This morning, I received a cc of an email one of our China employments lawyers sent to a software client of ours for whom we just started working on their China employment law issues after having registered their WFOE. The email explains the various employment documents we prepared for them, but it serves as a great introduction to many of the key differences between China’s employment laws and those of the United States.
Here’s the email:
As you will see, the Chinese employment system is based on Asian socialist and Northern European models. China’s employment law system is quite different from the U.S system. The main difference is that the U.S. is an employment at will system, which means you can terminate employees at any time for pretty much any reason. China’s system is the opposite. The Chinese employment law system is a contract employment system. This means all employees must be engaged pursuant to a written employment contract and during the term of that contract, it is difficult to terminate an employee. A China employee can generally only be terminated for cause and cause must be clearly proved. This means the employer must maintain a detailed set of rules and regulations and must maintain careful discipline records to be able to establish grounds for dismissal. This whole situation makes the employment relationship and the employment documents much more adversarial than is customary in the U.S. You will find that the “tone” of the documents I am sending you is not consistent with your normal “collaborative team” approach towards employment issues.
You should also note that China does not really have the concept of a “salaried” employee. The Chinese work week is 40 hours and overtime must be paid for any work exceeding this 40 hour limit. I know this approach is very foreign to software/service businesses like yours but there are no exceptions to this rule.
I will be sending you set of preliminary documents to review. At this time, please consider the following:
1. Term of employment. As noted above, each employee must be hired pursuant to the terms of a written employment contract. After the initial contract term expires, you may re-hire the employee pursuant to a second fixed term contract. However, at the end of that second fixed term contract the employee automatically becomes an employee with an open contract term. This means you have only one chance to hire an employee on a fixed term basis.
Because of this, determining the length of the initial employment term is critical. We recommend an initial term of three years. This has two benefits. First, it allows you to provide a six month probationary period, during which time you can terminate an employee for any reason. This gives adequate time to test the basic skills of an employee. Second, it delays onset of open term employment for long enough to allow you to determine whether you wish to allow the employee to convert to open term status.
Of course, you are free to specify any term you feel is appropriate.
2. Salary. You will need to provide a salary, which we will then convert into an hourly wage.
In much of China, it is customary to pay salaries on a 13 month basis, with the final month paid just before Chinese New Year. This is optional, but it is important to state whether you will be using this approach. Many employees expect this “New Year’s Bonus” and failing to pay it (if expected) can cause problems.
3. Bonus. If you plan to have a bonus system for your employees, we should set this out.
4. Vacation. The statutory rule on vacation for employees in China is as follows:
First year: No vacation.
Years 2 through 9: 5 days.
Years 10 through 19: 10 days
20 years or more: 15 days.
If you want to provide more vacation time than set forth above, we will need to specify.
5. Other benefits. If you plan to provide benefits beyond the statutory minimum (set out in the rules and regulations provided), we will need to specify that. If you want to provide a particular benefit to all employees, we should put that in your Employee Rules and Regulations. If you want to provide employee- specific benefits, we will include them in the specific employment contract.
For example, China requires employees pay a portion of the employment taxes/fees. Some employers pay that portion for the employee as an additional benefit.
6. On site security. As you will see, the Rules and Regulations have a detailed section regarding on site security. If there are things that should be modified or added, please let us know. In addition, a company like yours should have formal policies on data and information security. I am sure you do this elsewhere and we can certainly modify what you already have for China. Please get those to us so we can put them into Chinese with everything else.
7. Travel. If your employees will travel domestically or internationally, you should have a written travel expense policy.
8. Trade Secrets/IP Protection. The documents include a separate Trade Secret and IP protection agreement. We drafted this to work for software companies like yours. If there is anything else you would like us to add, please advise.
9. Training. Will you be providing training for your employees? If yes, we should also develop a training agreement. Please advise.
10. Sign-off Agreement. Note that we have added a “Sign-off Agreement.” With this agreement, the employee acknowledges having received the Rules and Regulations and agrees to abide by those rules. It is important to have your employees sign this so they cannot later claim never to have received it, which claim is frequently made at China employment arbitrations.