Our China lawyers constantly help foreign companies set up companies in China — usually wholly foreign owned enterprises or WFOEs. As part of these WFOE formations, we help our clients with their employment matters that arise before, during and after the WFOE is formed. One of the things we always do for our WFOE formation clients is draft the employment documents they will need for their newly established WFOE.
When a WFOE is up and running, it needs employee agreements in place for all its employees. When we are called on to provide China employment law assistance to China WFOEs-to-be and freshly minted WFOEs, we usually recommend what we call an Initial Employment Package, which consists of the following for each employee:
- Employment Contracts for all employees
- Rules and Regulations
- Trade Secrecy and Intellectual Property Protection Agreements
- Sign Off Agreements, (acknowledging each employee’s receipt of the Rules and Regulations)
Having the above for your employees is crucial to operating as a WFOE in China with employees. If all you have is an employment contract, you are not fully protected. Specifically, your technical secrets or other trade secrets and the related intellectual property rights are not well protected as against your employees. And you likely will have no recourse against an errant employee no matter what the employee’s wrongdoing, since you do not have a set of China-centric Rules and Regulations to facilitate penalties or termination.
Your Rules and Regulations need to work for your specific locale(s), so if you have multiple locations in China, you need separate, standalone policies tailored for each location. Your employment contracts also should be localized. For more on the need to localize your China employment documents, see China Employment Law: Local and Not So Simple. We have worked with 1) companies with one WFOE and employees throughout China, 2) with companies with multiple WFOEs, one for each city, and 3) with WFOEs with branch offices in each city in which they have employees. Each of these structures require different documentation.
We also frequently draft non-compete agreements and these also virtually always need to be tailored to the specific situation, with that usually depending on the positions of the employees and their salaries and the shelf-life of the information that needs protecting.
Another common employment law issue we see with new WFOEs is what they can and should do with employees who work flexible hours. It is important to note that your new employees usually cannot be designated to work under China’s flexible working hours system until you have obtained the necessary government approval for the WFOE and it is up and running.
It pays to start with a strong employment law and document foundation for your China WFOE.