The Supreme People’s Court in China has issued a judicial interpretation dubbed as the “new social insurance rule”, which takes effect on 1 September 2025.
The Supreme People’s Court judicial interpretation on the application of law in the adjudication of labour dispute cases (II), also known as interpretation II, will directly impact the rights and obligations of workers and companies across all industries.
“The new judicial interpretation unifies certain adjudication standards for labour disputes, providing more protection for workers’ rights and imposing stricter compliance requirements on employers,” said Alex Yang, a Shanghai-based partner at Hui Ye Law Firm.
Since it was announced, it was widely known as the “new social insurance rule” due to the Supreme People’s Court’s interpretation for employers and employees who have opted out of the social insurance system.
Under article 19, any agreement in which an employee voluntarily waives social insurance is invalid. Based on this, employees may terminate their labour contract and ask for compensation.
Many netizens in China have interpreted article 19 as making social insurance universally mandatory, which has led to widespread debate, as it may increase operational pressure on small and medium-sized enterprises amid a challenging economic environment.
Song Puwen, a Shanghai-based senior partner and head of the labour law committee at Hansheng Law Office, said their understanding was incorrect.
“The requirement for employers to pay social insurance in accordance with the law does not originate from this judicial interpretation. Various laws and regulations, such as the labour law, have long stipulated this,” he said. “Interpretation II did not establish a ‘universal mandatory social insurance’ system, but rather further clarifies the invalidity of waiving social insurance to regulate enterprises’ employment and social insurance contributions.”
Yang said that if an employer had repaid their overdue social insurance contributions, then it had the right to recover substitutes, such as cash incentives, that it had given to employees as a replacement for the social insurance contributions.
“If any omissions are found, companies should rectify this promptly to reduce the risk of contract terminations. The right of recourse should be exercised in accordance with the law after making the overdue contributions,” he said.
The new judicial interpretation also addresses non-compete restrictions and other aspects of labour contracts. Article 13 specifies that the scope of non-compete clauses for an employee must align with the scope of trade secrets they can access. Yang said that if an employee had no access to trade secrets, such as those in ordinary job positions, the relevant agreement may be deemed invalid.
Song suggested that employers should implement a tiered classification system for non-compete agreements. “Companies can customise agreements according to the level of confidentiality each position might access,” Song said.
“For agreements with individuals in core positions, the scope, region and duration of trade secrets should be clearly defined. While companies should avoid over-generalised clauses in contracts with ordinary staff. They should also retain signed acknowledgements confirming employees’ awareness of confidential information.”
Article 3 of the judicial interpretation addresses the legal issues arising from employees being required to work for multiple affiliated branches of the same parent company.
Yang said that if an employee was alternately or simultaneously used by multiple affiliated companies without a written labour contract, the court would determine the employment relationship based on actual job practices, including work arrangements and working hours.
“Employers should clarify the employment entity in contracts, sign written labour contracts with employees promptly and clarify the employment responsibilities among affiliated entities through internal agreements,” Yang added.
Song reminded the construction industry to pay attention to article 1 of the new judicial interpretation, which addresses the responsibility of the actual contractor in cases of illegal subcontracting. He said: “When a company subcontracts business to an unqualified entity, the original contractor or the affiliated entity may be held directly liable for labour remuneration, work injury benefits and other liabilities. The catch-all provisions for ‘other liabilities’ may further expand the scope of responsibility.”
It has been suggested that companies revamp their subcontracting arrangements. “Employers should rigorously vet the qualifications of subcontractors and affiliated entities, and clearly define in contracts the allocation of rights and obligations, as well as compensation for breach of contract in their agreements,” Song said.
