China Employment Law Webinar: Questions Answered, Part 3

In China Employment Law Webinar: Questions Answered, Part 1 and Part 2, I answered many questions I was not able to get to during my recent webinar on China employment Law: What Your Company Needs to Know. This is the final part of the additional Q & A.

Question: Are China employers obligated to inform an employee regarding employment contract renewal and, if so, how long before the current contract expires must that employer notification be?

Answer: Like so many China employment law matters, the rules on employment renewals vary by locale. Most places require employers give notice of renewal/non-renewal at least one month before the current employment contract expires. Regardless of what local law mandates, our China employment lawyers typically recommend employers start the renewal (or non-renewal) process early because it is much easier to deal with this issue early on before the expiration of the current employment term.

Question: Will the non-compete clause be effective even if the employee has not received any compensation for the non-compete clause?

Answer: Do you mean the employee never received any non-compete compensation after termination of employment? Whether a non-compete will be deemed effective will depend on additional facts, such as what exactly the parties agreed on regarding the employee’s obligations, the duration of non-payment by the employer, as well as what the local laws say. Generally speaking though, an employer must continuously pay its employee for a post-employment non-compete agreement to remain in force. In addition, the employee may unilaterally terminate the non-compete agreement/provision if the employer fails to make its required non-compete compensation payments for three months or longer, so long as the employee performed his or her non-compete obligations up to that point.

Question: If a non-compete clause has been included in the employment contract, but the employee does not receive any compensation payment, can the employer trigger the clause effectively?

Answer: A lot depends on what the non-compete and the employment contract say. See also my answer to the question above.

Question: Can I engage contractors instead of employees in China?

Answer: Generally speaking, China does not allow for independent contractors. This means any individual must be engaged pursuant to an employment contract, and your Chinese company must fulfill all employer obligations stemming from such employment, including paying the employee a salary and making social insurance and other mandatory employee benefit contributions. If you do not have a legal entity in China, you cannot directly hire anyone there and the independent contractor approach will not work. See Doing Business in China Without a WFOE: Will the Defendant Please Rise. There are some complicated work-arounds for this.

Question: We are a WOFE with four staff in Shanghai. We use FESCO to handle payroll and contracts. However, we have found FESCO to be slow and in many cases negligent. Aside from doing this ourselves, are there other options?

Answer: It is a little hard to comment on your situation without gathering up additional facts. In our experience, FESCO is generally pretty good overall, (though sometimes slow and always expensive) but this varies by location. If FESCO is not responding to you in a timely manner, you should request to speak to a higher-level manager, and you should also start looking at other HR service providers. Your options will also depend on your contract with FESCO. This goes without saying but you should never rely on FESCO for legal advice because they are not China lawyers, employment or otherwise. There are other options, but all are complicated and each have their own risks and rewards.

Question: Can a US company send its employees to China to perform some short-term work for its customers in China without getting any special visa?

Answer: It depends on what you mean by “special visa.” It also depends on other factors such as what the employees will do and how long they will work in China. This is not something you want to get wrong because China has since coronavirus been looking even harder for foreigners in China without the proper visa.

Question: I believe one of the latest China developments is the requirement for a business conducting CBEC to now establish a WOFE in China. I was a WOFE legal representative in China in 2009 for a German company. Can you touch on key changes since that time for someone becoming a legal representative again in 2021?

Answer: This is a very specific question and I do not have enough facts to even hazard an answer. I suggest you send me an email with your detailed questions. We will then review and get back to you with our initial thoughts.

Question: We have an employee who started out great but now is terrible. She is on an open-term contract though. Are we still allowed to terminate her?

Answer: Just because an employee is on an open-term contract does not mean she is untouchable. For example, you can unilaterally terminate an employee (open-term or otherwise) without having to pay severance if you can show the employee committed a serious wrongdoing in violation of your employer’s rules and regulations. With that said, terminating an open-term employee tends to be much trickier than terminating a fixed-term employee. Your options will largely depend on your employment contract with this employee and on your employer rules and regulations. Generally, if there is a no legally permissible basis for a unilateral termination, you will need to try to get it structured as a mutual termination (which requires a severance payment of at least the statutory severance amount) and she, as an open-term employee, will have a great deal more leverage in terms of severance negotiation.

Have more China employment law questions? Please feel free to send them to me at [email protected]. And please feel free to send me any other China or international law questions because if I cannot answer them, there almost certainly will be another lawyer in my law firm who can.