CEO's Thoughts

China Employment Contracts

By June 6, 2014 December 8th, 2017 No Comments
China skyline

Employment law in China is increasingly swinging towards the employee’s rights.  While on the balance this spectrum still favors the employer when compared to other major economic countries, there are some important elements to get the China employment contracts right for the potential employer.

New call-to-action

Duration
The employment relationship begins when the employee starts work. The Law requires a written employment contract to be entered into when such a relationship is established. However, if the employment relationship is established before a written contract is entered into, then the parties have one month to work on an employment agreement.

Employers should be very careful about this “one-month” deadline. If no written contract is signed by the deadline, the employer has to pay double salary to the employee, counting from the first day of the second month. After a year without a written contract, the employer must pay double salary from the second month to the end of the first year of employment and the contract is also deemed to be a labor contract without fixed term from the first day of the second year. Given the risks, In-house counsel employing labor in China should get written employment contracts as soon as possible.

Required Information
In order to be valid, the employment contract must include the following information:

  1. The employer’s name, domicile, legal representative, or major person-in-charge;
  2. The employee’s name, domicile, identity card number, or other valid identity certificate number;
  3. The term of the labor contract;
  4. The job descriptions and work locations;
  5. The work hours, break time, and vocations;
  6. The remuneration;
  7. The social security information;
  8. The employment protection, work conditions, and protection against and prevention of occupational harm; and
  9. Other items that shall be included in the labor contract under any laws or regulations.

In addition, the parties can always include other clauses as they deem necessary and appropriate. Also, severability is the default rule: the invalidity of any part of the contract does not affect the validity of the other parts of the contract.

Term
There are three types of employment contracts under the law:

  • fixed-term labor contracts,
  • labor contracts without a fixed term, and
  • labor contracts for the completion of specific tasks.

The contract without a fixed term brings the most trouble for companies because limits their ability to terminate the contract. A labor contract without a fixed term is a contract in which the employer and the employee do not stipulate an end date for the contract. This type of contract is considered better for long-term employment relationships. However, problems arise when the employee has worked for the company for ten consecutive years. In this situation, the parties are deemed to have a labor contract without fixed term unless the employee proposes otherwise. The law also imposes some limits on employers in this type of contract:

Termination
The employee has more control over the termination of contract when it is one without fixed term. A contract without fixed term can be terminated with mutual consent or by the employee unilaterally with a 30-day advance notice. When lay-offs are necessary, the employees with a contract without fixed term have seniority over others. Also, the employer can only terminate the contract for causes listed in the law, such as bankruptcy, significant changes in the company, or the employee’s potential criminal conviction.

Severance
When the company terminates the contract without a fixed term for cause, it does not need to pay severance. However, for some situations, like bankruptcy, significant changes in the company or employee’s incompetence for work, the company must pay severance. The severance is based on the length of time the employee has worked for the company:

  • a month salary for each year in the company;
  • if it is less than 1 year but more than 6 months, one month salary should be given; and
  • if it is less than 6 months, half month salary should be given.

-Ben Wright