How to Avoid China Employment Law Problems: A Current Employment Contract With Every Employee

1. The Chinese Government is Going After Foreign Employers

In  How to Avoid China Employment Law Problems: An Employee Handbook That Works, I wrote how Chinese authorities are going after foreign employers (especially Americans) for violations of China’s employment laws. See also Want to Keep Your Business in China? Do These Things NOW.

The Chinese government loves going after employment law violations because this 1) is popular with its citizens, 2) protects its employees, 3) generates hard currency for the government, and 4) quietly and legally retaliates against American (and Western) companies in the trade wars.  It’s a rare day when one of our China employment lawyers is not contacted by a foreign employer caught in this net. The key for foreign employers to avoid these expensive employer problems is compliance.

In my earlier post, I discussed how critical it is for foreign employers in China to have relevant, timely and well-crafted China employer rules and regulations — often referred to as an employee handbook.

2. Appropriate Employment Contracts are Necessary

But just having a good employee handbook is merely step one. You need more. You also need a current and appropriate employment contract with each and every one of your employees. Like the employee handbook, your employment contract should work for you and not against you, and it must comply with all of China’s current national and local employment laws.

Chinese law requires every full-time employee be hired pursuant to a written employment contract and have an up to date one during their tenure. It also makes sense for your part-time employees to have written contracts because their part-time employment contracts prove they are part-time employees. This contractual proof often becomes necessary because part-time employees love claiming they were really full-time employees all along and you now owe them lots of money for having failed to provide them with the required benefits that come with full time employment.

When the China employment lawyers at my firm are tasked with writing an employment contract, the first thing we do is review the employer’s HR program and their employees’ situation to determine what terms and conditions should go in the employment contract and what should be left in the employee handbook. What will be the employment term? Will there be a probation period? What will be the employee’s working hours? How will overtime be paid? What sort of compensation package will employees get? What are the conditions (if any) for employees getting a bonus? How many vacation days will employees have? Will employees get additional paid time off in addition to vacation days and national holidays? A good China employment contract protects the interests of both the employer and the employees  and does so within the laws and realities of the parties’ locale. See China Employment Law: Local and Not So Simple. Most importantly, a good  employment contract helps guide both the employer and the employee in making good decisions and thereby reduces legal and government disputes.

A good employment contract coupled with a good employee handbook gives foreign employers greater freedom to act. China’s declining economy means many foreign employers want to lay off or terminate Chinese employees and our employment law team has been getting a lot of matters where foreign employers want to terminate an employee for “not working out. This is difficult to accomplish under Chinese law and nearly every time the dividing line between the employer that can do this and the employer that cannot has been the employment contract and the employee handbook and the interaction between those two documents.

We have had times where we could confirm the employee’s employment term was expiring soon and there were no laws requiring the employee be retained and the employer was not otherwise required to enter into an open-term contract upon the contract’s expiration. In other words, a clean non-renewal notice could relatively easily achieve the employer’s goal and it did. In these situations, all the employer had to do was pay the employee statutory severance for not renewing the contract — a small cost compared to keeping them for another term and possibly converting them to lifetime employees. The terminations went smoothly. We have also had times where we have had to tell our client that terminating any employee was simply too risky.

What constitutes a good China employment contract? A good China employment contract must be written from the perspective of Chinese laws and from the laws of the locale in which your employees are based. In other words, you should not use an employment contract for a China-based employee that is nothing more than a Chinese translation of your U.S. (or any other non-PRC jurisdiction) employment agreement. You also should not use the same contracts for Shanghai that you use for Shenzhen.

Consider this: An employer and a Chinese employee sign an employment contract which provides that the employee can be terminated without cause so long as the employer pays a certain amount of severance. The employer employs the employee for a few years but then decides to lay off the employee and verbally informs the employee of its unilateral decision and its intent to pay the severance specified in the contract. The employee says, “I do not agree to the termination.” The employer refers to the provision noted above. The employee says, “yeah but that provision is illegal, so it is not enforceable against me.” The employer assumes the parties can contract around termination, but many China employment laws simply cannot be contracted away.

Employment agreements like this often cause big trouble for foreign employers, especially when they make an improper termination decision. Most of the time when our China employment attorneys are called in to help in this sort of situation, the employers do not even realize the extent of their problems because they think that by following their own employment contract they have done everything right. All this stems from the employer’s having failed to use a proper employment contract in the first place.

Last but not certainly not least, an employment contract, regardless of how well-written it is, must be current. If it is not current it could subject the employer (not the employee) to all sorts of risks and problems. I will discuss this in a subsequent post, but for now, just remember you should not have an employee on your payroll without a current written contract. If you have an employee whose contract is about to expire, you should consider whether you should you renew the employee’s contract for another term?

Bottom Line: Avoiding China employment law problems requires you have a current China-centric and localized employment contract with all your China employees.

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