In response to that post, a reader emailed me to ask what “really” goes into a Chinese employment contract. This post responds to that email and highlights what is “really” involved in drafting China employment contracts. The below is the email we send to clients that retain us to draft China employment contracts for their China WFOE, setting out the initial information we need to get started on drafting their employee contracts and Rules and Regulations.
I. Basic Information
Please provide the following information:
A. Name and registered address of the WFOE, in English and Chinese.
B. A one paragraph statement of: 1) the number of employees, 2) the duties and title of each employee, 3) the pay scale/rate for each employee, and 4) the nationality of each employee.
C. The hours that you expect each employee to work. Standard working hours in China follow a 40-hour workweek: 8 hours a day and 5 days a week. If you anticipate any significant exceptions to that, please explain.
D. The name and title of the person who will execute the employee agreements on behalf of the WFOE. Usually, the WFOE’s general manager will execute all employee agreements except for his or her own, which will be executed by the WFOE’s legal representative
II. Employee-Specific Information
A. Required Information
For each employee, please provide the following information:
a. The employee’s name and title, in English and Chinese.
b. The employee’s registered permanent address, in English and Chinese.
c. The employee’s contact address (if different from the above), in English and Chinese.
d. The employee’s phone number and email address.
e. The employee’s national ID number (身份证号码). I recommend getting a scan of the national ID card itself (身份证).
f. The employee’s gender, citizenship, and date of birth.
g. The employee’s place of work, if different from the WFOE address, in both English and Chinese.
h. The term of the employment agreement, including the start date.
i. The amount of wages during the standard employment term, converted into a monthly wage.
j. The date that wages will be paid during the standard employment term.
k. Whether the employee will be paid on a 12-month or 13-month schedule (more on this below).
l. The term of the probation period.
m. The wages during the probation period, converted into a monthly wage.
n. Whether you would like to explore the possibility of an alternative working hours system (that is, an alternative to the standard of 5 days/week, 8 hours/day). The availability of this option will depend on the employee’s title and job duties.
o. Whether you would like to explore the possibility of a non-compete agreement (more on this below).
p. Whether you would like to have an education reimbursement agreement (more on this below).
q. The employee’s relevant bank account information.
B. Employment Term and Probation Period. The term of the probation period is roughly proportional to the term of the agreement. The maximum probation period is 6 months. To have a maximum-length probation period, an employment agreement must have a term of at least 3 years. At the end of the probation period, you can terminate the employee with no further issues. At the end of the initial employment term, you can terminate the employee and pay severance or you can sign the employee to another agreement.
We will need to confirm with the labor bureau in your specific city, but in most Chinese cities, once you have engaged the employee for two terms, once the third term starts, you are required to retain the employee up to mandatory retirement age. Termination during that period requires good cause.
The probation period should be treated seriously and no employee should be taken beyond the probation period unless you are certain that he or she will work out under the terms of this employee agreement. For new employees, we generally recommend a term of three years and a probation period of six months. Many of our foreign clients choose to do an initial term of only one year, and most end up regretting that decision.
C. Monthly Salary. As noted above, you will need to convert each employee’s annual salary into a monthly wage. In many parts of China, it is customary to pay the salary on a 13-month basis, with the final month paid just prior to the Chinese New Year. Either approach is acceptable, but it is important to state clearly in the contract what you will be doing. Many employees expect a “New Year’s Bonus” and failure to pay it (if expected) can cause problems. This expectation varies by the industry (manufacturing vs. office work), the type of employees (blue collar vs. white collar), and the geographic location (north vs. south). Note that paying on a 13-month basis does not obligate you to pay more in salary; you would just divide the annual salary by 13 instead of 12.
III. Documents To Be Drafted
Our standard employment package includes the following documents:
– A. Universal Documents
a. Labor Contract. The employment agreement to be used with all employees, with different options selected with respect to the employee’s working location, the availability of alternative working hours systems, the length of the probation period, and the term of the agreement itself.
Because the employment rules vary from city to city in China. We will work with you and/or your HR department to go over the above issues and determine how to tailor the initial set of agreements.
b. Trade Secrecy and Intellectual Property Protection Agreement. Self-explanatory, but tailored for use in China. We can further customize it if you have specific confidentiality policies or procedures.
c. Rules and Regulations. This is a long and complex document that is basically a handbook on Chinese labor law. China is not an at-will employment jurisdiction. Employees are employed subject to contract and can be terminated only if they violate that contract. The rules and regulations set out the full set of terms that govern the employment relationship. Most of the content in this document is required by Chinese law and is therefore not optional. We can do some customization of this document, but not much.
d. Confirmation of Receipt. A one-page document stating that the employee has received and understood the contents of the Rules and Regulations.
– B. Optional Documents
a. Non-competition Agreement. Chinese law allows for non-compete agreements, but the terms are restricted as follows:
- As a general rule, only management staff may be covered.
- The term is limited to two years.
- Compensation must be paid to the employee during the entire term of restriction. The amount of compensation is not defined by law, but many cities have de facto rules.
Let us know if you are interested in non-competition agreements for any of your employees.
b. Education Reimbursement Agreement. This agreement would be applicable in the following scenario: you pay major expenses for an employee’s employment-related education or training, but after the training is complete, the employee quits. In such a situation, you can require that the employee reimburse your company for the education expenses. To do this, however, you must first have in place a written education reimbursement agreement.
Let us know if you are interested in education reimbursement agreements for any of your employees.
Note that though our employment agreements contain basic anti-corruption language, they are not a substitute for full-fledged China compliance program. If you do not already have such a program in place for China, we strongly advise that we also provide you with an anti-corruption manual to give to your employees, as well as anti-corruption training.