China Employee Contracts and Employee Manuals: Not Optional

One of our China employment lawyers wrote an email to a client the other day nicely setting forth what is involved with China employment contracts and with China employee manuals. This email went out after we completed the first draft of the client’s employment contracts and its employee manual, both of which are absolutely essential for any company with an employee (foreign or domestic) in China.
Here is that e-mail:

We revised these documents to as closely as possible accord with the type of employment you will have in your China WFOE. Please review these documents and get back to us with your questions and comments.

Please note that the rules and regulations document is a virtual handbook on Chinese labor law. Most of the content in this is not optional; the terms are required by Chinese law. Review of the rules and regulations first will resolve many of your questions about other matters.

Please also note the following:

The employment contract requires you to set the term of the employment relationship and the term of the probation period. At the end of the probation period, you can terminate the employee with no further issues. At the end of the first term, you can terminate the employee and pay severance or you can retain the employee.

Under the current interpretation of the law in China, once the second term starts, you are required to retain the employee up to the employee’s mandatory retirement age. Termination during that period requires good cause. We therefore recommend the initial period be for as long as possible to allow you the longest probationary period possible.

The probationary period should be treated seriously and no employee should be taken beyond the probation period unless you are clear they will work out. We generally recommend a term of three years and a probation period of six months. Most of our foreign clients choose to do an initial term of one year. Most end up regretting  that decision.

The rules and regulations are the basis for the relationship between you and your employees. You can only terminate an employee for cause, and cause must be a violation of a written regulation set forth in your company’s rules and regulations. That is why the rules and regulations are so detailed and generally so negative in tone. If you have anything else you want included in the rules and regulations, please advise us now.

Since your China-based employees will be dealing with your proprietary information, we have included an IP agreement for them to sign. Note that there is really no way to control their behavior through a non-compete agreement because they are not senior enough to be covered by such an agreement. Because you are going to essentially be limited to the terms of the IP agreement, you should review it carefully and let us know if you have additional concerns.

The sign-off agreement is used to ensure your employees agree they received all required documents.

Again, if you have any questions, please do not hesitate to ask. Our goal is always to provide you with documents that both comply and work with China’s laws, while at the same time maximizing your business objectives.

What do you think?