China employment lawyerAt the beginning of every year, our lawyers receive hundreds of emails from both employees and employers (clients and non-clients) doing business in China. The questions often involve employees who want to change jobs or employers who are having a hard time understanding China’s employment laws.

Unfortunately, we can rarely provide instantaneous answers to their questions. In addition to the complexity of Chinese law at the national level, there are seemingly endless legal twists and turns at the local level as well.

For example, one of our regular blog readers asked about issues related to volunteering for a company that was not his employer. He worked for a U.S. Wholly Foreign-Owned Enterprise (WFOE) and had a residence permit. His questions included:

  • Do I need a certificate or other documentation to allow me to volunteer at the company one day a week?
  • Do I have to ask my current employer for permission to volunteer at another company?
  • If the company decides to start paying me for my work, would that interfere with my relationship with my existing employer?

Another asked whether her employer was justified in terminating her while she was three months pregnant and gave her two months severance. She wanted to know whether her employer was within its rights and whether she should sue it.

Though these sorts of emails may seem to pose straightforward questions, here’s just a sampling of the information our China employment lawyers would need before being able to provide any meaningful guidance:

  • We’d need to know the name and location of his employer and run a conflict check on that company.
  • Since employment laws in China often vary greatly from city to city, simply understanding the laws in an unfamiliar city can require extensive research.
  • A key aspect of understanding local laws and regulations is actually discussing them with the appropriate governmental authorities.
  • The specific contract with the employer would also have to be reviewed in detail.

As you can see, there’s almost no such thing as an easy question when it comes to labor laws in China.

Our firm’s Dan Harris wrote an article for Forbes Magazine last year on China’s Hourly Work Week: Think Locally, explaining how something as seemingly simple as the 40-hour workweek trips up employers that don’t take the time to learn the ins and outs of local employment laws. Do your research before making employment moves and don’t make the mistake of believing it will be easy.

 

China employment lawyerTo understand China’s labor and employment laws, one fundamental premise to understand is that an employer and an employee are not considered equal parties under the law. The law provides the employee with more protections because it’s presumed that the employer is the more powerful party. A lot of employers (Chinese or foreign) do not understand this. Among other things, two important rules that stem from this premise should be noted:

  1. Many China employment laws cannot simply be contracted away.
  2. Employers (NOT employees) bear the burden of many things under China employment laws.

I talked about #1 before, so I will discuss #2 today. To give you an example, let’s consider a hypothetical based on a question our China employment lawyers regularly get asked. A China employer hired an employee about 13 months ago. The employer kept asking the employee to sign a written employment contract and the employee refused to cooperate. The employer thinks it is the employee’s fault for her not having a written contract. Can the employer now terminate the employee?

To be clear, when we receive this type of question from prospective clients, we need to first make sure there is no conflict of interest. And we really can’t even start to answer this question without gathering up more facts. However, for purposes of the discussion here, I am going to assume a lot of things, and just to name a few here:

  • the parties are in a pro-employee jurisdiction;
  • the employee is not the head of the employer’s Human Resources department nor is she otherwise in charge of making sure all employee agreements are duly executed;
  • the employer did not document its efforts in asking the employee to sign a written contract;
  • there is truly no written document between the parties that can be deemed an employment contract for purposes of China’s labor laws;
  • there is no legal ground to terminate the employee.

Before I give my analysis, here is a super quick review of the law: China employers must have written employment contracts with all of their full-time employees. If an employer goes more than one month without having a written employment contract with an employee, the employer will be required to pay the employee double the employee’s monthly wage and immediately execute a written employment contract with the employee. If the employer goes more than one year without having a written employment contract, it will be deemed to have entered into an open-term employment arrangement with that employee and is required to sign a written contract with her to the same effect.

So, what has the employer done wrong? The below is an non-exhaustive list:

First, it did not deliver a notice of its intent to execute a written employment contract within 1 month after the employee’s commencement date. The burden is on the EMPLOYER to remind the employee that the parties need to enter into an employment contract before it is too late. The employee does not have this burden. If all the employer did was to ask her orally, it does not meet the legal requirements. The fact that the employee acted in bad faith by refusing to cooperate (assuming the employer can meet its burden of proof on this) is generally not going to be relevant.

Second, it did not terminate the employment relationship by the end of the first month, but instead retained the employee without a written contract. The employer may argue that it tried and that it had no way to force its employee to sign a legal document. Though true, the employer should have terminated the employee before the one-month period elapsed. And by termination, I mean it should have issued a formal written notice stating the reason why it had to terminate the employee in accordance with Chinese law.

Third, the employer still has no written contract in place for its employee. The employee has been converted to an open-term employee by law because she has been employed for so long without a proper written contract. Once her status has changed to becoming an open-term employee she has essentially become a lifetime employee and the employer must immediately execute an employment contract reflecting the new open-term employment arrangement. Failure to do so will subject the employer to legal and regulatory risks.

Finally, because there has never been an employment contract, the employer has failed to fulfill its obligation to maintain the employee’s employment contract on file for two years after employee departure. This means that even if the employer can find a legally permissible ground to terminate the employee (unilateral termination is probably not a good idea here), the employee’s termination will likely cause problems for the employer. An audit by the labor authorities will turn up this issue and the employer will likely face penalties for this noncompliance.

Bottom line: Oftentimes employers think they have done everything they are supposed to do with their employees but they haven’t. At least not according to China employment laws. And blaming employees for employer shortcomings is virtually never a solution because the Chinese authorities and courts will not side with you. Still think you are in compliance with China’s employment laws? Maybe you need to think again.

 

 

 

 

china employment lawyerIn 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.

China overtime rulesMany foreign (especially U.S.) employers operating in China expect their China-based employees to work overtime whenever needed to “get the job done.” Though imposing these sort of work hours usually makes sense in their home countries, this mindset is at odds with China’s laws. It gets even worse in China when the employer intends to discipline or even fire the employee for refusing to work what the employer views as mandatory overtime. Can you fire someone in China for refusing to work overtime? It really just depends.

China’s laws on overtime are fairly strict and inflexible. In most China provinces and cities, most employees can work only under the standard working hours system. This means they are limited to 8 hours of work per day, 40 hours per week, and anything beyond these hours is considered overtime under China’s labor laws. This means if you make an employee working under the standard working hours system work 9 hours on a workday, you must pay for such overtime, even if you are able to make arrangements so that the employee works only 31 hours the rest of the week. China also restricts how much overtime an employer can require an employee to work. For instance, an employer cannot order an employee to work 5 additional hours on a workday. Also, the employees must either be compensated for the time worked or get comp time.

What is the right way to incur employee overtime in China? The employer needs to give the employee prior notice and get the employee’s consent to work overtime. Unless an exception applies.

What if an employee refuses to give her consent and therefore does not work overtime as directed? Can the employer discipline or fire her for failing to abide by company orders? The national law for this in China is clear: the PRC Labor Contract Law provides that employers cannot force their employees to work overtime unless an exception (I will get to this below) exists. But like just about everything else related to China employment law, the practice varies from place to place. Still, the majority view is that because employers cannot generally force their employees to work overtime, an employee in China who refuses to work overtime has not done anything wrong and therefore cannot be disciplined or fired for having done so. So a termination decision made solely on the basis of an employee refusing to work overtime will usually be held to have been unlawful and the employer will likely need to rehire the employee, pay the employee back wages, and pay damages for unlawful termination.

As noted above, there are though a few exceptions to the general rule on China employer’s not being able to force their employees to work overtime:

  • Emergencies, such as natural disasters, accidents or other reasons that threaten the working environment safety and the health of workers and others.
  • Damages to public transportation and facilities, which affect normal production and public activities, and thus urgent repair is required.
  • Other circumstances as stipulated by the law and regulations.

So in other words, an employer may require its employees in China to work overtime during an emergency and in those limited circumstances it may also discipline the employee for failing to do so. However, if the employer does not have a well-crafted and China appropriate set of rules and regulations (aka an employer manual) already in place, any disciplinary action it takes will likely be deemed illegal because it will have had no legal basis for that action.

We sometimes hear from our clients that “overtime is common in China and employers do it all the time without getting caught,” but that has certainly not been true of foreign employers in the last few years. Our China employment lawyers deal with a steady stream of matters where foreign (mostly American) employers have gotten caught and punished by the government for not following China’s (or even local) overtime rules. Even more common though is the terminated employee (and plenty of those who leave completely voluntarily as well) who brings and prevails on a claim for overtime pay. Good, bad and indifferent employees in China virtually never have any compunction about pursuing back wages for overtime after they leave their employment and as we so often have written, the foreign employer virtually always loses on employee claims. See Avoid China Labor Arbitration. It’s A Sucker’s Game And You Will Be The Sucker.

So I cannot stress the following enough when it comes to having your employees work overtime in China:

  1. Overtime remains an often-litigated area, and it’s important that your rules and regulations reflect all applicable legal requirements. At minimum, you must pay all overtime.
  2. If you don’t have a section in your rules and regulations or a separate document that communicates your company’s overtime policies and procedures, you need one right away. If you don’t have a China-centric (and in Chinese) set of rules and regulations, you will have difficulty disciplining or terminating a China employee for any reason, not just for refusing to work overtime.
  3. Think long and hard before you terminate an employee.

Not sure if what you are doing complies with China’s overtime or other employment laws? NOW is the time to check.

China employment lawyerHardly a day goes by without one of our China employment lawyers (usually me) getting a “quick” question from either or both an employee or an employer seeking a one-minute answer to what is usually at least a five hour question. For why pretty much every China employment law question is at least somewhat complicated, check out China Employment Law: Local and Not So Simple.

The following are probably the most common ones we get and I am putting them here along with our typical answers to get them more broadly seen than our individual email responses.

Example #1: I have worked at the same employer as in ______ (city/province) China for ______ years. I am considering leaving even though the school has offered me a new contract. Am I entitled to any end of service/redundancy pay? Does it matter how much notice I give?

Our Response: I am sorry but because we represent so many China employers we cannot help you at all without first running a conflict check to make sure we don’t represent your employer, But even if we do not, we cannot give you an answer unless and until we review all of the documents pertaining to your employment, particularly your employment contract and your employer rules and regulations (aka employee manual). Then we would need to check the local laws and regulations to see what they say and it may also make sense for us to check in with the local labor authorities as well.

 

Example #2: I’m looking for a lawyer. I hold a ______ (foreign) degree and have working in ______(city/province) China since ______. I have a valid working permit and a residence permit. I have been asking my employer to sign a contract but they kept refusing and now they no longer want my services. They say it is because my services are no longer needed but it is really because I caught them doing ________. Am I entitled to double wages for being employed without a written contract?

Our Response: I am sorry but because we represent so many China employers we cannot help you at all without first running a conflict check to make sure we don’t represent your employer, But even if we do not, we cannot give you an answer unless and until we review all of the documents (things like emails and your employer’s rules and regulations become very relevant here). Then we would need to check the local laws and regulations to see what they say and it may also make sense for us to check in with the local labor authorities as well.

 

Example #3: We just caught one of our employees taking kickbacks. I assume I can just fire him without any repercussions, right?

Our Response: Believe it or not, that would not be a good idea. See China Employee Terminations: Don’t Get Lazy to get some idea why this is the case. The last thing you want is to botch this such that this employee can sue you for back wages, plus penalties, plus — yes, I am not kidding — a return to his job at your company. For us to help you here we would first need to review all relevant employment documents (such as this person’s employment contract and your rules and regulations) and then review local laws and regulations and maybe even talk with the local labor authorities as well.

 

Example #4: How much time off do we need to give our employees for _______ holiday?

Our Response: Without our first looking at what your employment contracts and your employer rules and regulations and the local laws and regulations say, all I can say is that you do not want to get this wrong and you need to give at least whatever time off is required by China’s national laws.

 

Example #5: I just got fired from my job of ______ years and my employer never paid me any overtime. What should I do?

Our Response: I am sorry but because we represent so many China employers we cannot help you at all without first running a conflict check to make sure we don’t represent your employer, But even if we do not, we cannot give you an answer unless and until we review all of the documents (things like emails and your employer’s rules and regulations become very relevant here). Then we would need to check the local laws and regulations to see what they say and it may also make sense for us to check in with the local labor authorities as well. You also should consider whether you would be better off just moving on with your career instead of possibly getting bogged down in a dispute with your former employer. This is especially true if you are in an industry where word of employee contentiousness spreads quickly. I am not telling you what you should do here, but I am saying that these sorts of decisions can have lifetime significance and they should not be made quickly or out of anger and good counseling from a more objective third party is usually in order.

 

Example #6:  XYZ Chinese company wants to hire me starting next month and they say that they cannot give me a written contract right away because of _________. Is it safe for me to go ahead and take the job.

Our Response: It is generally not a good idea to fly halfway around the world to work for a company that claims an inability to abide by the law.

 

Are you getting the pattern? Oftentimes when we respond with something like the above, we get one of the following two responses, grossly summarized, to which we respond generally as noted in italics below:

  1. Thanks. No problem. Good luck.
  2. How do I go about retaining you. Let me explain….

But maybe a third to half the time we get a response like the following:

All I really need is about three minutes of your time on this and I do not need a complete answer, just a quick answer off the top of your head based on the law. This ought to be easy for you because you already wrote about this here [cite] on your blog.

My standard response to this is usually something like this:

Though we are familiar with the laws and practices in China’s major expat cities from our having provided China employment law counsel for countless clients in those cities, because the laws are so localized (sometimes down to the district within the city) and can change quickly and sometimes without notice, we always need to conduct at least some quick research to confirm the current laws and practices.

Also, and just as is true of all sorts of laws and pretty much everywhere in the world, there tends to be general rules on an issue also a slew of exceptions and even exceptions to the exceptions. At this point, we simply do not have nearly enough facts about your particular situation to provide you with an answer to your question. Take for example, example #1 above. I do not know why this employee is leaving or has left. Is it because she was caught stealing? Is it because she is a teacher who hit her students? Is it because her employer is experiencing massive financial difficulties? Is it because she just wasn’t good at her job? Is it because she could not get her work visa extended? And take example #2 above. I do not know what documents the employee has actually signed. Did she sign an employment contract without realizing it? Was she offered an employment contract but refused to sign? Has she ever had an employment contract with this company? I do not know her position in the company. I do not know what led the employer to refuse to sign a written employment contract. Was their a proposed employment contract in writing? And, if so, what did it say? I do not know how the termination was handled. I could go on and on.

For those who persist in seeking a quick answer to a specific China employment law question here goes: it depends.

China employment lawyer
Have you checked your China employment contract? You should.

In October 2016, China initiated a pilot program for foreigner work permits in a few cities (including Beijing and Shanghai) and provinces that integrates foreigner entry employment licenses and foreign expert employment licenses into one “foreigner employment permit.” This pilot program is intended to streamline current application and administration procedures and processes and to attract more high-level foreign talent to China. As of March 28, 2017, the pilot cities/provinces have processed 20,188 applications, and issued 4,375 foreigner work license notices (外国人工作许可通知) and 9,638 foreigner work permits (外国人工作许可证) and 21,866 employers have registered their accounts with the relevant authorities.

The program will go national on April 1, 2017. Tomorrow.

Under the new regime, the current foreign expert work license and foreigner employment license will be integrated into one document called the foreigner work license notice. The employer and foreign applicant will be able to complete and submit the license form electronically. The original “alien employment permit” and “foreign expert certificate” will be integrated into one permit called the foreigner work permit. Every foreigner will have one permit number per foreigner work permit, which will be used by the same individual for life.

A nationwide administration service system for foreigners coming to China will be established. The application materials required for submission will be considerably fewer than previously, reducing by about half the documentation needed to submit.

Foreigners will be divided into three categories: A for high level talent, B for professional personnel, and C for foreigners who are nontechnical or service workers hired on a temporary/seasonal basis. Various criteria will be rated and used to generate a score for each foreign applicant, such as salary, educational background, Chinese language fluency, experience, and length of service. The goal is to encourage A level foreigners to come to and work in China, exert control over B level foreigners and restrict/limit the C levels.

A “green channel” will be available to A high level foreign talent. These high level foreigners will no longer need to submit hard copies of the documents required to apply for a foreigner work permit notice or for a visa application before entering into China. A self-certification system will be used for work experience, diplomas, and proof of no criminal record. The review and approval period for work permit application, extension and cancellation will go down from 10 business days to 5 business days and the longest permissible period for the work permit will be extended to 5 years.

China continues easing burdens and reducing hurdles to make its workforces more global and China employers are showing much greater willingness to spend real money to attract high-level foreign talent. Years ago it was a rare month in which a foreign executive would retain one of our China employment lawyers to review their contracts with their new China employers. These days, it is a rare week where we do not have at least a couple of such contracts under review. But what has not changed a bit is that pretty much every such contract we have reviewed has greatly favored the Chinese employer at the expense of the foreign executive) and many (most?) contain well-known China-specific loopholes that work against the foreign executive or fail to provide the employee with what he or she had been promised. Sad to say, but with the onslaught of high level foreign employee hirings has come an onslaught of high level foreign employees who have gone to China believing they would get one package and then finding out months later that they got a far lesser one.

Have you checked your China employee contract? I mean really checked it? You should.

China HR AuditIn part one of this series, I explained what has changed in China to make employer compliance — especially for foreign companies doing business in China — so important. In this part two, I explain what our China employment lawyers do in our HR audits to ensure that our clients are in compliance with China’s increasingly complicated, increasingly localized and increasingly important labor and employment laws.

An HR or employer audit will make sure you are complying with relevant employer laws (both national and local) and will reduce your regulatory, liability and lawsuit risks. Moreover, a comprehensive review and a full analysis can give you a clearer picture of what’s going on in your workforce and once you have the big picture, you can then determine (and we help our clients with this) the employer-employee problem(s) you need to remedy first.

We usually begin our HR audits by sending our clients a questionnaire to gain a basic understanding of their employer-employee situation in China.  We first ask our clients to provide the registered entity name and address (in both English and Chinese), as well as the official company registration document (usually: business license) for their China office(s). If you don’t have a China entity, there is no way your direct employment of a China employee is deemed legal under Chinese laws and your problems extend way beyond anything an HR audit can fix. See Doing Business in China with Deportation or Worse Hanging Over Your Head. We also ask our clients for an organizational chart of their China office(s), including the employee count for each location and a brief (1-2 paragraph) narrative describing how their China offices are organized and managed, including how HR matters are handled.

In order to complete a document review, we usually request all written employment documents used in their China office(s), specifically including any of the following:

  1. Documents containing job descriptions, including any postings on internal or external websites
  2. Offer letters
  3. Labor contracts (aka employment agreements)
  4. Rules and regulations (sometimes called an employee handbook or manual)
  5. Travel expense policies
  6. Non-compete agreements
  7. Intellectual property protection and/or confidentiality agreements
  8. Education reimbursement agreements
  9. Bonus agreements
  10. Settlement and/or severance agreements
  11. Other employment-related agreements (including company policies) presented or signed by any company representative, or signed by any employee
  12. Any documents filed with the local labor authorities

We want to review the executed copy of any and every document signed by an employee, including each individual employment agreement, along with any employment-related templates or forms used in their China offices. We ask our clients to advise if any of the above documents do not exist.

We also ask our clients to tell us of any any imminent employment related issues or questions they may have, such as imminent employment contract renewals, employment contract revisions in process, employee departures, and new hires. For example, if their China office is in the process of bringing in any new hires, we want to know about any potentially unresolved issues between the new hire and his/her previous employer. See Hiring Employees in China. Ideally, we would also review the employment documents executed by this person and his/her previous employer, but this is not always realistic.

If applicable, we also want to know how past terminations at the company were handled, and to that end we usually ask for a list of any former employees, including:

  1. their hire date
  2. their last date of employment
  3. whether the termination was voluntary or involuntary
  4. whether any severance payment was made
  5. any documents issued to the employee evidencing how the employment relationship was terminated
  6. a description of how the employer handled the transfer of social insurance and employee files.

Finally, we will want to know any particular HR problems the China office has experienced and any HR concerns they may have.

We then review the materials provided to us and we then prepare a written memorandum identifying any employment issues and providing recommendations and estimated costings for remedying the problems found. The time required to complete the audit depends on when the client responds to our questions and on what we find in the files. We then work with our clients to resolve issues that are raised by the audit.

The above may seem daunting at first, however your HR auditor would essentially handle most of the “dirty work” and it certainly beats being fined, named and shamed or criminally charged!

China employment lawyerThis is the first of a two part series on why it has become so important to comply with China’s labor and employment laws and how best to make sure your company is in compliance. In this first part, I briefly explain what has changed in China to make employer compliance — especially for foreign companies doing business in China so important. And in part 2, I explain what our China employment lawyers do by way of Human Relations audits to ensure our clients are in compliance.

Over the last few years China and Chinese employees have become serious about enforcing China’s labor and employment laws. I defy you to find any foreign employer in China that has not had their employer decisions legally tested in the last few years. And thanks to a new law called Measures of Public Disclosure of Significant Violations of Labor Protection Laws that took effect on January 1, 2017, China employers that violate China’s labor protection laws face the additional threat of being “named and shamed.” The following violations of China’s labor laws may be made public by the relevant labor authorities:

  • Failing to pay “substantial” employee remuneration
  • Violating the laws on working time or rest or vacation and the circumstances are “serious”
  • Violating any child labor laws
  • Failing to pay employee social insurance and the circumstances are “serious”
  • Violating the special rules on protecting female workers and underage workers and the circumstances are “serious”
  • Causing significantly bad social consequences due to violations of labor laws
  • Other serious illegal conduct

Like pretty much everything related to China’s employment laws, enforcement of these naming and shaming measures is going to depend on the locale. Guangdong Province, for example, has been disclosing labor authorities’ rulings on employer violations even before the new law was implemented. According to Guangdong published rulings for the first three quarters in 2016, the first three violations mentioned above: (1) failure to pay employee remuneration, (2) overtime law violations and (3) using child labor have been the most common illegal practices. Labor authorities are cracking down particularly hard on employer failure to pay employee remuneration.

What is considered a “substantial” failure to pay? If you owe 10 employees wages, you will no doubt be penalized and your violation will be made public. If you owe one employee a substantial amount (could be as low as 20,000 RMB), you may be listed as well. In other words, the threshold is not terribly high, especially for foreign companies whose employee wages tend to be higher. And since the labor authorities have gobs of discretion in deciding whom to name and shame, we are expecting foreign companies to get less slack. Egregious violations subject employer companies and the person-in-charge to criminal liabilities. Failing to pay substantial employee remuneration is a crime and will be prosecuted. This is not something you want to get wrong.

So if you employ anyone in China, now is the time for you to get compliant. In tomorrow’s post, I will set out our method for accomplishing that.

Editor’s Note: Whenever we write something related to ensuring compliance with China’s employment laws, companies with no legal entity in China contact us “to get into compliance.” If you have “employees” in China but no company in China, your problems go way beyond what is written above. For how to handle that sort of situation, you should check out Doing Business in China with Deportation or Worse Hanging Over Your Head and follow and read the links in that post. Now!

China employer social insuranceChinese law mandates employers provide their employees certain mandatory benefits, including social insurance. China has five types of social insurance: pension, medical, unemployment, maternity and work-related injury insurance. The specific types of social insurance employers must provide and their contribution formulas vary depending on the employer’s location. Many foreign employers in China do not realize that failing to make full payments on required social insurance gives their employees the legal right to unilaterally terminate the employment agreement without providing any prior notice and then turn around and sue the employer for damages.

Just to make things more complicated for China’s employers, China has several forms of social insurance violations. You obviously violate the law if you don’t pay any social insurance at all, but the violations by foreign employers in China I most commonly see are more subtle and complicated than that. We see violations when employers fail to pay social insurance for the entire term of employment. This violation often happens when the employer thinks it need not pay social insurance during an employee’s probation period. We also see violations involving employers failing to pay for all five types of social insurance. And with rising wages in China, we have lately been seeing a rash of employer problems arising from paying social insurance based on a lower salary than is actually being paid, either because the employer failed to update the salary amount or because it intentionally reported a lower salary so as to reduce its employer contribution. These are the sorts of things we constantly look out for in our HR audits.

Employees may consent to the employer claiming a lower salary but that is irrelevant once caught or even once reported by the employee who consented. In a fairly recent case out of Jiangsu Province, the court reinstated the employer’s obligation to pay for all required types of social insurances at full rates the entire time. I am simplifying the facts for this post, but basically the employee’s monthly salary was higher than 7000 RMB, and the employer only contributed social insurance as though the salary had been 2200 RMB. The employee terminated the employment relationship and sued the employer for severance, arguing that he had been forced to leave his job because the employer failed to pay mandatory social insurance. The case went from labor arbitration, to trial, to appeal and then the employer petitioned for re-consideration by the Jiangsu Province High People’s Court. The employer lost every single step of the way (which really should have been no surprise to any experienced China employment lawyer, sorry!) and was required — among other things — to pay the employee for statutory severance.

Each step of the litigation process, the employer made the following three (futile) arguments. One, the employee never objected to the arrangement of the employer misstating the employee’s salary and therefore underpaid the employee’s social insurance. Two, because the employee never voiced any objection to the social insurance payment arrangement, the parties essentially agreed on a different base for social insurance payments. Three, the employer’s failure to contribute the full amount of social insurance was not the same thing as failing to make any contributions at all, so the employee was not entitled to statutory severance. The Jiangsu Province High People’s Court rejected all arguments and explicitly (and rightly) stated that the laws on social insurance are clear and the employer’s failure to contribute the full amounts based on the employee’s actual wages entitled the employee to terminate the employment contract and receive statutory severance pay from his employer.

To reiterate what is becoming a fairly regular theme of my China employment law posts, most China employment laws cannot be contracted away and an employee’s written consent does not change that. An employee’s written acknowledgement that he or she specifically asked for a particular employment arrangement also does not change that.

As a foreign company doing business in China, you are under a microscope and you will be treated differently than domestic Chinese companies. This means that you are both more likely to get caught on employer violations and more likely to get called out and treated harshly when caught. In our experience, if the labor authorities are not pursuing you for non-compliance, your employees almost certainly will either before or certainly after they leave. This brings me to another point. If your employee tells you she is leaving her employment and alleges she has been forced to quit because of employer wrongdoing (or even just provides inconsistent stories about why she is leaving), you should immediately work on resolving those problems (which is exactly what they are) before she takes you to court.

 

China employment lawChina’s Ministry of Social Security and Human Resources, Ministry of Foreign Affairs and Department of Education recently jointly promulgated new rules for new graduates from foreign countries without working experiences. These rules apply to foreign graduates who obtained their master’s degree or higher education in China and to foreign graduates who received advanced degrees from a well-recognized foreign institution (whatever that means). Those who meet either of the above qualifications must then meet the following additional qualifications to be eligible for China employment:

  • have graduated within the past year
  • be over 18 years of age
  • have no criminal record
  • have good grades (no lower than 80 out of 100 or B/B+) and no record of infractions during school
  • be in good health
  • have a specified employer and a position relevant to the job candidate’s field(s) of study
  • hold a valid passport or any other valid travel document in lieu of a passport

In addition, the candidate’s proposed salary cannot be lower than the local average salary. This will be vigorously reviewed as part of the work permit application.

The prospective employer will need to apply for a work permit for the foreign recent graduate and the authorities will usually require all of the following:

  • the candidate’s resume
  • a proposed letter of intent regarding the employment. This letter of intent must also specify the expected salary.
  • a report specifying why employing this individual is necessary, including certification that the position was advertised to Chinese candidates for at least 30 days
  • a certificate of no criminal record
  • all relevant diplomas
  • a school-issued certificate confirming the potential foreign employee has no record of infractions at school
  • relevant school transcripts
  • a medical certificate showing good health
  • a recent photo (within the last 6 months)

Once approved, the foreign employee can get a China Z work visa. The initial term of employment cannot exceed one year, but employment can then be renewed for subsequent terms of up to five years. Applications will be subject to the applicable national/local quota.

It should go without saying (but since I am a lawyer I am not willing to risk that) that you as the employer should have in place for this new hire all of the usual safeguards you use (or should use) with any of your other China employees, be they foreign or Chinese. In other words, you should at minimum, enter into an employment contract with this new hire.

Local labor authorities are expected to come up with specific measures and local standards in implementing these new rules. Those local standards likely will determine whether this new employment category will become a big deal or rarely be used. I will report back on what I learn from compiling and submitting these applications on behalf of clients.