In China, it is common for employers to deliver an offer letter to a potential employee stating the employer’s intent to enter into an employment relationship with that employee. An offer letter is typically a 1-2 page document and it usually proposes the employee’s work title, responsibilities and duties, work location, wages, employee benefits, and term of employment.
As more and more Chinese companies are hiring foreign high level executives, our work representing expats on their employment contract negotiations has soared. Five years ago, our China employment lawyers did maybe one or two of these a year and now we commonly have one or two of these sorts of representations going at any given time. What we have learned from them is that Chinese companies tend to be incredibly one-sided and sloppy in the way they handle their employment relationships.
When retained by an executive expat, the first thing we usually do is review their offer letters. And one of the first things we notice — nearly every single time — is that the Chinese company is proposing to hire the expat executive on illegal terms. In other words, pretty much every offer letter we see calls for an employment contract/employment relationship that would violate China’s labor and employment laws. And if you are wondering how or why this is so often the case, let me tell you: if you are the foreign employee and you are working on an illegal contract, you are setting yourself up for big problems and those big problems will 99 times out of 100 end up hurting you and benefiting your employer. In other words, these Chinese employers are acting illegally for a reason: it is a great way for them to gain permanent leverage over you.
The following represent three incredibly common mistake/illegalities we see in not just offer letters but also employment contracts and employer rules and regulations when our China labor lawyers represent executive expats in their employment negotiations with Chinese companies, along with my comments on why they matter.
1. In accepting this offer, you certify that you understand that your employment will be on an at-will basis. Quoting a phrase popular in China, I shall repeat important things three times (重要的事情说三遍), so here goes: China is not an employment at-will jurisdiction, China is not an employment at-will jurisdiction, China is not an employment at-will jurisdiction. Termination of a China-based employee generally requires cause. Chinese employers put this in their documents because this can cause their foreign employees to believe they can be fired for “good reason, bad reason, or no reason at all” even though they cannot. See China’s Labor Laws: The Cultural Disconnect Goes Both Ways. And even though China is not an employment at-will jurisdiction, just having this in the employment documents gives the employer some basis for justifying its termination should it ever be sued for that.
2. During the first six months probation period… The Chinese employer puts this in the documents but does not mention anything regarding the proposed term of employment. Without there being any proposed term of employment there is no way our China employment lawyers can determine whether the proposed probation period complies with Chinese law, and that is exactly how the employer wants it. Six months is the longest probation period even allowed under Chinese law, but unless the proposed term of employment is three years or longer, the proposed six-month probation period violates the law. When we see a provision like this (and we see this provision all the time) is push back and say, well if you are calling for a six month probation period, the employment term is three years and we ask that you please write that in the documents. At which point the potential employer says, no, we were thinking of a one or two year employment term and then we get them to reduce the probation period accordingly, to the benefit of our expat executive client.
3. During the probation period, the Company will have the right to terminate your employment with or without cause. Also not legal. Since the probation period is part of the term of employment, the probation period also cannot be treated as employment at-will. Chinese employers put in provisions like this for the same reasons they put in provisions trying to get their potential employees to believe that their entire employment term will be at will and for the same reason they regularly write in an overlong probation period: to gain leverage over their expat employee.
A bit of context may be helpful here. We have represented a number of Chinese companies in their United States and European (mostly Spain and Germany) operations and, almost without exception, they tend to be wary of hiring foreigners. Rightly or wrongly they view foreigners as overpaid and spoiled and they particularly do not like having to pay a foreigner $300,000 for a job they view as similar to one for which they are paying $150,000 to a Chinese citizen in China. This sort of thing causes all sorts of tension within the company and it is not unusual for foreign hirings not to work out because of this. I know this is probably an exaggeration, but it seems like the rare case where there is not someone powerful within every Chinese company that has hired an expat who is scheming to make the life of the expat miserable from day one, in an effort to drive the expat out of the company. Chinese companies know that their history with expat hiring and retention is poor and the above sort of terms are their way to prepare in advance for what the expat leaving, which they see as nearly inevitable. Our job as lawyers representing expat executives is to get them documents that will make it as difficult as possible for their Chinese employers to terminate them and to make it as lucrative as possible for the expat executives should such a termination occur.
And offer letters are important no matter what the employment contract eventually says, especially since so many China employment contracts expressly incorporate the terms of xyz offer letter. Of at least equal importance though is that the negotiations over the terms of your offer letter will set the stage for the negotiations over your actual employment contract. And if you agree to offer letter terms that tell your China employer that they can push you around, they will obviously expect you to agree to those same terms and additional similar terms in the employment contract itself. On the flip side, if you show your potential China employer that you know the score and you won’t be bullied, you have set yourself up for receiving an appropriate and maybe even favorable employment contract down the road.