China law mandates written employment contracts with all (Chinese and expat) full-time employees. Those employment contracts must include the following provisions:
- Basic information about the employer and the employee, including place of work
- Duration of the contract
- A description of the work the employee will be performing
- Working hours and rest and leave time
- Wages and social insurance
- Applicable labor protections and labor conditions and protection against occupational hazards
- “Other matters required by relevant laws and regulations.”
If an employer goes more than a month without a valid written employment contract with an employee, the employer will be required to pay that employee double the employee’s monthly wage. If a second one-month period passes without a valid written employment contract (even if the employee refuses to enter into a written contract), the employer must pay applicable economic compensation upon terminating that employee. In addition to the double wages that the employer must pay to its employee, most local authorities also fine the employer (sometimes quite substantially) for having violated the rules on written contracts.
If an employer goes more than a year without a written employment contract with an employee, the employee lacking the written employment contract will be deemed to have entered into an open-term labor contract the employer, which essentially means there is no definitive end date to the labor relationship. If this happens, it becomes nearly impossible to terminate the employee without having to pay multiple years of wages.
It is important to note that the above rules apply both to Chinese and to foreign employees working in China. It is also important to note that some Chinese labor arbitration commissions and some Chinese courts do not recognize anything other than Chinese language agreements as valid written employment contracts.
Now consider this common situation about which our China lawyers are often contacted. The employer and an employee execute a fixed-term written employment agreement. After that contract expires, the employer and the employee do not renew the contract, but the employee continues working for the employer. The employer just assumes that its previous written contract is in effect and that it and the employee have merely orally agreed to continue it. But can the employer be penalized for not having a written labor contract with the employee? None of China’s national employment rules provide clear guidance on this issue and so (like so many China employment law issues) the answer depends on the employer’s location.
The Beijing Labor Bureau is of the clear opinion an employee who keeps working after a written contract has expires has no valid written contract and this means that the employer must pay double the employee’s monthly wage for all work performed after the initial written agreement expired. So if you are employing anyone in Beijing under anything other than a still-valid written employment contract, you can (and almost certainly will) eventually get hit with a double-wage penalty for continuing to employ someone after his or her labor contract has expired. This comes as a most unpleasant shock to those to whom this has happened.Though most cities are less clear than Beijing regarding double wages, our China lawyers are aware of companies outside Beijing that either have paid a double-wage penalty or paid settlements with employees as though the double wage penalty was a real possibility.
Bottom Line: If you are employing anyone in China without an up-to-date written contract in Chinese, you are at risk for a substantial penalty.