may be adjusted or cancelled accordingly.

Prior to 2026, export controls targeting specific countries/regions mainly involved the United States. On December 3, 2024, the Ministry of Commerce issued Announcement No. 46 of 2024 “Announcement on Strengthening Export Controls on Relevant Dual-Use Items to the United States”. Subsequently, five announcements were issued in 2025, adding varying numbers of U.S. entities to the export control list for dual-use items. In addition, on July 9, 2025, the Ministry of Commerce added eight entities in the Taiwan region to the export control list for dual-use items.

Statements by the Japanese Prime Minister in November 2025 triggered heightened tensions in China-Japan relations. On January 6, 2026, the Ministry of Commerce issued Announcement No. 1 of 2026 “Announcement on Strengthening Export Controls on Dual-Use Items to Japan”. The announcement stipulates that: “The export of all dual-use items to military end-users and for military uses in Japan, as well as to other end-users and for other uses that contribute to enhancing Japan’s military capabilities, is prohibited.”

This announcement is highly concise and bears similarities to the aforementioned Announcement No. 46 of 2024 targeting the United States, yet also differs. Both explicitly prohibit the export of dual-use items to military end-users or for military uses in the target country. The difference lies in Article 2 of Announcement No. 46 of 2024, which further provides: “In principle, export licenses for dual-use items related to gallium, germanium, antimony, and superhard materials to the United States shall not be granted; stricter end-user and end-use reviews shall be imposed on exports of graphite dual-use items to the United States” — a clearly operational provision. However, Announcement No. 1 of 2026 does not include similar prohibitions or strict restrictions on specific dual-use items. Beyond banning exports of all dual-use items to military end-users and for military uses in Japan, Announcement No. 1 of 2026 adds the phrase “as well as to other end-users and for other uses that contribute to enhancing Japan’s military capabilities”, which laying groundwork for the subsequent release of a watch list.

Overall, Announcement No. 1 of 2026 has broad coverage but lacks specific targeting. It is more declaratory or cautionary in nature, rather than a set of operational rules.

Nevertheless, tensions escalated further thereafter. On February 24, 2026, the first business day after the 2026 Spring Festival holiday, the Ministry of Commerce issued two announcements.

Among them, Announcement No. 11 added 20 Japanese entities involved in the military and defense industries to the export control list. For entities on the control list, the export of dual-use items to them is explicitly prohibited and shall cease immediately. With reference to the earlier export control lists targeting the United States, such a control list represents a standard practice.

Announcement No. 12 added 20 Japanese entities to a watch list, on the grounds that the end-users and end-uses of dual-use items cannot be verified. The announcement does not ban exports of dual-use items to entities on the watch list, but explicitly prohibits applications for general licenses or obtaining export vouchers through registration and declaration. Meanwhile, applicants for individual licenses must submit a risk assessment report and written commitments regarding entities on the watch list. Furthermore, the announcement stipulates that entities that fulfill their obligation to cooperate in verification may be removed from the watch list upon application and verification by the Ministry of Commerce.

The legal basis for the watch list is Article 26 of the Regulations on the Administration of Export of Dual-Use Items, marking its first practical application. In terms of industries involved, unlike the control list, entities on the watch list are mostly enterprises related to automobiles, electronic components, and raw materials. Upon closer examination of their backgrounds, the Ministry of Commerce of China appears to have targeted entities with potential diversion from civilian to military applications, strengthening end-user and end-use reviews to prevent military use. In other words, this reflects a shift in dual-use item administration from purely regulating the “items” themselves based on whether they qualify as dual-use, to governing end “uses” and “users” through supply chain scrutiny.

In view of the above announcements and circumstances, it is urgent and critical for Japanese companies or enterprises exporting to Japan to take proper measures. In general, the following measures could be taken into consideration.

First, to conduct an inventory of whether exported products fall under dual-use items.

Second, if dual-use items are involved, to clarify and map out the supply chain. Monitor whether entities in the supply chain have been included in the control list or watch list, or are suppliers to listed entities, to assess the existence and magnitude of risks.

Third, to establish a compliance management system for export control response, which mainly includes: (1) Regarding the corporate operation, to demonstrate integrity and independence across organization, management, transactions, and other aspects. (2) To design operational rules for customer screening, item and technology screening, contract clause optimization, supply chain management, etc, which not only projects the enterprise’s compliance image but also effectively prevents risks through daily management. And (3) To establish a crisis early warning and response mechanism. In the event of medium or high-risk incidents or indicators, enable prompt and effective actions, timely submission of supporting evidence, and proper response.

In practice, when implementing employee job transfers, many employers only focus on whether the employee handbook stipulates the employer’s right to unilaterally adjust positions, while ignoring the special requirements applicable to positions exposed to occupational disease hazards.

In fact, given the potential impact on employees’ health posed by positions exposed to occupational disease hazards, when transferring an employee to such positions, the employer shall inform the employee, and reach a mutual consultation according to the “Law on the Prevention and Control of Occupational Diseases”. Paragraph 2 of Article 33 thereof states: “Where, during the term of an existing labor contract, a worker engages in operations involving occupational disease hazards that were not disclosed in the labor contract due to a change in job position or job content, the employer shall fulfill its obligation of truthful disclosure to the worker in accordance with the provisions of the preceding paragraph, and negotiate amendments to the relevant clauses of the original labor contract.” If an employer violates this provision, according to Paragraph 3 of Article 33: “The worker shall have the right to refuse to engage in operations involving occupational disease hazards, and the employer may not terminate the labor contract concluded with the worker on such grounds.”

Therefore, an employer’s right to manage and adjust employment is restricted when transferring an employee to a position involving occupational disease hazards, and mandatory provisions of the aforementioned laws must be implemented. There are many cases in judicial practice have proved this opinion. This opinion has a reasonable logic, that is, if an employer’s right to manage employment were to take precedence over Paragraph 2 of Article 33, that provision would undoubtedly become a dead letter. Furthermore, an employer could recruit a worker for a position free of occupational hazards, then easily transfer the worker to a position exposed to such hazards by exercising its unilateral job transfer right, which would effectively render Article 8 of the “Labor Contract Law” and Paragraph 1 of Article 33 of the “Law on the Prevention and Control of Occupational Diseases” meaningless.

Then if we transfer an employee from a position exposed to occupational disease hazards to a non-hazardous position, is there any risk? The answer is positive. Special attention must be paid to the following matters:

First, Article 35 of the “Law on the Prevention and Control of Occupational Diseases” requires that an employee be transferred to another position if found to have suffered health damage related to the occupation. Therefore, in such circumstances, transferring the employee from a position exposed to occupational disease hazards to one free of relevant occupational disease risk factors is a statutory obligation of the employer.

Second, the job content of the new position shall be reasonable to the employee’s physical condition, as well as the reasonableness of any salary adjustment (positions exposed to occupational disease hazards usually include hazard allowances and thus may offer higher pay than other positions at the same level). For job transfers made on statutory grounds, the salary reduction should not be excessive, and the salary level of other employees in the same post after transfer shall be taken into account.

In addition, in practice, where an employee falls under the circumstances requiring mandatory job transfer under Article 35 of the “Law on the Prevention and Control of Occupational Diseases”, the employee may propose to waive the transfer and voluntarily sign a commitment letter for reasons such as seeking higher income. If the employer accepts such an arrangement, it will face the risk of being penalized. Pursuant to Article 75 of the “Law on the Prevention and Control of Occupational Diseases”, the employer shall be ordered to make corrections and imposed a fine of not less than CNY50,000 but not more than CNY300,000; if the circumstances are serious, heavier penalties shall apply. In such cases, if the employee insists on refusing the transfer, the company may, on the basis of retaining relevant evidence, terminate the labor contract pursuant to Article 40 of the “Labor Contract Law” on the ground that a “major change in the objective circumstances” has rendered the original contract unperformable and no agreement can be reached through consultation.

In judicial practice, the key to determining the validity lies in whether there is an identifiable main contract or fundamental principal claim.

Firstly, if the guarantee contract specifies the title of the main contract, it cannot be extended to other contracts. For example, in the case (2019) Xin 01 Min Chu No. 612, the guarantor undertook joint and several liability for debts under the Framework Agreement. However, the parties did not perform the Framework Agreement but separately signed a General Engineering Construction Contract and other agreements. The creditor later demanded liability based on these later agreements and the guarantee. The court held that the main contract was limited and could not be extended to other separate agreements for the same business.

Secondly, the validity shall be determined based on the interpretation of “all contracts” shall be determined by the context, wording, and circumstances of signing. In the case (2013) Zhe Hang Shang Wai Chu No. 2110, the court interpreted the term “all contracts” in the guarantee by comparing it with “accessory contracts” used elsewhere in the same clause. Combining the facts that Company J authorized the legal representative of Company JT to handle the coal tar cooperation and sign the Cooperation Agreement, the court held that Company J knew the status of all existing contracts and the creditor’s demand for additional security. The guarantee for “all contracts” was interpreted as covering all outstanding business contracts between Company JT and Company W, and the court upheld Company W’s claim.

Thirdly, the validity shall be recognized based on the principle of party autonomy. In the case (2023) Su 0214 Min Chu No. 6515, the Guarantee Contract stipulated that the principal debt contracts included all contracts (both existing and future) signed between the Company A and the Company B. Afterward, multiple sales and procurement contracts were executed. The court ruled that requiring the guarantor to bear joint and several liability for these debts complied with the law and the agreement, and supported the claim.

In addition, the signing dates of the principal and guarantee contracts may also be taken into consideration. In the case (2022) Yu 0527 Min Chu No. 2289, the guarantee undertaking was signed in 2015, while the principal contract was signed in 2016. The court held that the one-year-earlier guarantee could not be deemed to correspond to the later principal contract.

In summary, in judicial practice, there is no unified judicial standard has been formed, so judges would define the relationship between the principal contracts and the guarantee contracts case by case. Given the accessory nature of guarantee contracts, the above-mentioned issues shall be taken into consideration in defining the validity regarding the relationship between the principal contracts and the guarantee contracts. Therefore, for enterprises, it is recommended to avoid the above issues.

In the early days, most judgments were rendered in accordance with Article 26 of the “Explanations on Certain Clauses of the Labor Law” (Lao Ban Fa [1994] No. 289, hereinafter referred to as “No.289”), which states: “Objective circumstances refer to the occurrence of force majeure or other situations that render all or part of the contract clauses unperformable, such as relocation, merger, or asset transfer of the enterprise.”

Nevertheless, as time goes by, the domestic and international economic environment, as well as China’s implementation of full national treatment for both domestic and foreign-funded enterprises, have changed drastically compared with 1994. Local jurisdictions have adopted a relatively broader standard in defining “material changes in objective circumstances”.

Article 79 of the “Answers to the Trial of Labor Dispute Cases (I) issued by the Higher People’s Court of Beijing Municipality and the Beijing Labor and Personnel Dispute Arbitration Commission” (Jing Gao Fa Fa [2024] No. 534) stipulates: “ ‘Material changes in the objective circumstances on which the labor contract was concluded’ refer to unforeseeable changes occurring after the conclusion of the labor contract, which render all or the main clauses of the labor contract unperformable, or make continued performance obviously unfair due to excessive costs, thus frustrating the purpose of the labor contract.” This provision also lists more situations constituting material changes in objective circumstances, including production restructuring, corporate restructuring, changes in the business scope of franchised enterprises, etc. However, in judicial practice in Beijing, courts still keep a relatively conservative and caution in defining such material changes.

Although Shanghai has not issued specific provisions, its judicial criteria have also changed since 2020. In some cases, courts have exceeded the scope prescribed by No. 289. For example, in the case (2021) Hu 01 Min Zhong No.15455, the court held that, “The situations covered by No.289 are merely illustrative examples and not exclusive. If an employer indeed needs to adjust or change its organizational structure due to market conditions, international competition, technological innovation, etc., such situations shall also be recognized as material changes in objective circumstances.” However, courts still keep a relatively conservative and caution in defining such material changes.

However, since the end of 2025, judicial practice in Shanghai has shown a further relaxing trend, that is, “Situations such as department dissolution or merger are often recognized as material changes in objective circumstances, provided they are not caused by pure business decisions.” This trend means that amendments to labor contracts—such as organizational restructuring and salary adjustments—resulting from a deteriorating economic environment and operational difficulties are more likely to be supported by judicial authorities.

It should be noted that the procedure on defining material changes in objective circumstances shall be completed, which means there shall be a failure to reach an agreement on the amendments to labor contracts. Meanwhile, the amendments on the adjustment of positions and relevant terms after negotiation shall be operational and reasonable.