China Employer Rules and Regulations: The Clock is Ticking

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If you have been following our posts on China employment law, you know how crucial it is for China employers to have up to date written employment contracts with all of their employees. You should also know that the employment contract is only one of many key documents you need for each new hire. At minimum, you should also have the employee 1) review and sign off on your employer rules and regulations and 2) sign a trade secrecy and intellectual property protection agreement at the beginning of employment. You may need additional agreements (for example a non-compete agreement) depending on your company and on each employee’s specific situation, but the above are the bare minimums you as China employer should have to protect your company in China. In this post, I focus on employer rules and regulations, a/k/a the employee handbook.

As a general rule, you do not want to put off getting your employees’ signatures on a receipt proving they received your rules and regulations. Why is this so important? Consider this: you enter into an employment contract with one of your employees. After a disagreement with her manager, this employee throws a tantrum and causes serious damage to company property. You now wish to terminate her and before doing so you check her contract. It says you may terminate this employee for a serious breach of your rules and regulations. This is one of the few legally permissible grounds for an employer to unilaterally terminate an employee without having to pay severance. You then look for proof that you provided your rules and regulations to this employee and you cannot find anything one way or the other. You nonetheless go ahead and terminate the employee. This will probably be the wrong move because your employee will likely claim you never provided her with a copy of your rules and regulations and she will almost certainly prevail and your termination of her will be deemed to have been an unlawful termination.

Yes, employees everywhere in the world — and China is no exception — are expected not to throw tantrums at work or damage company property, but in China, if you do not have employer rules and regulations or some other company document explicitly prohibiting this sort of behavior, you may be out of luck.

Though a few Chinese courts have allowed employers to discipline or even terminate an employee based on the employee’s duty of good faith, most do not follow this practice when the employer’s rules and regulations are silent on the particular misconduct. This means only the employer rules and regulations can be relied on to make disciplinary/dismissal decisions and if you cannot prove you provided your rules and regulations to the terminated employee and that your rules and regulations allowed for the termination, you probably will lose a long and expensive lawsuit with your terminated employee. I am not talking in the abstract here either; I am basing this statement on our China employment lawyers getting a steady stream of appeals requests from foreign companies that have already lost such lawsuits.

Chinese law imposes a monetary penalty on employers that fail to execute a written employment contracts with their employees within one month of the employee’s commencement. For this reason, many employers are careful to make sure to follow this law. All this is good but it’s not enough. Even though there is no specific legal requirement requiring you get your employees to sign something indicating they received your rules and regulations, failing to secure this can equal failing to get your employees to sign their employment contracts. And just as is true with employment contracts, the longer you delay in having your employees sign off on a well-crafted Chinese language set of rules and regulations, the more it will cost you when you try to discipline/terminate problem employee(s) down the road.

By far the best time for implementing a set of rules and regulations is when your China entity is being formed and you start recruiting employees. This allows you to have your first group of hires sign off on your employer rules and regulations and ensures you are fully covered. Our China employment attorneys recommend a yearly audit of every China company’s employment documents (including their rules and regulations) to ensure they are up to date with all legal and company and employee changes.

Bottom line: Having your employment documents in good shape early on and then audited yearly greatly reduces future costs and employee troubles.

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