China Employment Contracts and Rules and Regulations

If you have or will have employees in China, you need relevant and effective China employment documents. This means you need a well-written China employment contract with all of your employees (foreign and domestic) and a set of China-centric Rules and Regulations (often referred to as an employee handbook). Most foreign companies with employees in China now understand how important it is to have both these documents, but many fail to ensure that these two documents work together. When conducting HR audits our China employment lawyers frequently find conflicts between a company’s employment contracts and their rules and regulations and these conflicts nearly always favor the employee in an employment dispute.

Let’s consider this hypothetical. An Employer and its Employee enter into an employment contract for a fixed term which provides for a guaranteed year-end bonus during the term of employment. But the employer rules and regulations say that resigning employees will not receive a year-end bonus. Employee resigns in the middle of the year and demands Employer pay a prorated bonus based on the actual time Employee worked that year, citing the bonus provision in the employment contract. Employer refuses to pay the bonus, claiming the relevant provision in the Employer rules and regulations should apply. Employee then files a labor arbitration claim. How will the labor arbitrator rule?

In the real case on which this hypothetical is based, the arbitrator noted that the employee’s contract and the employer’s rules and regulations contradicted each other on whether a resigning employee is entitled to the year-end bonus. The arbitrator went on to hold that when there is a discrepancy between an employer’s rules and regulations and the employment contract and the employee requests the contract prevail, the arbitrator or court will grant such a request. Therefore, the arbitrator applied the terms of the employment contract which explicitly stated that the bonus was guaranteed and it ordered Employer pay Employee a prorated bonus based on the time Employee put in for Employer during the year Employee left.

The following are the key takeaways from this case:

1. You as an employer need to take the necessary time to make sure your employee contracts are consistent with your employer rules and regulations on all essential issues, such as the terms and conditions for bonuses.

2. If your China company is to have effective HR programs and policies, all of its governing employment documents must fully comply with all applicable laws (national and local) and they must also be consistent with each other.

3. This means you should search out and then root out all inconsistencies or conflicts in your employment documents.

4. Verifying all your employee-related documents fit well together will eliminate employee and management confusion and will go a long way toward preventing problems and disputes down the road.

5. Use clear, logical, practical and consistent employment documents that tell your management, your China employees, and the Chinese authorities that you are a law-abiding and responsible employer. Sending this sort of message pays dividends.

What are you seeing out there?