How to Avoid China Employment Law Problems: An Employee Handbook That Works

1. China is Cracking Down on Employer Violations

With China’s economy in decline and so many foreign companies in China laying off employees, it should come as no surprise the Chinese government is cracking down harder than ever on foreigner employers that do not comply with China’s employment laws and the number of employee lawsuits is correspondingly on the rise. We previously discussed this need for strict compliance in Want to Keep Your Business in China? Do These Things NOW:

If past performance is any indicator of future performance — and I firmly believe it is — we know well what foreign companies must do to avoid China problems going forward and we set out those things below. Before anyone panic (too much), let me just say that for the past decade or so, China has consistently gotten tougher on foreign businesses in China that are not operating legally there and though this announcement is a really big deal, it is more a change in scope than it is in kind.

In fact, two days ago, in How to React to a China Economy in Decline, I listed out 8 things our international lawyers were seeing that indicate China’s economy is in decline. Item number one was the following:

The number of foreign companies getting into legal trouble in China. Whenever China’s economy slows, its government starts looking for foreign companies out of compliance with Chinese laws. It does this both to show its citizens that it is working on their behalf and to raise money by collecting on unpaid taxes, with interest and oftentimes steep penalties. In particular we are seeing yet another increase in China going after foreign companies doing business in China without a WFOE. See Doing Business in China Without a WFOE: Will the Defendant Please Rise and China’s Tax Authorities Want You.

Correspondingly, it has become more important than ever for foreign employers to make sure they are complying with all of China’s national and local employment laws. See China Employment Law: Local and Not So Simple.

2. Employer Rules and Regulations Are Key to China Employer Compliance

Since China ramped up its employment compliance enforcement of foreign employers our China employment lawyers have been hit with just a ton of complex employment law matters for foreign companies fighting off China employment problems. Two “common themes” jump out at us from these projects as the most-frequently-needed services by China employers these days: employee terminations (especially of high-paid employees) and Employer Rules and Regulations/Employee Handbooks. The first should be obvious and not terribly surprising given what has been going on in China the last six or so months. The second is because many employers now realize that to better manage their China workforce (or what is left of it), they need a clear and relevant and appropriate Employee Handbook that actually works for them and not against them, both for their existing employees and for their employee terminations. They need an Employee Handbook that lays the groundwork for how to make employment decisions that work under China’s employment laws.

For your Employee Handbook to satisfy these criteria, it must comply with today’s laws (not last year’s or a prior year’s laws) and it must comply with the laws of the locale in which your employees are based. In other words, using an Employee Handbook written for Shanghai four years ago when you now have employees in both Shanghai and Shenzhen is a recipe for disaster. Using an Employee Handbook for Shenzhen that is nothing more than a Chinese translation of your U.S. (or any other non-PRC jurisdiction) employee manual is another disaster waiting to happen. Oh, and one more disaster we keep seeing: Employee Handbooks created from a Chinese-language template that is not customized for the city or the industry or the employer and then is badly translated into English so nobody making the decisions really even knows what it says.

When our China employment law team is tasked with writing an Employee Handbook, the first thing we do is review our client’s existing employee rules/policies (if any) so as to better understand the client’s HR program and to be able to consider and account for our client’s HR goals. Drafting an Employee Handbook involves balancing  our client’s HR goals with the realities and the laws and other requirements of its particular industry and locale. That is the proactive side of our Employee Handbook work.

The reactive side of our Employee Handbook work occurs when we are retained by a foreign employer in China with an employee dispute or a merger or a termination or a mass layoff or a government compliance problem. It is from those instances where we have learned how so many Employee Handbooks are either useless or affirmatively harmful.

We have handled countless China employment law matters where a bad Employee Handbook has cost the foreign companies months of hassle and tens of thousands of dollars — sometimes considerably more than that. On the flip side, we have handled countless employment law matters where a well-crafted and enforceable Employee Handbook has meant all we employment lawyers needed to do was to confirm and slightly guide an employer’s previously made decision based on an applicable provision(s) in their Employee Handbook.

By way of an example, we have handled situations where employers have wanted to terminate an employee for “not being a team player.” This is not a terminable offense under Chinese law, per se. But after we had gathered up all the facts regarding the employer/employee situation and reviewed the Employee Handbook, we found several instances of specific employee misconduct that would permit a unilateral termination without severance. Because it was obvious the employees had breached enforceable provisions of the Employee Handbook, their terminations went off without a hitch.

No Employee Handbook can cover everything, but it should be written to cover enough appropriate and enforceable catchall language to provide flexibility to act on most employee problems. A good Employee Handbook also sends a strong signal to your employees that you understand and respect how China’s employment laws work and this alone goes a long way towards preventing employee and government problems in the first place.

Bottom Line: Avoiding China employment law problems requires you have a relevant and timely and well-crafted China employee handbook. This should be your Step 1 to avoiding China employment law problems.