Our China lawyers constantly help foreign companies set up companies in China — usually wholly foreign owned enterprises or WFOEs. When a client’s WFOE is approved or a freshly minted WFOE gets in touch with us requesting guidance on China’s employment law, we usually send out the following WFOE Employment Letter:
Now that your WFOE is up and running, our China employment lawyers will assist you in making sure your WFOE is protected on the employment front. Towards that end, the first thing we will do is provide you with employee agreements for your use with all your China employees as part of what we call our Initial Employment Package, which consists of the following for each employee:
- An Employment Contract;
- A set of Employer Rules and Regulations;
- A Trade Secrecy and IP Protection Agreement; and
- A Sign Off Agreement (acknowledging each employee’s receipt of the Employer Rules and Regulations).
Having the above for your employees is crucial to operating as a WFOE in China with employees. In addition to the above mandatory documents, we also draft the following optional agreements for eligible employees:
- Non-compete Agreement; and/or
- Education/training Reimbursement Agreement.
During the process of drafting the Initial Employment Package, we will also work with you on any additional employee-related procedures you might need in China. For example, a common employment law issue we see with new WFOEs (and sometimes established WFOEs as well) is related to employees who work under an alternate working hours system such as the Flexible Working Hours system. In most locales, an employee cannot be designated to work under such a system until its employer has obtained government approval for the WFOE, which usually requires we work closely with the local labor authorities.
After you approve the employment documents we create for you, we will let you know what you need to do to maintain those documents. Ideally, the WFOE’s legal representative would sign all employment documents with WFOE employees, and the second-best option would be for the WFOE’s general manager to sign.
It is important the WFOE affix its official chop on all relevant employment documents. Besides stamping the company seal on the documents, you can also fan out the pages and stamp your company seal across all pages to make them look even more formal.
You should also make sure all your employees sign and date the documents appropriately. It is best to have both parties (the WFOE and each employee) execute the documents on the same day, before or on the employee’s first day at the WFOE.
You should provide one copy of the fully executed employment documents to each employee for their own records and you should hold onto at least one original copy of each fully executed document. Most places in China require you retain the employment contract for a minimum of two years after an employee’s departure, but we generally advise you hold onto the originals of all employee-related documents for as long as possible.
Please let us know right away if you encounter any issues in the signing process.
We recommend you check in with us as around one year from now for an assessment of your China employee situation. This quick audit normally involves our reviewing your employment-related documents, checking for any possible non-compliance against all national and local employer laws, speaking with your HR people and/or management regarding any imminent or potential employee problems (this includes you thinking about terminating an employee) and resolving any employment matters. Spotting employee issues and taking appropriate actions early can significantly reduce your headaches and costs. China’s employee termination laws are extremely strict and your costs to make sure an employee termination is handled correctly will be considerably less than your costs to defend against a wrongful termination lawsuit.
We also recommend a subsequent employer audit about three years from now. Among other things, because most WFOE employees start with a three-year employment term it is advisable to spend some time considering whether to extend the employee’s contract before the initial employment term is up. Because terminating a China employee is generally so difficult, you want to be sure not to retain an employee for a second employment term unless you are certain you wish to continue employing that person. Failing to properly terminate (or otherwise renew) an employee before his or her initial term has expired may convert that employee to a lifetime employee who you must retain until he or she reaches the mandatory retirement age. If you use a shorter initial employment term for an employee, we suggest you come to us at least one month before that employee’s employment term expires.
China’s employment laws are complicated and localized and they can change quickly. You should therefore have your employment situation checked regularly to confirm you remain in compliance with all applicable employment laws. I mention the hyper local nature of employment laws because it is not uncommon for companies to get into trouble when they hire employees in a new locale in China without effective employee documents for that specific locale.
Please do not hesitate to contact us should you have any questions or concerns now or along the way.