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China’s Brand New Labor Law Regulations. It’s All Here.

China employment lawyer

The implementation regulations for the new Chinese Labor Contract Law were promulgated on September 3. When the draft regulations were issued earlier this year, our China employment lawyers went on the road to speak about the proposed changes, and despite having shrunk from 45 articles to 38, the content of the regulations remain relatively intact. You can read the full text of the final version of the regulations, in Chinese, here.

The newly issued implementation regulations have four sections (compared to three in the draft version), dealing with establishing the labor contract, terminating the contract, special issues with dispatched workers, and an additional section on legal responsibility.

The biggest cuts were in the section on establishing the labor contract. A brief rundown of the contents of this first section of the final regulations follows:

  • Employees who refuse to sign a contract within the first month of employment may be terminated by the Employer without need for compensation.
  • Employees who have not yet signed a contract between the first month and first year of employment shall be paid compensation of twice their wage every month worked without a signed contract. If the employee refuses to sign a contract, the employer may terminate the employee, but must pay severance.
  • Employees employed for over a year without having signed a contract shall be compensated as above for that year, and shall be deemed to have entered into an open term contract.
  • Employees who have been moved from one company to another at the request of their employer shall have all their working time in all companies included in assessing whether they have satisfied the 10 year requirement for open ended contracts
  • If the contract term expires before the term of service agreed upon, the contract must be automatically extended to extend to the end of the term of service.

The second section deals with terminating contracts and it lays out the various conditions where this can occur. When the Labor Law came into effect at the beginning of this year, companies were concerned about having open ended contracts for employees of over 10 years and for those who had already signed 3 consecutive fixed term contracts. To some extent, the implementation regulations were designed to correct the misinterpretation that this, in effect, meant employment for life. The regulations do this by setting forth the following basis for terminating employees with open ended contracts:

  1. mutual consent between employer and employee;
  2. employee fails to satisfy the conditions for employment during the probationary period;
  3. employee materially breaches the employer’s rules and regulations;
  4. employee commits a serious dereliction of duty or practices graft leading to substantial damage;
  5. employee has an employment relationship with another employer that prevents the fulfillment of responsibilities and then refuses to rectify the situation;
  6. employee deceives or coerces the employer into signing or amending the employment contract;
  7. employee is under investigation for criminal charges;
  8. employee is unable to resume employment duties after the legally stipulated period for recovery after illness stemming from a non-work related injury;
  9. employee is incompetent and remains incompetent after training or new work assignment;
  10. a major change in the circumstances relied upon at the conclusion of the contract which makes it impossible to execute, and no agreement is reachable by both parties on any amendment;
  11. employer is undergoing restructuring under the Enterprise Bankruptcy Law;
  12. employer is unable to continue normal business operations;
  13. employer changes its production, introduces new technology or changes its operating method and needs to reduce its workforce; or
  14. there is a major change in the objective economic circumstances relied on when signing the contract and that circumstance now renders performance under the contract impossible.

This list mirrors the list under the Labor Contract Law. The Labor Contract Law further divides these 14 points into those which require severance pay and those which do not. The key to being able to terminate an employee for something like incompetence is to make very clear in an Employee Manual what is required of employees, and when employees will be in breach of their responsibilities to the company.

This section also states that employees with contracts that end upon completion of a job are entitled to severance pay. This has major cost repercussions for companies that hire seasonal workers.

The third section essentially notes that dispatched employees are to be treated as regular employees regarding compensation and regarding establishing and terminating labor contracts.

The last section sets the range for fines for infractions of the Labor Contract Law. Just by way of example, incorrect staff roster information leads to a fine ranging from 2,000 to 20,000 RMB. and fins for issues relating to dispatched workers range from 1,000 to 5,000 RMB. The regulations also give the labor bureau the power to force employers to pay the compensation outlined in the Labor Contract Law and the specific amounts listed in the regulations.

14 responses to “China’s Brand New Labor Law Regulations. It’s All Here.”

  1. Ron,
    Great question. The answer is YES.
    Now here’s a question. Suppose an American company hires an American in the US and they sign a written contract saying US law applies and then the American goes to work for the American company in China for two years, does Chinese or US law apply? I think China would still apply its laws, not US laws, though I also think the US would probably apply US law. Anyone else want to chime in on this?

  2. I think that somewhere, either in the PRC Labour Law or some ancillary regs (or maybe the PRC Contract Law?), it says that Chinese law must govern PRC labour contracts.

  3. US law is rather flexible with respect to labor contracts so it is difficult for me to see a conflict happening, and what happens depends on the nature of the conflict.
    The most likely thing that would happen is that the US contract includes a provision that would be invalid under Chinese law, in which case it’s likely that Chinese law would prevail since most laws that invvalidate a labor contract provision are of a nature that can’t be waived by a contract provision or a choice of law provision.
    We can then imagine the situation in which some contract provision gets invalidated, and then the employee sues for damages in US Court.

  4. If the person came back to the United States, they probably could sue for some equitable remedy (unjust enrichment or restitution). They probably couldn’t sue for breach of contract, since the contract wasn’t breached, and I doubt that they could sue for anything involving bad faith since it’s unlikely that the employer intentionally tried to get money from the employee.

  5. Article 26 of “Measures for Administrating Foreiger Employment in China” provides “A dispute between an employer and a foreigner shall be dealt with in accordance with ‘labor law of PRC’ and ‘labor dispute treatment regulation of PRC’.” This document is still valid but not updated. I think China court and labor arbitration committee will follow this.
    If you have no direct labor relationship with the company you are working for, i.e. you are a secondee or otherwise, you cannot get protection from China labor law. I once had such a case in which the VP of a JV, as plaintiff, was refused. Court said he should sue JV’s parent company in Austrilia with which he made contract.
    Recently there is KEITH CHANG case in Shanghai which you can find on the web. Keith is a Canadian and his rights in the labor contract is lower than the rights offered by labor. Shanghai court held the contract is good, since the self intention should be respected. Beijing’s judges think self intention should be subject to labor contract law.
    I think Shanghai court’s opinion is stupid.

  6. In China, even the law is getting strict, the empolyers are really good at dealing with the new laws. e.g. My friend employed by a local big corp. And the thing is for first 3 months , they only pay a very small amount salary.After 3 months, they will double the salary. The tricky party is the employer asked my friend to move to a remote city at the end of 3rd month. Of coz my friend wouldn’t do that as she has family and friends in currently city. So the choice is you quit yourself..

  7. Chris,
    Your friend might forget to have a location clause in her contract. Otherwise she can refuse to work in another city. If the contract does not say she should go to other place as the employer wishes, she doesn’t need to quit herself. If the corp terminates the contract, she can bring suit for damages for two reasons: lower salary for first three months and groundless termination. A foreigner, if she is, can get lots of reporters’ attention for labor case, which would be a great pressure for a big Corp.
    Another tip, during olympic, every state owned corp received order from government, no dispute, especially mass dispute, is allowed, lots of people get far more than what they can get from the employer during that period.

  8. The labour contract law is just strict to corp, but care the employee. I am a Chinese lawyer in Shenzhen, Guangdong. There are many cases about this law conflict. Guangdong goverment is afraid toaa many corp move out China, Guangdong hing court explain this law, broaden to corp and judge this case lean to corp.

  9. China’s New Labor Contract Law. Harmonized Out Of Existence?
    As regular CLB readers now, we have been flacking China’s new labor contract law since even before its inception at the beginning of this year. Without a doubt, it has been one of our two or three most popular topics. To wit: –“China’s Proposed Labor …

  10. “Recently there is KEITH CHANG case in Shanghai which you can find on the web. Keith is a Canadian and his rights in the labor contract is lower than the rights offered by labor.”
    Can anyone provide a link to this case?

  11. Can you give your comment on:
    I am quiting my current company (foreign company in China), I have an open ended contract and i was expecting to receive a compensation for my 3 years working here, but my employer says I am not able to apply for this since I quit and my contract is still not finished.
    is trat true? is not for all cases when I decide to leave?

  12. I am a local non-PRC employee of an american company in china receiving RMB salalry. what laws apply to me – can the amercian company sue me in china and usa if i breach my contract of employment? i do not
    understand what they mean by local non-prc employee.

  13. Let’s say an employee wants to quit his or her job and their contract says if they quit their job, they’d have to pay the company (or school) lots of money. Is such a contract valid according to Chinese law? Would a person who quit their job have to pay their boss some money for quiting? Let’s say the person who wants to quit their job is working for a school.
    Thanks
    HJ

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