China employee probation
China employee probation: like a maze.

Employee probation periods has to be one of the most misunderstood issues in China employment law. Westerners just assume their probationary employees are at will employees who can be fired at any time, for good reason or for no reason at all. Wrong. The probation period is PART of the normal employment term and therefore pretty much all protections afforded to regular employees also apply to employees on probation as well. This period should really not even be called “probation” because it really isn’t. It was five and ten years ago, but no longer and your failure to realize this will be at your peril. Trust me.

Our China employment lawyers often are faced with situations like this: Employer hires an employee on January 1st with a two-month probation period. Employer then contacts us in late February to say it will be terminating the employee before the employee’s probation period runs out so it can avoid paying statutory severance. The employer’s reason for the termination is that the employee is “just not all that good” and they believe they “can do better.” The employee neither failed to follow employer directions nor did he or she fail to possess the qualifications required for his or her position. In other words, the employer has NO legal basis for terminating the employee. So with the probation period now coming to an end, can the employer go ahead with its planned unilateral termination without having to pay severance? Probably not.

The employer is shocked when we tell them that if they go ahead with the unilateral termination, they will be at risk of being sued for an unlawful termination. China is not an employment-at-will jurisdiction and the probation period is not an exception to this general rule. An employee termination during the probation period requires a legally permissible ground and except for the limited number of grounds permitted under the law, an employee on probation cannot be unilaterally terminated. If this sounds familiar, it should. Because if you replace the italicized parts with “during the employment term” you get the most fundamental rule of China’s employment law: a China employee cannot be unilaterally terminated without cause.

So under what grounds can an employer terminate an employee on probation?

Article 39 of the PRC Labor Contract Law provides that an employee on probation may be terminated with no severance for one of the following six reasons:

  1. The employee is proven to have failed to satisfy the conditions of employment during the probation period;
  2. The employee materially breaches labor disciplines or the employer’s rules and regulations;
  3. The employee commits a serious dereliction of duty or practices graft, causing substantial damage to the employer;
  4. The employee has established an employment relationship with another employer which materially affects the completion of her tasks with the employer, or she refuses to terminate such employment relationship with the other employer, after she is required to do so by the employer;
  5. The employee uses deception or coercion, or takes advantage of the employer’s difficulties to cause the employer to conclude the contract, or to make an amendment thereto, that is contrary to that party’s true intent;
  6. The employee has criminal liability imposed in accordance with the law.

Under Articles 40(1) and 40(2) of the Labor Contract Law, an employee on probation may also be terminated if:

  1. He or she has fallen ill or sustained a non-work related injury and, at the end of the medical treatment period, can neither engage in the original work nor in other work arranged by the employer;
  2. He or she is incompetent and remains incompetent after training or assignment to another post.

That’s IT. No law allows an employer to terminate an employee on probation for whatever reason the employer wishes (or for no reason at all) simply because the employee is on probation.

In addition, Article 21 of China’s Labor Contract Law clearly states that when an employer terminates an employee during the probation period, the employer must provide the employee with reason(s) for such termination. It is critical that the employer convincingly document its terminations in writing — in Chinese. If the documentation setting forth the grounds for termination is not convincing, you will be giving your terminated employee incentive to challenge the termination and a good chance of prevailing against you in a labor arbitration proceeding. This is especially true when the employer is a WFOE because let’s face it, China is always going to favor a Chinese employee over a foreign-owned entity.

The most common ground for terminating an employee on probation is the first ground under Article 39; the employer can prove the employee on probation does not satisfy the conditions of employment. Note the wording though in Article 39. The employer must be able to prove that its employee failed to satisfy the employer’s conditions of employment. For the employer to be able to prove this, it must have specified such conditions/requirements in writing and it must communicate those conditions to the employee beforehand. Though some courts will consider the general requirements in an employee’s specific industry as conditions of employment, most courts will not. What this means is that the smart employer has a clear writing setting out its probationary employee’s conditions of employment and if a termination becomes necessary, another clear writing documenting exactly how the employee failed to meet those conditions.

What then is the difference between a probation period and a normal employment term? Not much, actually. If an employer can prove any of the above grounds for termination exits, it can terminate the employee during the probation period without having to pay severance. Or the employer can wait until the end of its initial fixed term and not renew the contract but pay severance to the employee.

What then should you as an employer in China do? The best way to proceed is usually to specify the employment requirements in your employment contracts or in a separate agreement/document (in Chinese!) and preserve good evidence of how your employee fails to meet those requirements. If you as an employer want to be able to fully take advantage of the probation period, you should set out the conditions of employment in writing and provide those to the employee for review and sign off before the employment relationship commences. And then, as discussed above, if you find yourself wanting to terminate that probationary employee, you should give the employee a reason beyond telling them that “you are fired because you are still on probation.”

Few WFOEs seem to understand these rules and even fewer seem to get them right. Many try to manage their China-based employees from afar in a foreign (especially U.S.) style that does not work for China, without China-centric employment contracts or China-centric employer rules and regulations. These WFOE employers consistently fail to maintain records of employee behaviors/performances in a way they can later use in their favor in an employment dispute.

China employment cases are rife with examples of foreign employers that lost and lost big because they did not understand employee probation periods. Chinese employees know this and they are quick to sue when terminated during their probation period.

In a fairly recent case in Shanghai (which is actually more pro-employer than most cities in China), a foreign employer sought to have the court overturn a labor arbitration ruling finding the employee had been wrongfully terminated during the probation period. The employer argued that the employee was emotional at work, had on many occasions read magazines unrelated to work, and did not possess the professional skills expected for the job. The employer also argued the employee failed to pass his evaluations during the probation period. The Second Intermediate People’s Court rejected the employer’s arguments, noting that the employer failed to put forth any real evidence to prove an evaluation of this employee had actually occurred and it ordered the employer to pay damages to its former employee for unlawful termination of the employment contract.

Because employers in China must prove the grounds of termination even during a probation period and because there is no legal basis for unilateral termination the safest way for an employer to terminate its probationary employees is via a mutual termination agreement. This usually involves the employer giving the terminated employee a small severance payment in exchange for the employee’s voluntary departure. This mutual termination agreement should be in Chinese and it should include provisions making clear that the terminated employee is releasing the employer from any future claims. If the employee refuses to agree to such an agreement (this almost never happens), the employer essentially has the following two courses of action:

  1. Inform the employee that he or she is being terminated, and then sit back and wait for a potential labor arbitration, or
  2. Continue to employ the employee throughout the employment specified in the employee’s contract.

Can you extend the probation period? As is true of so much of China employment law, that depends on the locale. But this is not something you want to get wrong because in some locales, extending the probation period is just about the worst thing you can do. And keep in mind that even if your extending the probation period is legal, you as the employer still must prove cause for any eventual unilateral termination.

Bottom line: China probationary periods are neither what they used to be nor what they seem to be.  If you are unsure whether you are using your China employee probation periods correctly, now is the time to find out.

China employee termination rules
China employment law: know the rules

Terminating a China-based employee usually requires good cause. A serious breach of employer rules and regulations can be a basis for an employer’s unilateral termination of an employee, but China employers have other options as well.

A China-based employer may terminate an employment contract if the economic circumstances which formed the basis for the parties’ having signed the employment contract in the first place have changed, causing the employer to be unable to perform under the contract. This sort of termination is permitted only after negotiations between the employer and employee have proven they are unable to reach an agreement on amending the contract. But does this sort of termination really work? As with just about everything related to China employment law that will depend on whether the employer handled the termination 100% correctly and a bit on the locale as well. See China Employment Law: Simple Questions and Complex Answers.

 Let’s look at an actual case out of Zhejiang province. The employer and employee signed an open-term employment contract in 2010 for the employee to work in a managerial position in Hangzhou. During the term of employment, the employer decided it needed to shut down the department this employee managed so as to cut costs. The employer provided its shut-down plan to its labor union for comments. The employer then notified the managerial employee in writing of its decision to close down his department and directed the employee to report to a new position, with pay and performance standards essentially the same as the managerial employee’s existing position. The employer’s notice clearly informed the employee that if he failed to report to his new position within a specified period, the employer would not be able to assign him to a similar position and would instead have to terminate his contract.
The employee refused to cooperate as directed and the employer then prepared a notice to terminate the employee’s contract and it provided notice to the company’s labor union for comments. The notice made clear the basis for the employee’s termination was the employee’s failure to abide by the employer’s new position assignment coupled with the employer’s inability to accommodate this employee with another similar position. These circumstances caused the parties to be unable to perform under the existing employment contract and after negotiations, the parties were unable to reach agreement on amending the original contract. The employer tried to serve the employee with his termination notice in person, but the employee refused to accept it, so the employer sent notice to the employee’s last known contact address by mail. The employer also published the termination notice in the daily newspaper and paid the employee an additional month’s wage as severance based on his years of service.
The employee sued for unlawful termination and demanded reinstatement of his position.

The courts sided with the employer and ruled as follows. After the employer decided to shut down the employee’s department and eliminate the employee’s original position, the employer provided the employee with notice specifying (1) his new position, (2) the new payment standard (which would not reduce his take-home pay one Yuan) and (3) the requirement that he report to his new position or be terminated for failing to cooperate. The employer also repeatedly asked the employee to report to the new position. The court held that the employer had handled the termination correctly and ruled entirely in the employer’s favor.

This case almost certainly would have turned out very differently had this employer not been so punctilious in following all the procedural requirements for a termination due to economic circumstances. This employer did not go full speed ahead and unilaterally terminate the employee right after it made the decision to eliminate his position. It instead got its labor union to sign off on its plan and then it sought to give the employee a similar position with similar pay.

Keep in mind that terminations because of economic circumstances require the employer pay their terminated employees statutory severance. And as always, it is important to check the local requirements before you terminate an employee.

 

China employee terminationWhat happens if a China employer makes an employee termination decision that is later ruled unlawful? According to the Responses to Several Issues Regarding Application of Law in Trial of Labor Disputes recently released by the Beijing High People’s Court and the Beijing Labor Personnel Dispute Arbitration Committee, the answer is specific performance. In other words, if you unlawfully terminate an employee, you must reinstate that employee to his or her previous position in your company. This technically applies only to Beijing but we expect this will become the norm in many other places in China as well.

Under this new law, if the employer’s termination decision is unlawful and the employee demands reinstatement such a demand will ordinarily be granted. If the court discovers reinstatement is not possible, the employee will be instructed to bring a severance claim for the unlawful termination. What circumstances will make specific performance “impossible?” The new law provides the following guidance:

  1. The employer is declared bankrupt, has had its business license revoked, or has been ordered to close down or has decided to dissolve its entity;
  2. The employee has reached mandatory retirement age during the arbitration/litigation process;
  3. The employment contract has expired during the arbitration/litigation process, and the employer is not required by law to enter into an open-term contract with the employee;
  4. The employee’s original position is critical to the employer’s normal business operation and is of an irreplaceable nature (e.g., general manager, finance manager), and the original position has been filled, and the parties cannot agree on a new position;
  5. The employee has started working for another employer;
  6. During the arbitration/litigation process, the employer delivered a notice of reinstatement to the employee and the employee refused to accept such notice;
  7. Other circumstances that demonstrate obvious impossibility of specific performance.

As is true with many (most?) of China’s employment laws, the employer bears the burden of proving facts sufficient to invoke impossibility. Just because the employer found a replacement for the former employee, without more, it will not be sufficient for the employer to argue “specific performance is impossible.”

This new Beijing law is really not so new at all; it is more a clarification of existing law than anything else. Beijing has a longstanding reputation for a pro-employee approach and we have routinely seen cases where employers were ordered to give terminated employees their jobs back. It is important to note that employer’s cannot contract away their employees’ reinstatement rights.

Bottom Line: As a Beijing employer, you should assume reinstatement will be the norm for an unlawful employee termination, which is all the more reason to be sure you handle all of your employee terminations lawfully. As for the rest of China, reinstatement will still largely depend on where and how.

 

China employment law
China employment law — Watch your local regulations

Our China lawyers are always getting a slew of emails from both employees and employers doing business in China. The questions typically involve employees who are questioning their treatment or who want to change jobs or employers who want our quick confirmation of something they are planning with one or more of their employees. We can rarely provide instantaneous answers to their questions. This is because in addition to the complexity of Chinese employment law at the national level, there are seemingly endless legal twists and turns and variations at the local level.

For example, one of our regular blog readers asked “just a few quick questions” 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 and the following questions:

  • 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?

Though these may seem like straightforward questions, here’s a sampling of the information we would need to gather before being able to provide any meaningful guidance:

  • We’d need to know the name and location of his employer. We would also need to run a conflict check on that company because it would not be good for us to be advising an employee of one of our clients on how to work elsewhere, even if only on a volunteer basis.
  • Since employment laws in China can vary greatly from city to city (sometimes even by district within a 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. This is especially true when the written laws are not as clear as they should be, which is quite often the case.
  • The specific contract with the employer would also have to be reviewed in detail. What if it forbids any outside work without written permission? Our giving this employee the okay to volunteer could get him fired.

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

For more on this, check out this Forbes article, China’s Hourly Work Week: Think Locally, explaining how something as seemingly simple as the 40-hour workweek can trip up employers who don’t take the time to learn the ins and outs of local employment laws.

 

China employment lawyersEven routine China employee terminations are usually challenging and pretty much always require preparation and care. Throw in an employee pregnancy and you increase the complexity and the risk exponentially. Our China employment lawyers have in the last few years increasingly had to resolve situations where a pregnant employee seeks to revoke her termination decision (sometimes by demanding reinstatement of her position), no matter how or why her employment contract is terminated — even when the termination was mutual and even when the termination was with cause. And as is true of just about everything having to do with employment law in China, the laws and the rulings on these things will depend on the facts and on where the employer is located.

Suppose the employer and the employee mutually terminated their employment relationship and after the employee’s departure, the employee finds out she is pregnant. The employee goes back to the employer and asks for her old job back. Recent cases seem to suggest that if the mutual termination was done correctly, the parties’ agreement will be deemed enforceable and the employer does not have to take the employee back. By “correctly,” I mean the following:

  • The termination is documented in writing and the employer has preserved good hard copy evidence. Note that emails and social media do not constitute good hard copy evidence.
  • The employer and its former employee executed a proper mutual termination agreement in Chinese. Note that we do all of ours in both Chinese and in English: the Chinese so that it will actually work and the English so that our client fully understands what they are signing.
  • There is nothing to suggest the former employee was coerced or deceived into signing her termination agreement.

Now suppose the employee’s departure was voluntary at first and the employee resignation was handled correctly. That is, the employer has proper documentation showing the employee resigned voluntarily and there was no employer wrongdoing. But before the separation process was entirely  completed, the employee learned she was pregnant and wanted to withdraw her resignation. Does the employer have to take her back? The answer is likely no. First, Chinese laws give the employee the right to unilaterally terminate a labor contract by giving 30 days written notice, and the employer cannot make it more difficult for the employee to quit. In other words, once an employee gives his or her written notice, the employment relationship will be terminated once the 30-day period has passed. On the flip side, once an employee quits, he or she cannot revoke this decision unless the employer agrees. Under this scenario, the decision to leave was of the employee’s own free will and since the employer does not want to revoke the employee resignation, forcing the employer to take the employee back would be both unjust and unlikely to happen.

It gets a lot trickier if the employee’s departure is a result of her employer unilaterally terminating her. In that situation, if the employer’s termination was lawful it probably will not be ordered to rehire the now pregnant ex-employee. But if the employer did not correctly terminate this employee, the employer will almost certainly be required to rehire the now-pregnant employee. In fact, the employer would probably be required to rehire this employee even were she not pregnant. However, in the case where the employee is pregnant, it means the employer must not only reinstate that employee, it means it will also now need to treat her with extra care and afford her more protections and benefits than other regular employees. It also means the employer must give the employee paid maternity leave of 128 days, more depending on the location.

Regardless of the reasons for having to rehire an employee, you will need to do that correctly as well. Among other things, this usually means you should execute a new employment contract since the last thing you want is to find yourself in a situation where you employ someone without a written employment contract — especially someone you wanted to terminate.

Part-time employeesChina employment law have their own special issues in China and for that reason their employment contracts require special care. The following provisions are usually required in part-time employment contracts:

  • The working hours
  • The term/duration of the employment agreement
  • A description of the work the part-time employee will be performing
  • The part-time employee’s wages
  • Applicable labor protections and labor conditions

But as is true of so much regarding China employment law, the laws and the requirements for part-time employees tend to be very local. Nonetheless, there are a number of issues that regularly need resolution when drafting a part-time employee contract, including the below:

Working hours: You should specify your part-time employee’s working hours in the employment contract and make sure the specified hours do not exceed the legal maximum. In most places in China, this means your part-time employee’s working time cannot exceed either 5 hours a day or 24 hours a week. Since it is possible for a part-time employee to incur overtime your company should have a written policy on how your employees (both part-time and full-time) should record and report their working hours. If you have nothing in writing on this, you are setting yourself up for disputes regarding overtime payment.

No probation period is allowed for part-time employees. We constantly see China employment contracts with illegal probation periods and/or a lack of clarity regarding the term of employment. These sorts of ambiguities increase both the likelihood of an employee-employer dispute and the likelihood of the employer losing such a dispute.

Wages: Many places in China (e.g., Beijing, Shenzhen) mandate a 15 day payment cycle for part-time employees, which differs from the rules for full-time employees who are usually paid monthly. These required payment cycles cannot be contracted away and employer’s are legally obligated to pay their employees in full and on time and late payments can subject employers to administrative fines and other regulatory and litigation risks. In addition, as with full-time employees, the salary you pay to your part-time employees must meet all national, provincial and local minimum wage requirements.

Social insurance contributions: Though most places in China do not require employers to make the full range of social insurance contributions for their part-time employees, we are unaware of a municipality that does not mandate at least one type of social insurance for part-time employees. This means you need to formally enroll your part-time employee in government required social insurance program, and paying them with cash to cover their own social insurance (no matter how generous you are) will not cut it and do not believe anyone who tells you otherwise on that, and plenty of people will.

Annual paid leave: It’s generally okay to not provide annual paid leave for part-time employees, but be careful because this is not true of all locales. You need though to make sure that your documents on this are consistent. For example, if your rules and regulations state that employees are entitled to annual paid leave and there is no clear language on what document will control, you will probably need to give such a paid leave even if your employment contracts provide otherwise. It would certainly not hurt you to go search out and then root out any inconsistencies in your employment documents.

Termination: Just as is true with full time employees, ignoring required formalities and procedures in handling employee terminations will be done at your peril.

Oh and one last thing, you want all of your employment contracts to be in both Chinese (the official language) and in English so all your personnel will be able to refer to them in making employee decisions.

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.