First, let us define each term and its applicable scenarios.

Commission, discount and rebate are all common promotional tools. Commission is consideration for intermediary services, generally paid to a middleman who facilitates a transaction. It qualifies as a service, issued with a positive-value invoice, and normally subject to a 6% VAT rate. In contrast, discounts and rebates usually arise between the two parties to a transaction and are tied to the underlying transaction, so their VAT rates follow those applicable to the transaction invoice. Discount refers to price concessions that reduce sales revenue. It is typically granted at the time of transaction, or after the transaction where the payee assumes liability and agrees to offer a discount, for example where goods have quality defects and the buyer accepts them with concessions, or where goods drop in price within the seller’s guaranteed price period. If the discount is granted at the time of sale, a positive-value invoice is issued, listing the original price on one line and the discounted negative amount on another. Pursuant to the Notice of the State Taxation Administration on the Issuance of Red-letter Special VAT Invoices for Discount and Allowance Transactions by Taxpayers (Guo Shui Han〔2006〕No.1279）， where a discount is granted after transaction completion, a red-letter invoice shall be issued. Rebate is generally paid after transaction completion and therefore also evidenced by a red-letter invoice. Lastly, where commission, discount or rebate is not truthfully recorded in the books and handled through off-book arrangements, it is commonly referred to as a kickback, which constitutes an act of commercial bribery.

With the development of online sales, new business models such as new media advertising placement and influencer live-streaming sales via platforms have created new types of promotional arrangements, making it sometimes difficult to immediately identify the parties and characterize the arrangement. We analyze platform models including Douyin’s Xingtu, Weibo’s Weitask, Tencent’s Tencent Mutual Selection Platform and Xiaohongshu’s Pugongying as examples.

The rules of these platforms generally deduct a percentage of platform service fees after an influencer completes a transaction through the platform. To enable such promotions and protect the rights and interests of merchants and influencers to a certain extent, platform rules mandate that the entire process —order placement, order acceptance, content delivery and platform settlement — must be conducted through the platform system. Platforms usually maintain publicly available or transparently disclosed quotation systems for partners, but do not allow direct modification of order prices within the system to realize instant discounts.

This transaction structure creates a problem, that is, a company may have reached an agreement with an influencer before the transaction, yet any promotional activity must be processed via the platform system. The discounts or rebates agreed privately cannot be adjusted within the system. Meanwhile, an influencer’s order volume processed through the platform affects the platform’s traffic allocation for the influencer. Therefore, influencers often prefer merchants to place higher-value orders through the platform, and then pay separate discounts or rebates to the merchant outside the platform. What legal relationship governs merchants and influencers under such arrangements?

In case (2023) Hu 0104 Min Chu No.855, the parties agreed that Company X would place orders through Douyin’s Xingtu and Xiaohongshu’s Pugongying platforms, and Company F would perform the promotion upon accepting the orders. The parties also agreed that Company F would grant rebates to Company X for orders placed by Company X on the platforms. The court ultimately upheld Company X’s claim for rebates. Notably, the cause of action in this case was a service contract dispute, not an intermediary service contract dispute. This shows that courts may recognize discounts or rebates as arrangements between contracting parties even where the underlying transaction is conducted via a third-party platform. In view of this case, if parties purchase property through an agent but conclude the transaction themselves, provided they do not bypass the agent and the agent receives commission (calculated based on the transaction amount before discount or rebate), there should be no legal risk.

However, when parties who are not familiar with the legal nature of these three concepts, they may make the payments under the title of commission. This is an incorrect practice. The business party itself is the counterparty to the transaction, while the platform acts as the intermediary. Therefore, such payment shall not be commission.

Finally, it should be noted that under Article 8 of the Anti-Unfair Competition Law, commissions, discounts and rebates must all be truthfully recorded in the accounting books by both parties; failure to do so constitutes commercial bribery. In practice, some business parties and influencers transfer funds under the guise of commission, information service fees, consulting fees, promotion fees, sponsorship fees and etc.. They fabricate service arrangements and false transaction backgrounds to create a veneer of compliance. Even with formal documents such as contracts, invoices and bank transfers through corporate accounts, such conduct may still be deemed invoice-related violations and even commercial bribery.

It is recommended that enterprises, when confronted with new business models, first properly distinguish commission, discount and rebate. Regardless of the model adopted, ensure all amounts are truthfully recorded and invoices are issued in accordance with law.

Let us analyze this layer by layer.

There are no statutory provisions governing such “review period”. Therefore, an employer may formulate internal rules or enter into agreements with employees regarding such period, in order to minimize operational disputes and litigation risks, the rules of such period must be clearly defined and reasonable.

The rules shall be clearly defined, which mainly means that the length of the period, remuneration during the period, evaluation criteria, and consequences upon failure upon the expiration of the period shall be clear and definite. The rules shall be reasonable, which mainly refers to the reasonableness of provisions when embodied in internal rules. If the rules are not reasonable, which may be deemed as invalid, in addition, such unreasonable rules may dampen employee motivation and initiative.

First, regarding the length of the period, since there are no statutory requirements, both parties may agree freely. An excessively long period will undermine employee motivation and mental stability, especially where salary increases are suspended or discounted during such period. Article 43 of the Regulations on the Selection and Appointment of Leading Party and Government Cadres sets a one-year probation period for non-elected personnel holding certain leading positions. Hence, by reference to this provision, the review period established by companies should preferably not exceed one year. Considering that promoted employees usually have several years of working experience, drawing on the provisions for employment probation, a period of 3 to 6 months is more reasonable.

Second, regarding remuneration during the review period, there are several available structures: (1) Remuneration in accordance with the salary standard for the promoted position; (2) Remuneration remains unchanged and is paid under the original position’s standard; or (3) Remuneration is paid at a discount against the promoted position’s salary scale. Each structure has its pros and cons. Scenario (1) maximizes employee motivation. However, if the employee fails the review period and reverts to the original position and salary, it often leads to a large psychological gap. In scenario (2), employees may feel aggrieved, assuming greater responsibilities without a corresponding pay rise. Scenario (3) strikes a balance between both sides, but the discount rate must be carefully considered. In addition, scenarios (2) and (3) carry the risk that employees may later claim underpayment and demand salary back pay. Nevertheless, where internal rules are valid or the agreement is clear, courts will not uphold employees’ claims. For example, in cases (2025) Yue 0113 Min Chu No. 2381 and No. 13394, the company’s employee handbook provided for a trial period upon promotion with salary adjustment effective the month after successful completion of the review period. The employee subsequently claimed back pay, which was rejected by the court.

Third, evaluation criteria during the review period should be as objective and quantifiable as possible to avoid disputes over the fairness, reasonableness and validity of evaluation results.

Fourth, rules governing outcomes upon expiry of the review period are also important. It is common to stipulate that employees who fail the review period shall return to their original positions and original remuneration. Adjusting the position and/or remuneration to a level lower than the original position carries risks of being deemed unreasonable. For instance, in case (2025) Yue 0112 Min Chu No. 15585, the company stipulated a review period after promotion, and stated that if an employee was found unsuitable or incompetent for the promoted role during the review period, the company could transfer the employee back to the original position or an equivalent role. Upon expiry of the review period, the company demoted the employee by two levels on the grounds of failing performance assessment in the following month. The salary after demotion was nearly 40% lower than pre-promotion salary, and the court ruled the demotion unlawful. As for employers seeking to terminate employment contracts during the review period based on incompetence in accordance with the relevant provisions of the Labor Contract Law, this approach generally carries high risks and is not recommended. On the one hand, the employer must prove incompetence; on the other hand, procedural prerequisites such as job transfer or training must be satisfied.

Lastly, in actual implementation, attention must be paid to procedural compliance and prudence to avoid adverse consequences arising from procedural errors. For example, in case (2026) Yue 0197 Min Chu No. 8104, the employee’s promotion had gone through the company’s complete approval process. The company later revoked the promotion on the ground of errors made when reviewing the employee’s qualifications during the approval process, and the court did not support the company’s position.

To address this issue, Article 47 of the “Minutes of the National Courts’ Civil‑Commercial Trial Work Conference” (Fa〔2019〕No. 254) stipulates: “Where the contractually‑agreed condition for termination is satisfied and the non‑breaching party petitions for contract termination on such ground, the people’s court shall examine whether the breaching party’s breach is de minimis and whether it frustrates the non‑breaching party’s contractual purpose, and determine whether the contract shall be terminated in accordance with the principle of good faith. …” It follows that in judicial practice, courts possess ex‑officio authority to review contract‑termination grounds agreed by the parties and render a decision on whether termination is warranted.

In light of judicial practice, where grounds for contract termination have been agreed and the counterparty’s conduct triggers such grounds, the following analytical steps are recommended to assess the follow up actions.

First, to confirm whether the contract is eligible for termination. Judicial interpretive positions on this question have evolved over time.

Article 47 of the aforesaid 2019 “Minutes of the National Courts’ Civil‑Commercial Trial Work Conference” once served as the primary legal basis for determining whether a contract could be terminated.

However, Article 26 of the “Judicial Interpretation of the Supreme People’s Court on Several Issues Concerning the General Provisions of the Contract Book of the Civil Code” (Fa Shi〔2023〕No. 13), which took effect on 5 December 2023, provides that where the breaching party fails to perform non‑primary contractual obligations as agreed, a claim for contract termination brought by the non‑breaching party shall not be upheld, unless such non‑performance frustrates the contractual purpose or the parties have agreed otherwise. Upon issuance of this judicial interpretation, viewpoints emerged arguing that minor breach per se should not bar exercise of the contractual right of termination.

In 2024, the Research Office of the Beijing Higher People’s Court submitted an inquiry to the Civil Division of the Research Office of the Supreme People’s Court concerning “whether a party may exercise a contractual right of termination in cases of minor breach”. The Supreme People’s Court indicated that the following factors should be weighed when exercising the contractual right of termination:

1. Degree of fault on the breaching party. While the “Civil Code” adheres to the strict‑liability principle and disregards fault when establishing breach of contract, fault is not devoid of significance under contract law. Where the breaching party is merely slightly negligent or even free from fault, a claim for contract termination ought generally not to be sustained.
2. Form of the breaching conduct. Contractual obligations may be categorized by nature into primary obligations, accessory obligations and collateral obligations. Courts should exercise caution when upholding a non‑breaching party’s termination claim for breach of accessory obligations, and especially collateral obligations.
3. Consequences of the breach. In scenarios such as minor delayed performance or isolated breaches arising in the performance of continuing contracts, where the breach is markedly trivial and does not defeat the non‑breaching party’s contractual purpose, granting termination may render substantial prior investments by the minor‑breaching party irrecoverable and produce severe imbalance of interests.
4. Availability of alternative remedies. Termination is neither the sole nor an automatic remedy for breach of contract. A de minimis breach does not absolve the breaching party of contractual liability. Where the non‑breaching party’s losses can be redressed through other forms of contractual liability (most commonly damages), and such remedy achieves greater fairness than outright termination, the non‑breaching party’s right of termination may be subject to restriction.

The response from the Supreme People’s Court largely returns to the doctrinal tone of Fa〔2019〕No. 254, that is, assessment must proceed by comprehensively weighing all relevant circumstances surrounding the minor breach.

Second, if the four factors have been reviewed, by which the termination could be confirmed as permissible, the contractual right of termination may be exercised. Conversely, the non‑breaching party may elect specific performance coupled with claims for contractual liability, or partial contract termination together with pursuit of contractual liability, depending on the circumstances of the contract.

In conclusion, from the contracting parties’ perspective, agreeing on termination grounds remains advisable. At minimum, it imposes an additional constraint on contracting parties. Should the counterparty indeed commit a breach, notwithstanding some uncertainty as to whether termination will ultimately be upheld, such clauses furnish an additional method.

Under Item 1 of Paragraph 1 of Article 15 of the “Regulations on Work‑Related Injury Insurance”, an employee who “dies of a sudden illness at work hours and at the work post, or dies despite rescue efforts within 48 hours” shall be deemed to have suffered a work‑related injury. This “48‑hour” threshold raises two questions: when does the 48‑hour clock start, and what standard governs the time‑of‑death determination.

First, the 48‑hour period does not commence when the employee collapses, feels unwell, or calls an ambulance. Instead, it starts from the time of the initial medical diagnosis made by a medical institution. This is explicitly stipulated in Article 3 of the “Opinions on Several Issues Concerning the Implementation of the Regulations on Work‑Related Injury Insurance”. In practice, key documents such as emergency‑room medical records, admission notes and pre‑hospital emergency care reports should be reviewed, rather than simply counting backwards from other events to calculate the 48‑hour period.

Second, the time of death shall in principle be that recorded on the death certificate, though the death certificate is not absolutely conclusive under all circumstances. Article 15 of the “Civil Code” provides: “The time of death of a natural person is the time recorded in the death certificate; in the absence of a death certificate, it shall be the time recorded in household‑registration or other valid identity registers. Where other evidence is sufficient to overturn the aforesaid recorded times, the time proven by such evidence shall prevail.” This is the core takeaway from the aforementioned Supreme People’s Court case. The judgment did not establish a new rule that deaths occurring after 48 hours automatically qualify as work‑related injuries. Rather, it conducted a substantive review of when the actual fatal state set in under specific evidentiary conditions.

However, such exception does not constitute a general rule. For example, in the case (2024) Hu7101XingChu No. 427, family members contended that the employee had suffered brain death within 48 hours, but a deemed work‑related‑injury finding was ultimately denied. By contrast, in the case (2017) LuXingShen No. 127, the Shandong High People’s Court upheld using the time of brain death as the time of death.

A persistent vegetative state is clearly distinguished from brain death and does not equate to death. Item 5.1.1 in the “Announcement of the Supreme People’s Court, Supreme People’s Procuratorate and Ministry of Public Security on Issuing the Grading of Disability Caused by Human‑Body Injuries” classifies “persistent vegetative state” as Grade‑I disability (the most severe disability grade). Therefore, even if an employee enters a vegetative state within 48 hours of falling ill, so long as the person remains alive, the condition cannot be treated as “death despite rescue efforts within 48 hours”.

Where an employee suffers a severe sudden illness at work, prompt hospital admission is a must to do action. For incidents falling near the 48‑hour threshold, a 48‑hour countdown should not be rigidly applied. Instead, a 48‑hour countdown time point shall be determined with a complete chain of evidence covering medical admission, diagnosis, resuscitation and the formal declaration of death.

1. The Impact of Tendering Procedures on the validity of Contracts

Article 1 of Interpretation I stipulates that a must be tendered construction project failed to go through the tendering procedures, it shall be invalid. Interpretation II prescribes different circumstances regarding the validity of contracts. Article 2 provides that if the parties negotiate on substantive contents before tendering, the winning bid contract may be deemed invalid. This explicitly clarifies that illegal negotiation acts such as “open bidding with secret pre-determination” and “pre-determination before bidding” will invalidate the winning bid contract, aiming to force owners to comply with rules during the tendering procedures. Article 1 provides that if the project is no longer subject to mandatory tendering at the time of filing a lawsuit, the contract shall not be deemed invalid solely on the ground of failure to tender. In other words, for projects that “must be tendered”, if they have become “non-mandatory tendering” projects due to regulatory or policy adjustments at the time of litigation, the contract will not be invalidated solely because of “failure to tender”, reducing compliance risks for legacy projects.

2. The Owner’s Knowledge Becomes Key to Determine Whether an Affiliated Party Can Sue the Owner Directly

According to Article 4, if the owner “did not know and should not have known” about the qualification lending at the time of contract conclusion, the affiliated party cannot directly break through the privity of contract to claim project payment from the owner. If the owner “knew or should have known” about the affiliation, it shall directly bear the liability for compensatory payment to the actual constructor. Therefore, owners must strictly review qualifications during the contractor selection stage. Meanwhile, at all stages of contract signing, construction, and settlement, owners should avoid contacting and transacting with personnel whose identity as contractors is uncertain to prevent being deemed “knowledgeable”.

3.  Return to Privity of Contract, to Set Restrictions on Actual Constructors Suing Owners

Article 43 of Interpretation I stipulates that actual constructors may directly sue the owner as a defendant to claim rights, leading to numerous cases in practice where owners are sued unjustly. Interpretation II makes differentiated provisions.

Firstly, in principle, the privity of contract shall not be breached. Article 6 explicitly provides that in cases of prohibited subcontracting and illegal subcontracting, the court shall not support claims for payment from the owner by the party accepting the subcontracting or illegal subcontracting.

Secondly, to set the requirements for exercising subrogation rights. Actual constructors may exercise subrogation rights only if the prerequisite is met. The prerequisite is that the contractor is negligent in exercising matured claims or accessory rights related thereto, affecting the realization of its matured claims. Owners can effectively block recourse in subrogation lawsuits by strictly implementing payment milestones and improving payment ledgers.

4.  Fixed Lump-Sum Contracts Are Generally Non-Adjustable, Owner’sBudgets Becomes More Controllable

Article 9 stipulates that fixed-price contracts are generally not subject to price adjustments due to fluctuations in labor and material costs. However, two exceptions are reserved. If parties have agreed otherwise, or “changed circumstances” as stipulated in the Civil Code occur, then price adjustments may be claimed.

There is a special situation, if a fixed lump-sum construction contract is terminated midway, and the parties cannot reach an agreement on the completed part (with qualified quality), Article 10 sets a rule for calculation: “the proportion of the project price of the completed part to the total project price may be determined by reference to the pricing standards, pricing methods, or relevant norms in the engineering construction field issued by the construction administrative department at the place where the construction project is located at the time of contract conclusion, and the project price of the completed part shall be determined by multiplying this proportion by the fixed lump-sum price agreed in the contract.” The rationality and practicality of this rule seem to be highly controversial.

5.  Owners’ “Delaying” Settlement Behaviors Are Regulated

In practice, it is very common for owners to delay payment on grounds such as incomplete audits or postponed commencement dates for retention funds due to uncompleted completion procedures. Article 13 provides that if an audit is cited as a reason, unless otherwise agreed by the parties, the court may determine the time limit for issuing the audit conclusion based on the project scale, cost, and complexity, with a maximum of one year from the date the contractor submits the completion settlement documents. The aforementioned one-year limit does not apply if the delay is caused by the contractor’s failure to cooperate in providing materials. Article 14 provides that the retention fund refund period commences from the date the contractor exits the site; if the construction contract is terminated after the contractor exits, it commences from the date of termination.

6.  Contract Termination and Quality Liability

Article 15 explicitly provides that after contract termination, the owner has the right to request the contractor to hand over the construction site and construction materials, helping the owner quickly organize subsequent construction and reduce losses. Article 16 clarifies the quality repair procedure, requiring the owner to fulfill the pre-procedure of notifying the contractor for repair before claiming quality repair costs.

In conclusion, Interpretation II clarifies the boundaries of owner’s rights and imposes higher requirements on owner’s standardized project management, namely, focusing on full-cycle management including preliminary compliance review, process performance supervision, and capital risk control.

In practice, employees may terminate the labor contract and demand economic compensation on the grounds of wage issues, such as, late wage payment, non-payment of overtime pay, salary reduction after job reassignment, and so on. Whether an employer shall pay economic compensation due to such wage issues?

Let’s see a case. In 2017, Wang joined a company, and his salary consisted of a base salary and variable remuneration, with the variable part paid based on performance assessments. In January 2023, the company updated the performance appraisal plan, abolishing fixed-performance wages and replacing them with floating performance wages. In November 2024, Wang terminated the labor contract on the grounds that the company failed to pay wage in full and on time, and claimed unpaid performance wages and economic compensation. The labor arbitration commission upheld all of Wang’s claims, but both the first-instance and second-instance courts only supported Wang’s claim for the performance wage difference and rejected his claim for economic compensation (see (2025) Hu 02 Min Zhong 11106 for details).

Therefore, the answer to the above question is not positive.

The legislative purpose of Article 38 of the Labor Contract Law is to prevent employers from maliciously defaulting on wage. Therefore, in judicial practice, whether the employer acted with malice must also be considered. Three factors are keys on the determination of malice:

1. Reasons for Wage Arrears

Article 4 of the Supplementary Provisions on Issues Related to the Payment of Wages (Tentative Provisions) issued by the former Ministry of Labor stipulates two scenarios where wage payment may be appropriately delayed: (1) The employer encounters force majeure such as natural disasters or wars beyond human control; and (2) The employer faces genuine production and operation difficulties or cash flow problems, and may temporarily delay wage payment after obtaining the consent of the company’s labor union. The maximum delay period shall be determined by the local labor administrative departments based on local conditions. For scenario (2), special attention must be paid to the procedural requirement of obtaining consent of the labor union and the local regulations on the maximum delay period.

2. Duration of Wage Arrears

Article 7 of the Payment of Wages (Tentative Provisions) mandates that wages shall be paid on the agreed date, and if the payment date falls on a holiday or rest day, payment shall be made in advance on the nearest working day. However, some local departments have established reasonable delay period. For example, Article 12 of the Regulations on Wage Payment for Employees in Shenzhen allows a 5 days delay with justifiable reasons. Article 54 of the Answers to the Trial of Labor Dispute Cases (I) issued by the Beijing Higher People’s Court and the Beijing Labor and Personnel Dispute Arbitration Commission stipulates that the latest payment date shall not exceed 7 days after the agreed date.

In practice, even with local regulations, the reasonable delay period may be extended in individual cases, especially during economic downturns. For instance, in Case (2022) Jing Min Shen 5584, the labor contract stipulated wage payment by the 10th of each month, but wages were actually paid around the 15th or at the latest the 23^rd, which was late for around 13 days. Nevertheless, the court did not uphold the claim for economic compensation. Given that the Payment of Wages (Tentative Provisions) generally requires monthly wage payment, claims for economic compensation are less likely to be supported if the arrears period does not exceed one month in individual cases.

3. Scope of Wage Arrears

Article 9 of the Opinions on Several Issues Concerning the Application of the Labor Contract Law issued by the Shanghai Higher People’s Court stipulates that failure to pay in full and on time due to unclear or disputed calculation standards cannot serve as a basis for an employee to terminate the labor contract. This is also the judicial logic behind the aforementioned case.

There are divergent views in practice regarding the scope of wage arrears. For example, in cases related to insufficient payment of annual leave wages, courts in Beijing, Shanghai, and Guangdong have rejected such claims (see (2022) Jing 03 Min Zhong 2232, (2024) Yue Min Shen 18941, and (2024) Hu 01 Min Zhong 11005). However, courts in Chongqing have supported such claims (see (2023) Yu 01 Min Zhong 1976). In cases related to insufficient payment of high-temperature subsidies, courts in Shanghai and Qingdao have rejected such claims (see (2023) Hu 0117 Min Chu 6207 and (2022) Lu 02 Min Zhong 712). In contrast, Article 6 of the Notice on Adjusting High-Temperature Allowance Standards issued by Jiangxi Province stipulates that if an employee terminates the labor contract due to the employer’s arrears or deduction of high-temperature subsidies, the employer shall pay economic compensation in accordance with the Labor Contract Law.

In conclusion, when an employer genuinely faces payment difficulties due to objective circumstances, it is recommended to assess the risks based on the specific situation and take necessary measures accordingly.

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.