China employment lawyerHiring employees in China (the right way) is almost as difficult as terminating them. If you do not do your due diligence on your new employees, you find yourself losing lawsuits.

Consider the following scenario, based on an actual case:

New Employer wanted to hire Employee. Employee was still working for Old Employer, but he assured New Employer that all he had to do to leave Old Employer was to give Old Employer 30 days written notice. Employee then informed New Employer that Old Employer was angry with him for having left his Old Employer and was demanding he pay Old Employer damages for the early contract termination, but because it had been 30 days since he had given Old Employer his notice, “there should be no problems.” Employee also proposed a “perfect solution” to New Employer: he would sign a letter of guarantee to New Employer stating that he (Employee) would be solely responsible for any damages payable to Old Employer and expressly providing that New Employer would not be liable for any such damages.

New Employer was in a rush to hire an employee with the Employee’s particular skill-set so New Employer went ahead and hired Employee right after Employee executed the guarantee letter. About a month after Employee started working for New Employer, Old Employer sued both Employee and New Employer. Employee and Old Employer had an education reimbursement agreement that required Old Employer pay a substantial amount of money for Employee’s extensive training in Europe, and Employee had agreed to a 5-year service period in return for this European training. Employee was nowhere near to completing his contracted-for five years of service when he left Old Employer to be hired by New Employer.

At trial, Old Employer was able to prove everything, including producing actual receipts for the training provided to Employee. The court deemed the education reimbursement agreement valid and found New Employer liable for the damages incurred by Employee’s breach of contract. In other words, New Employer had to pay for having failed to conduct due diligence on Employee before hiring him. Even if New Employer could pursue Employee for all the money it paid Old Employer, it still is itself on the hook for the liability and it still had to pay its own lawyers to defend against the lawsuit. It also took a public hit to its reputation.

This case (and various other cases) make clear the importance of ensuring that your China hires are not joining you with similar legal baggage. Non-compete agreements are the most common “baggage” of which you should be aware. There are plenty of other employee agreements that can be important as well, such as the education reimbursement agreement in the case above. We do not recommend our clients use private investigators to investigate their potential new hires as that is generally illegal in China. We instead advise they request their potential employees provide such agreements before making any hiring decisions and that they also check with the potential hire’s previous employer, after first securing the potential employee’s consent to do so. It is, of course, entirely at the discretion of the previous employer to provide or not provide information on the previous employee, but in our experience, they usually will. It also is a good idea always to check the proof of termination of employment relationship. If the potential employee does not have this proof or is taking too long to get it, there is probably a problem. The failure to get this proof quickly likely means the potential employee did something wrong or is subject to some sort of contractual restriction. And when there are red flags, you should consider not hiring that person.

It also makes sense to insert a provision in your employment contracts with new hires that makes clear that a condition of employment is that your new employee has no restrictions of any kind from its previous employment. Note though that for this sort of provision to be effective you must set a probation period, and not a super short one. Then if the employee fails to meet the conditions of employment, he or she can be terminated before the end of probation period. Just be sure you have a well-drafted employment contract, well-drafted Employer Rules and Regulations, and that you document everything. 

Slack off in making a new hire at your own peril.

China employment lawyerChina’s labor laws require employers provide their employees paid vacation days based on their total years of service. Employers are legally obligated to ensure their employees take their vacation days and to the extent the employer fails to do so, it must pay the employee an additional 200% of her normal wages for each unused vacation day.

The law also requires China employers pay their employees for unused vacation days at the time of termination. One question our China employment lawyers are often asked is whether an employer has the same payment obligation when it unilaterally terminates an employee for employee breach. The governing law is silent on this. But since it says that at the time of termination, an employer must pay employee compensation for unused vacation days, a strict interpretation would dictate such a payment must be made. As is typical of almost everything China employment law related, the real life answer depends on where the employer is located and even at which court the labor dispute will be adjudicated. For example, the general view of the Shanghai courts is that an employee terminated for her own fault is not entitled to payment for unused vacation days, because she is at fault for being terminated before she could use all of her vacation days.

This though gets complicated when the unused vacation days are spread among several years. For example, suppose an employee terminated in 2017 due to employee breach did not use any vacation days in 2017 prior to her termination. Assuming the employer’s unilateral termination decision was held to be lawful, the employer will probably not be required to pay the employee for unused vacation days in that year. But suppose that same employee was never paid for unused vacation days in 2016 either. In that case, the employer very well may be required to pay for unused vacation days — assuming the employee did not voluntarily relinquish her vacation time via a clear writing and the statue of limitations has not otherwise run out against the employee.

Employees usually do not pursue labor arbitration just to try to collect money for a few unused vacation days. These claims typically show up as part of a claim challenging the lawfulness of the employee termination. So this is yet another reason why unilateral termination can be so problematic. Employers that unilaterally terminate their China employees often find themselves caught up not just in one lawsuit but in several proceedings—labor arbitration, trial, appeal, and sometimes a retrial and in most of those proceedings, it has to defend itself against not just its termination decision but also against multiple other ancillary claims. “Mutual” terminations with a clear written settlement agreement avoid the employer having to jump (stumble) through so many hoops.

Also, like most aspects of China employment law, vacation time is not an area where it makes sense getting creative. For example, don’t just assume that a provision in your rules and regulations stating that your employees forfeit their unused statutory vacation time by not taking that time. Think twice before you ask your China employees to give up something to which they are legally entitled. If you are unable to secure a separate written agreement (in Chinese) from your employee saying she voluntarily chooses not to take her vacation time (who would, really?), you must pay her for those days or find a way to let her take the paid time off.

Last but not certainly least, we also are sometimes asked whether employees under the flexible working hours system are entitled to statutory vacation time just like employees under the standard working hours system. The answer to that is a resounding yes.

 

 

China employment lawyers
Do not flick off your China employees!

The old saw, “hire slow fire fast” does not work for China. This is because China employee terminations require far more careful legal handling than in the United States. When it comes to employee terminations, China is still very much a Communist country. Think France not the United States. I estimate botched terminations cost foreign companies on average around five times as much as a well-handled termination that includes severance, and yet our China employment lawyers spend more time trying to fix badly done terminations than providing legal consulting on how to achieve one correctly.

This is largely because in disputes arising from an employee termination, the employer bears the burden of proving its termination was both handled properly and justified. This means that for an employer to prevail in a termination dispute, it must have the evidence/records to support the termination.

A recent employee-employer case out of Shenzhen nicely highlights the importance of the employer have good evidentiary support, and what can happen to an employer lacking that support. The facts of this case are not terribly complicated and I have simplified it even more for this post. A Shenzhen employer issued a written notice to an employee immediately terminating the employment relationship. At trial, the parties did not dispute the termination date (even though this issue is often contested) or that the employee actually received the termination notice (even though this is often contested by the employee). The termination notice essentially said nothing more than “we are unilaterally terminating your contract.” The employer contended that it had fired the employee for a series of breaches of the employer rules and regulations and alleged it had orally explained the reasons for the termination to the employee when it delivered the employee’s termination notice.

The Shenzhen intermediary court basically said that the employer had failed to specify the grounds for termination when it served the employee with the termination notice because oral communications of those grounds do not count. Since the employer never gave its terminated employee the grounds for termination, the court deemed the termination to have been unlawful and it awarded the employee the full amount of statutory severance, doubled.

Complain all you like about this court decision, but recognize that if you should find yourself in the same situation as the Chinese employer who lost this lawsuit, you too will probably lose 999 times out of a 1000. This court handled everything “by the book,” which is 100% par for the course in China employer-employee disputes. The employer lost because it got lazy and failed to do something the law required it to do and because it had no good evidence that it had done it. Had this employer merely provided its employee with a written explanation for the termination and made the employee sign for having received that written explanation (it does not hurt to videotape the providing of notice), it no doubt would have prevailed. In other words, all the employer needed to have done was to have strictly complied with the law.

All the employer needed to have done was to have fired slow, by first determining all necessary steps to a proper termination under all applicable China and local laws, and then done all that it needed to do to act accordingly.

China employment lawyerEvery China employer should have a set of rules and regulations setting out employee and its employer duties and obligations. This document should cover all types of employees, including part-time employees. It also should at minimum, cover the following:

Many foreign employers wrongly assume that whatever they use in their home country is good enough for their China employee manual. This is virtually never true as the reason for having employee manuals is so different as between China and Western countries. Western companies often learn too late about these differences when one of their employees leaves or is terminated.

The following are seven common myths our China lawyers often hear about China employer rules and regulations:

Myth 1: It need not be in Chinese. Though having your rules and regulations entirely in English will not necessarily invalidate the entire document (this depends on where you are), it needs to be in Chinese so your employees can understand it. If you do not have a Chinese language version of your rules and regulations, you run the risk of a Chinese court finding it not binding on your employees because they could not understand it and you didn’t bother explaining it to them. Also, the local labor authorities may require a Chinese translation for audit purposes and you don’t want to be caught flat-footed when that happens. And whatever you do, do not just take your English language version and pay a translator to put it into Chinese. Your Chinese language rules and regulations are what the courts will be looking at to determine whether you acted properly or not, so you want that document to be written clearly (and in Chinese) for this purpose.

Myth 2: It need not be in English. You really should have an English translation done and make sure that too is good. You as the employer will need to refer to this document in making employee decisions (especially termination decisions). Unless all of your people who will be making these decisions are fluent in written Chinese, you need a well-written English version to serve as your roadmap on how to handle all sorts of decisions regarding your employees.

Myth 3: It need not be updated because it has a provision that says the outdated sections will automatically be replaced and superseded by then-current laws. Wrong. Both nationally and at the local level, China’s employment laws are constantly changing. It therefore behooves you to do an annual internal audit of the key elements of your employer-employee situation and this yearly employer review should include a review and an updating of your rules and regulations. You could be exposed to huge risks if you have been relying on a section that is contrary to the law. More on this in Myth 5. We also fairly often see rules and regulations that made sense for a company that had employees in just one China city, but no longer do now that the company has employees in three cities.

Myth 4: Employers do not need to follow any procedures in implementing the rules and regulations. You must make your rules and regulations available to every employee so they have an opportunity to read it before signing off on it. And if there is a worker’s union at your organization, you should hold meetings with them and obtain their comments and suggestions before implementing your rules and regulations.

Myth 5: By signing an acknowledgment of receipt, the employee agrees to everything in your rules and regulations, so it doesn’t matter if it conflicts with the law. Not sure why, but our China lawyers have been hearing this myth more frequently of late and it too is just plan wrong. Very wrong. Having a section in your rules and regulations that contravenes the law probably will not invalidate your entire document (though it conceivably could), but many China employment laws must be followed and cannot be contracted away. It does not matter that the employee gives his or her written consent, and it also does not matter that the employee acknowledged that he or she executed the written consent as a free and voluntary act.

Myth 6: Once published, employers can change anything they want at anytime without any notice because the employees are responsible for keeping up to date with the amendments. First, if your rules and regulations document sets forth an internal procedure for amending the rules and regulations, you should follow that. We usually recommend our clients give notice to their employees of any proposed change before implementation. For important issues concerning employees’ interests such as compensation, working time, rest and vacation time, labor security and health, insurance and benefits, employee training, labor discipline, the safest route is to give them prior notice before amending the rules, especially if the changes may have an adverse impact on them. At the very least, provide the employees with notice of the change and give them an opportunity to comment and ask questions. Doing this simple thing can only help you down the road.

Myth 7: The employment contract between the employer and the employee always takes precedence over the rules and regulations if there is any conflict between them. Wrong. Like so much else related to China’s employment laws, the legal interaction between your rules and regulations and your employee contracts depends on your location. The local law may require that the employment contract prevail over the rules and regulations even if the employer and the employee have a written agreement stating otherwise. Or the law may say that the employee gets to decide which to apply based on which the employee believes is more favorable to him or her and the employer has no say on that. The key here is that you know the legal situation in your relevant jurisdiction(s) and to the extent allowed by law, you make clear in both your rules and regulations and in your employment agreements how your rules and regulations interact with your employment contracts.

For more myths about China employment laws, check out:

 

China employee non-competeChina employee non-compete agreements agreements and provisions are an often-litigated area. Many employers (wrongly) assume that they cannot prevail in such a dispute because employees usually win. This belief is not only wrong, but also risky. It is wrong because Chinese courts do not automatically side with the employee; those rare employers that have done things the right way actually usually win. It is also risky because employers with this attitude and approach tend to do an even poorer job of making sure they have a well-crafted contract, complying with the law and preserving good evidence, which are keys to employer success in any employee dispute.

Let’s look at a fairly recent case in Guangdong. The employee was hired as a brand manager and was then promoted to project manager. The employee’s monthly base salary was low: he started at RMB 3000 per month and it was then raised to RMB 4000 per month, plus commission. The employee signed a three year employment contract and he also executed a confidentiality agreement stating that if he violated any term of the agreement, such as competing with his employer in any way, he would be liable for contract damages of twice his total income during the preceding 12 months before termination. There was no agreement on any non-compete compensation. A few months before the employee left his employment, he formed his own company with essentially the same business scope as his employer, and in the same city. The employee was the legal representative of that new company. A few months later, the employer eventually fired the employee and he then sued his former employer, demanding unpaid salary and commissions and double severance for wrongful termination.

The procedural history is somewhat messy (with multiple labor arbitrations and lawsuits), but essentially the employee lost in the lower court and then appealed and lost again. The employee then petitioned to the Guangdong Province High People’s Court for retrial and lost again.

The primary arguments set forth by the employee were as follows: (1) He was not paid any compensation for not competing, so the non-compete should not be upheld. (2) He was a low-paid ordinary employee with no access to confidential information so the non-compete was never valid in the first place. (3) The contract damages in the confidentiality agreement were grossly disproportionate to his salary, so requiring him to pay such a large amount would be greatly unfair.

The court decided against the employee on all counts, finding that: (1) The employee had a duty not to compete with his employer during his term of employment and the employer was not required to pay employee any compensation for preforming the non-compete obligations during such period. (2) The employee signed a confidentiality agreement binding him not to disclose his employer’s confidential information and not to compete with his employer. (3) The employee failed to present any evidence proving the contract damages were so high as to be unfair.

The employee was ordered to pay around 130,000 RMB to his previous employer per the agreed contract damages provision, an amount nearly 33 times his monthly base salary.

There is much to be learned from this case about China employee non-competes, including the following:

  1. A non-compete with a fairly low paid employee can be enforceable. The key is more the position than the pay.
  2. Generally speaking, an employer is not required to pay non-compete compensation during the term of employment.
  3. It is possible to enforce a contract damages provision in an employee non-compete. If you want your non-compete provisions to have real teeth, consider adding an appropriately crafted contract damages provision to your employment contracts that contain a non-compete provision or to your non-compete agreements.
  4. Proving actual damages in a non-compete dispute is usually difficult and this is all the more reason why you should have a contract damages clause in your employment contracts with non-compete provisions or in your non-compete agreements. See China Contract Damages: More Art than Science, for why contract damages are critical to most China contracts and for how to determine the proper amount of damages to put into your contract.
  5. Lastly, before you hire any new employee make sure your potential candidate is not violating a non-compete agreement with his or her previous employer because the last thing you want is for your company to be sued by that previous employer. These sorts of lawsuits are becoming increasingly common in China and the Courts are often quick to favor them.

China employment lawyerAs I have previously written a China employer must pay its employee statutory severance when that employee resigned because of the employer’s failure to pay his or her compensation on time or in full. For example, when an employer owes an employee three months’ salary, the employee can probably unilaterally terminate the employment relationship and demand all unpaid salary owed to him or her. What constitutes  “on time payment” can often be tricky.

Note that in most places in China, employers must pay their employee at least once every month. One question I am often asked is what happens when the employer and the employee contractually agree on a longer payment cycle? In those circumstances, can the employee quit and get statutory severance? The short answer is usually yes. Let’s take a look at an actual recent case in Shenzhen.

In this case, the employer and employee entered into an employment contract explicitly stating that the employer would pay the employee on the 20th of each month for the employee previous month’s services. The employer was never late in making payment as per the terms of this contract and the employee never objected to the payment terms. But after working for the employer for a while, the employee quit his job and sued the employer for having failed to timely pay him. The company asserted two defenses to the employee’s claims: (1) the principle of freedom of contract should apply and the parties’ written arrangement on the payment cycle should be upheld; and (2) many employers have financial troubles and pay their employees late and making employers strictly comply with this employee payment law would be unduly harsh for China employers.

The Shenzhen court found against the employer and for the employee.

The court cited the applicable employee payment regulations in Shenzhen, which essentially require pay dates be no later than seven days after any agreed payment cycle. In other words, an employee must be paid no later than by the seventh day following the month in which he or she provided the service. And if for some reason the employer is unable pay by the agreed payment date, it may extend that date for up to five days. If after that the employer is still having financial difficulties, it must obtain written consent from either the labor union or the employee to extend the payment date even further, but in no event may the employer be more than 15 days late in paying.

The court went on to say that even though the regulations allow an employer to make late payment under certain circumstances, this is a very specific exception to the general rule and the employer in this case violated the law by routinely paying late without justification and without following the rules for late payment. Because the employer violated the late payment law, the employee’s termination was caused by the employer’s failure to compensate him on time. The employee was therefore entitled to tens of thousands of RMB in statutory severance — an amount based on the employee’s total years of service for the employer and his monthly salary.

The employer in this case probably never thought it would have to pay this money because it performed its obligations pursuant to the terms of its contract with its employee.

There is much to be learned from this case about China employment law, including the following:

  • It pays to have a qualified lawyer conduct an HR audit of your company and to have this done before your employment problems arise. I would estimate that at least 80 percent of the China employment problems for which my law firm is retained involve issues we easily would have spotted with a simple and relatively inexpensive HR audit. But instead of a relatively leisurely and inexpensive audit, we are instead confronting an angry employee (oftentimes employees) who is threatening to sue or has already sued. One of the first things our China employment lawyers do on a China HR audit is to review our clients employment contracts and the employer rules and regulations to make sure what is in those critical documents actually accords with all applicable laws, including most importantly, the local laws.
  • Timely pay your employees and in full. To do this, you need to know what your local jurisdiction means by “timely.”
  • Many China employment laws cannot simply be contracted away. It is important that you know what can be changed by contract and what cannot be and it is important that you also realize that all of this can vary depending on where you are and even depending on the type of employee with which you as the employer are contracting. Just by way of a quick example, you will generally have more flexibility in contracting with a COO you are paying USD$40,000 a month than with a factory worker you are paying less than USD$40,000 a year.
  • And just to throw in one more that is very much based on a recent employment matter I just handled: just because other employers (especially Chinese employers) get away with it does not mean you will too.
  • If anything, China gets tougher on employers every year and that — unfortunately — is even more true of foreign companies doing business in China.

China employee terminationWhen a China employer and one of its employees end their employment relationship, one of the most important things the employer must do is provide the former employee with a Proof of Termination of Employment Relationship document. This employer obligation is stipulated in the PRC Labor Contract Law (and in many local regulations as well). The Law says that if you as employer fail to perform this obligation, you can be subject to both administrative corrective orders and to damages.

Let’s consider an actual recent case in Beijing (simplified a bit for this post). An employee and employer entered into a contract for a 3-year term and it came to a natural end on May 3, 2014. Employee’s base salary was 16,000 RMB/month. The parties terminated the employment relationship on May 5, 2014. Employee alleged that Employer refused to provide a Proof of Termination of Employment Relationship document. Employee began working for a different employer (Employer B) on May 7, 2014. Due to the Employer’s failure to provide a Proof of Termination document, Employer B issued a termination notice on May 27, 2014 and the parties formally terminated their contract on May 30, 2014. On July 29, 2014 Employee received a job offer from a prospective employer. However, on August 8, 2014 Prospective Employer provided a notice of its decision not to extend employment due to Employee’s failure to provide a Proof of Termination of Employment Relationship document. Employer B paid Employee 22000/month and Prospective Employer offered the same rate.

Employee brought a labor arbitration claim and Employer was ordered to provide a Proof of Termination document. There was some disagreement as to whether Employee contributed to the non-issuance of this document. Employer still refused to provide a Proof of Termination document. Employee sued in court and asked for RMB 113,034.48 in damages or almost 6 months of salary.

Beijing Chaoyang District People’s Court sided with Employee and found the Employer’s failure to provide a Proof of Termination document caused Employee damages but did not agree that the amount of damages should be RMB 113,034.48. Without providing much analysis the Chaoyang court awarded the employee RMB 40,000. Employee appealed and the appellate court (Beijing Third Intermediary People’s Court) affirmed the lower court’s decision. It held that the damages Employee claimed were not actual, definitive, or inevitable losses and after considering the total circumstances of the case and the parties’ fault, the lower court’s decision was appropriate.

Bottom line: Perform your employer obligations at the time of employee termination, including most importantly, issuing your terminated employees a Proof of Termination of Employment document.

 

China employment contractEmployers in China are presumed to have greater bargaining power than their employees and therefore China’s labor laws tend to provide China employees with substantial protections and China courts typically favor employees in disputes with their employers, especially foreign employers. If you as a foreign employer want to avoid legal problems, you should strive to hew to the employment laws, especially when it comes to drafting your employment contracts.

China employment contracts are not a time to get creative and a recent court case out of Guangdong confirms this. In this case, an employee and a Guangzhou-based employer entered into an employment contract for a fixed term (more on this later). The parties explicitly agreed on a contract damages provision stating that if either party terminates the contract without good cause before the end of the contract term, the breaching party shall pay the other party 200% of the employee’s salary for the remainder of the term. This provision was intended to be effective both ways: it did not just apply to the employer.

The contract was properly executed and the employer eventually terminated the employee before the end of the term — about four years into employment, with about six years remaining on the term. The employee then sued the employer for double damages for unlawful termination and for the contract damages per the employment contract: 200% of salary for the six years remaining on the term. The employer argued that it was entitled to damages because the employee had deceived them in securing his job by falsely claiming to be a foreign expert.

The appellate court ruled that Chinese law prohibits imposing a penalty on employees unless an exception applies, which it rarely does and it did not in this case. The appellate court also upheld the damages provision as applied to the employer and held the employer liable for the contract damages. The court ruled that the damages provision as applied to the employee was illegal whereas that same provision as applied to the employer did not violate any laws. The employer therefore owed the employee 200% of his salary.

In reaching its decision, the court noted that China’s labor laws allow for penalties against employees in only the following two circumstances:

  • Pursuant to an education reimbursement agreement, an employer can require its employee reimburse the company for the education expenses if the company pays major expenses for an employee’s employment-related education or training, but the employee quits the company upon completion of the training.
  • Pursuant to a non-compete agreement, an employer can require an employee pay a penalty to the company if the employee violates any non-compete terms by, for example, working for a competitor after leaving employment.

Except for the two circumstances above, an employer and an employee may not agree on any provision that requires the employee pay a penalty to the employer.

Bottom line: Chinese laws are strict about when an employer can impose a penalty on an employee and employers typically cannot contract around China employment laws. For these reasons, it rarely makes sense to draft an employment contract with provisions that purport to do otherwise.

China cybersecurity lawsThe PRC government promulgated its Cybersecurity Law on November 7, 2016, with an effective date of June 1, 2017. To say that foreign tech firms are concerned about the impact of this new law on their business in China would be an understatement. In addition to tech firms, our China lawyers have received a steady stream of questions from clients with China WFOEs who are concerned about an entirely different set of issues. Article 35 of the law states that “personal information and other important data gathered or produced by critical information infrastructure network operators during operations within the mainland territory of the People’s Republic of China, shall store it within mainland China.” Our clients keep asking what this will mean for them.

The surprising answer is not much.

Any company that operates a WFOE in China collects personal information about its employees. China’s new cybersecurity law defines personal information as “all kinds of information, recorded electronically or through other means, that taken alone or together with other information, is sufficient to identify a natural person’s identity, including, but not limited to, natural persons’ full names, birth dates, identification numbers, personal biometric information, addresses, telephone numbers, and so forth.” Certainly, the standard information any company maintains on its employees will qualify as personal information under China’s new cybersecurity law.

In the EU and various other jurisdictions, such personal information must be maintained within the jurisdiction and there should be no transfer of such information across borders. This causes many problems for companies that seek to manage an international workforce through a central location.

So what clients keep asking our China attorneys is whether China’s new cybersecurity laws will establish the same sort of protective system within China? The simple answer is that it will not. China does not have a comprehensive law or regulations relating to the collection, processing or transfer of employee data gathered by a WFOE or other business entity in the normal course of its China business operations and China’s new cybersecurity law does not change that situation.

The cybersecurity law specifically provides that its personal data maintenance and collection rules apply only to critical infrastructure network operators. Network operator is defined as “network owners, managers and network service providers.” In more general terms, this means telecom operators and Internet ISPs. The requirements do not apply to the China business operations of normal private businesses with respect to their normal record keeping requirements for their employees.

Even though nothing has legally changed in China, it is still best practice for foreign companies employers in China to follow the basic rules the PRC government imposes more generally in the consumer context on the collection and maintenance of personal information, including the following:

1. Be sure the disclosing party (your employee) is aware that the company maintains personal information. The company should have a written policy (in Chinese and in English) on how long that information is maintained and that policy should be revealed to the employee.

2. You should not collect more personal information than necessary.

3. You should maintain the confidentiality of the personal information you collect and maintain. That means you should limit internal access to that information and you should take proper security measures to prevent a data breach of the company’s online systems.

4. You should not sell or otherwise transfer the personal information to any third party. Stated more bluntly, do not sell employee personal information to marketers or spammers.

China employment lawI have been writing a lot lately about various myths regarding specific aspects of Chinese employment law. The below posts — all written this year — set forth many of those myths:

But I have yet to write about the most common China employment law myths overall. Until now.

Myth 1: A China employer can hire an independent contractor to avoid having to hire someone as a regular employee and have to pay all kinds of employee benefits. Though retaining someone as independent contractor is not entirely impossible, it can only be done under very limited circumstances. First, you need to consider the tasks of the person you are seeking to hire. For example, if you are a software company and this person is expected to work as a software design engineer, you probably need to retain this person as an employee. If your “independent contractor” is being managed according to your rules and regulations and all other company policies, it is very likely that such person will be deemed an employee for purposes of Chinese labor law. Moreover, if you wish to have full control over such person’s behavior, you might as well hire him/her as an employee in the first place. This is not something you want to get wrong and yet we constantly see foreign companies get this wrong.

Myth 2: In China, employment at will is possible, provided there is a well-crafted contract in place. Wrong. China is not an employment-at-will jurisdiction. Nonetheless, China employees can leave pretty much at any time for pretty much any reason so long as they give advance notice (generally speaking, 3 days notice during the probation period and 30 days written notice once past the probation period). In some Chinese cities (but not in others), with a well-crafted employment contract in both English and Chinese, it is possible to have an at-will arrangement with a non-Chinese employee.

Myth 3: A China employee on an open-term contract cannot be terminated. Ever. You cannot terminate a lifetime employee without cause just like generally you cannot terminate an employee on a fixed term contract without cause. Having an open-term contract means the employee has much more leverage when it comes to negotiating a mutual termination and that you will likely need to pay much more to dismiss the employee than to an employee on a fixed term contract. However, such employee is not untouchable. For example, if he or she has materially breached your rules and regulations, you may have valid grounds to terminate.

Myth 4: Employer rules and regulations are just a formality. I cannot stress enough the importance of having a set of English and Chinese rules and regulations that work for China. If you don’t have one, you should get started on drafting one NOW.

Myth 5: Overtime rules are not enforced and I know this because most other employers in my locale don’t follow the overtime rules. Wrong. The general direction in China is toward more enforcement and furthermore “foreign” employers are always going to be under closer scrutiny than their Chinese counterparts. Most importantly, even if the local human resources and social security authorities are not cracking down on illegal practices in your area, this does not mean your employees will not pursue you in labor arbitration for overtime.

Myth 6: We acknowledge our sales people are employees and we give them all social insurance and other employee benefits but because they get so much in commissions, we don’t need to provide them with any base pay. Wrong. If someone is hired as an employee, the safest route is to pay him or her a monthly base salary. Generally speaking, the absolute minimum is the local minimum wage standard. It usually does not matter that the employee’s average monthly pay is a lot higher than the local minimum. Where there is no base pay each month, the argument that the employee made a ton during the busy season is likely to fail and you will be deemed to have violated minimum wage laws.