China employment law
Root out differences between your employee contracts and rules and regulations

A well-written employment contract, along with a set of China-centric employer’s rules and regulations are the starting point of what you must do if you have employees (or plan to have) in China. Though it is good thing to have both of these documents in place, it is even better when these two actually work together. Our employer audits often find a company’s employment contracts and employer rules and regulations to be in conflict with each other, with internal inconsistencies or discrepancies that confuse employees (and employers) and can work against the employer in a labor dispute.

Let’s look at a case in Shanghai for an example of this, with the facts simplified for this post. The parties entered into an employment contract for a fixed term under which the employee would be working as a cargo driver. The employee’s contract stated that if the employee is absent from work for five days without good reason, he will be unilaterally terminated without severance. But the employer’s rules and regulations say that an employee may be terminated for three days of absenteeism. The employee was designated to work flexible hours and the employer would give direct orders to the employee by phone regarding specific assignments, and absent such work orders, the employee would stand by at home.

It is undisputed that on August 11, 2015, the employee failed to dispatch per the employer’s direct order. On the very next day (the 12th), the employee was late in dispatching after having received an urgent work order from his employer. Then on August 19th, the employee received a work order and he then verbally notified his employer that he could not perform his duties because he was sick, but he did not provide a doctor’s note at that time. On August 20th, the employer issued a written notice to the employee giving him two days to provide a doctor’s note to prove he was indeed sick as he claimed to be. The employer also served a serious warning on the employee for being late on the 12th. Further, the notice required the employee to return his driver’s permit and operation permit to the company so someone else could operate his assigned vehicle. Then again on August 25th, the employer sent another notice to the employee requiring him to report to work by the following day (August 26th) or be treated as absent. The employer stated in its notice that because the employee had failed to return the relevant permits, the employer had suffered loss for not being able to operate the car assigned to this particular employee, and therefore this failure to return the permits constituted a serious violation of the employer’s labor disciplines. The employee returned the relevant permits and submitted a doctor’s note regarding his August 19th absence. The employer nonetheless terminated this employee for having violated the employer’s rules and regulations. The employee sued for unlawful termination.

The trial court sided with the employee and the employer appealed. On appeal, Shanghai’s First Intermediate People’s Court held as follows:

  1. The employee’s contract expressly gave the employer the right to terminate the employee for being absent from work for five days without justification while the employer’s rules and regulations say three days. The two documents contradict each other on this point. The court went on to hold that applicable judicial interpretations stipulate that when there is a discrepancy between an employer’s rules and regulations and the employment contract and the employee requests the contract prevail, the court will grant such a request. Therefore, the court applied the terms of the employment contract, so only absenteeism for five days or more would justify unilateral termination without severance.
  2. The employee produced a doctor’s note to show he was sick from August 19th through the 21st, so it does not make sense to say he was absent from work without a valid reason during that period.
  3. Even though the employee failed to submit a doctor’s note within the 2-day period required by the employer in its notice, because August 22nd and 23rd fell on a weekend, the employee was absent from work for only three days: the 11th, 24th and 25th. Because the employment contract (which allows for five days of absences before termination) is the governing document, being absent for three days does not justify unilateral termination.
  4. For the reasons stated above, the employer’s termination decision was unlawful.
  5. Because the employer had no right to terminate the employee, the employer had no right to demand the employee return all the permits for the company car, so the employee should not have been punished for returning those permits late nor can he be held liable for the alleged damages that allegedly arose from his failure to return the permit.

If the employer in this case had taken the necessary time to make its employee’s contract consistent with its rules and regulations on the number of days of absence, the employer’s termination decision would probably have been held lawful.

Bottom line: Make sure your employee agreements are consistent with your rules and regulations and make sure they work well together. In comparing these two internal employment documents, make sure that you focus on the Chinese language versions of each because that is the version that legally matters.

China employment lawyerI have recently been focusing on Beijing with my China employment law posts because Beijing recently came out with new employment laws. The new laws, entitled the Responses to Several Issues Regarding Application of Law in Trial of Labor Disputes (关于审理劳动争议案件法律适用问题的解答)(“the Responses”) were released earlier this year to clarify a number of key employment law issues and to ensure a fairer and more effective and consistent adjudication of labor disputes in Beijing. In this post, I focus on how the Responses lower the standards for terminating an employee during his or her probation period. A China employer is permitted to use “failure to meet the conditions of employment during the probation period” as a basis to unilaterally terminate an employee without having to pay him or her severance. But what exactly does this mean for Beijing employers today?

The Responses make clear that an employer must inform its probationary employee of the conditions of employment during the recruitment process, and must also inform the employee of the factual and legal basis for termination upon dismissal. For a unilateral termination of a probationary employee to be lawful, the employer must be able to prove how the employee failed to meet the applicable employment conditions. This is nothing new. However, the Responses go on to say that in determining whether an employee meets the conditions of employment, the standard may be lower, to the extent appropriate, for a probationary employee than for a regular employee. The Responses also then list the following circumstances under which an employee may be considered to have failed to meet the recruitment requirements:

  • The employee violates the principle of good faith, and conceals or makes up facts concerning himself or herself which will affect the performance of the employment contract, including providing fake diplomas or certificates, fake identification documentations (PRC national ID cards, passports, etc.), making statements regarding his or her experiences, expertise, skills, performances, heath or other pieces of information that are significantly contrary to the truth;
  • The employee commits work errors, which are defined in accordance with the relevant employment laws, the employer’s rules and regulations, or the employment contract;
  • The employee fails to fulfill the terms and conditions agreed by the parties which determine whether the employee passes the probation period.

Employee probation is one of the most often misunderstood China employment law issues. Many employers (and often to their detriment) wrongly believe terminating a probationary employee is much easier than terminating an employee who has completed the probation period. Though this is not the case, the Responses do provide that the standard of review on whether a probationary employee meets the conditions of employment can be reasonably (whatever that means?) lower than the standard of review for an employee during the “regular” term of employment. Our China employment lawyers always advise our clients to specify the conditions of employment in a clear writing (in Chinese!) so the employee understands the employer’s expectations from day one. In addition, employers should preserve good evidence that such conditions are communicated to their employees. None of this advice has changed despite Beijing’s new employment laws and in fact, Beijing-based employers should consider specifying in their rules and regulations and/or their employment contracts exactly what work errors can lead to termination during probation. But be careful in drafting such provisions because our employer audits often find employers that write these provisions in a way that violates applicable laws!

Notwithstanding Beijing’s new employer-friendly law on probationary employees, China employers who treat the probation period as an at-will employment period do so at their own peril. Note this law is applicable only in Beijing, and in practice, many arbitrators/judges in many places (including Beijing, no doubt) treat termination of an employee during the probation period no differently than termination during the regular employment term.

For more on Beijing’s new laws, check out my previous posts here on how to terminate an employee on the basis of there having been a “significant changes in objective circumstances, and here for on the new rule that permits Beijing employers to terminate an employee who seriously violates labor disciplines or professional ethics and here for the new rules on reinstating employees to their old jobs when an employer’s termination decision has been deemed unlawful. Oh, and once again, please check out my new book, The China Employment Law Guide, which will very soon be coming out in paperback format as well.

 

 

 

China employment law guide

As regular readers of this blog know, China’s employment laws are very much location based. See China Employment Law: Local and Not So Simple. For this reason, much of what I write about employment law focuses on Beijing and Shanghai and Shenzhen, as those three cities contain the bulk of foreign companies with Chinese employees.

I have of late been focusing on Beijing because it recently came out with new employment laws. Earlier this year I wrote my first piece about Beijing’s new labor laws, called the Responses to Several Issues Regarding Application of Law in Trial of Labor Disputes (关于审理劳动争议案件法律适用问题的解答)(“the Responses”). These new laws focus mostly on adjudicating labor disputes more fairly, effectively and consistently. That post focused on Beijing’s new rules on reinstating employees to their old jobs when an employer’s termination decision has been deemed unlawful. Those new rules essentially say that a Beijing employer that unlawfully terminates an employee must reinstate that employee to his or her previous position unless one of a limited number of circumstances exists that render the original employment contract no longer able to be performed.

In Beijing’s New Employment Laws, I wrote how these new laws indicate Beijing is inching closer to Shanghai by becoming more employer friendly. That post focused on how Article 13 of the Responses allows Beijing employers to terminate an employee who seriously violates labor disciplines or professional ethics, even if the employer’s rules and regulations and employment contracts are silent on the specific employee misconduct.

In this post, I focus on how the Responses reduce a Beijing employer’s ability to terminate an employee on the basis of there having been a “significant changes in objective circumstances.” Before I explain what this will likely mean for you as a Beijing employer, here is a quick summary of the law. The PRC Labor Contract Law allows employers to terminate an employee by providing either 30 days’ written notice or by paying the employee one additional month’s wage, where the “objective circumstances” that gave rise to the employment contract cannot be realized and, even after negotiations between the employer and the employee the parties cannot reach agreement on amending the contract. Employers in China often rely on this ground for terminating employees after a restructuring.

The Responses define “significant changes in the objective circumstances” as changes that cause an employment contract or its main terms to be unable to be performed or would make continued performance unfair (e.g., performance would be prohibitively expensive). These significant changes need to have occurred after the employment contract and have been unforeseeable when the employment contract was concluded. The Responses further provide that such changes include the following situations: (1) force majeure caused by natural disasters (e.g., earthquakes, fires or floods), (2) changes in laws, regulations or policies that result in major changes such as relocation, asset transfer or ending or switching production, or change of state or collective ownership of the employer, and (3) changes of the business scope of employer who is a franchisee.

As noted above China employers would offer fight unlawful employee termination claims by claiming the termination was justified due to significant changes in objective circumstances. Beijing’s Responses suggest this defense will be less likely to succeed in the future for terminations that do not stem from changes in laws, regulations or policies.

Even without Beijing’s new Responses, our China employment lawyers have never been big fans of this defense in Beijing (or in most other cities in China) because it is seldom successful and it is usually expensive to mount. It requires the employer both show  “significant changes in objective circumstances” and that “the parties were unable to reach an agreement on amending the contract” after negotiations. In one case in Shanghai, where the employer’s foreign parent company had sold certain assets and businesses which resulted in ceasing production in China and elimination of the employee’s position in, the court did find that the employer satisfied the first two elements of such a defense by finding that there had been (1) an occurrence of significant changes in the circumstances, and (2) the employment contract could no longer be performed as a result of such changes. But it then found that the employer had failed to produce sufficient evidence regarding the parties having tried to negotiate an agreement on amending the contract. Lacking this third element, the court held the employer’s termination decision was wrongful.

Termination on this ground has also always been limited and, for example, expressly not permitted in any of the following situations:

(1) Being engaged in operations exposed to occupational disease hazards, the employee is not given pre-departure occupational health examinations, or being suspected of an occupational disease, and is in the process of being diagnosed or is under medical observation;

(2) Having contracted an occupational disease or being injured at work, the employee is confirmed to have totally or partially lost the ability to work;

(3) The employee is on medical leave for medical treatment for illness, or for non-work related injury, and;

(4) The employee is pregnant, on maternity leave or nursing;

(5) The employee has worked for the employer continuously for 15 years and is less than 5 years away from the statutory retirement age; or

(6) any other circumstances provided by laws or administrative regulations.

Because it can be extremely difficult for an employer to ensure it meets all the legal requirements related to a “significant change” termination such that it can meet its burden of proof when sued, this termination route is rarely the most effective one to take. As is usually true of employment terminations across the board in China, mutual terminations with settlement agreements and claim releases are the safest route for employers to take.

For more on how best to handle your China employment law matters, I urge you to check out my recently published e-book (soon to come out in paper form) entitled, The China Employment Law Guide: What You Need to Know to Protect Your Company as  a quick and easy China employment law reference for companies with employees in China.

China employment law guide
Want to know more about China’s employment laws? Buy the book.

One of the most important things you should know about China employment law is that employees have many rights that they cannot contract away. For an example of this, see China Employers: Pay Your Employees on Time to Avoid Lawsuits and Penalties. China employee working hours is another good example of this.

As I have written previously, most China employees can only work under China’s “standard working hours system,” and in most places in China, that means a 40-hour work week — 8 hours a day and 5 days a week. Many foreign employers dislike this system because it means any work done outside standard working hours is overtime and must be paid accordingly. China’s laws recognize this standard system is not practical for certain positions and for certain industries and it allows for two major exceptions, with one being the flexible working hours system. This system is somewhat similar to the salaried employee system in the United States in that it allows employees to work flexible hours without overtime.

China’s flexible hours system sounds good to foreign company employers, but they so often mess it up that it sometimes seems most would be better off were it not to exist at all. To get one or more of your employees in under the flexible working hours system, you must secure prior government approval and this can be a painful and frustrating process, even for those of us who do it all the time. The requirements for getting an employee under the flexible hours system (like pretty much everything else employee related in China) are localized and can change without notice. The local government decision on whether to grant a flexible hours exception rests with local employment officers and they have plenty of discretion and their interpretations of the law can vary. Making things worse, an approval is usually valid for only one year so you need to renew it every year, and the renewal process can be just as arduous as the initial application. Once any of our China employment lawyers gets an approval, we are always certain to send that same lawyer back for any subsequent approvals, figuring that we are not going to mess with what works.

Because of these difficulties, we are starting to see China employers come up with “creative” ways to get around this problem. For example, instead of seeking government approval before they designate the employees to work flexible hours or securing approvals for renewals when the validity periods are expiring, they enter into a “well-written” Chinese-language agreement with the employee that specifically states the employee will work flexible hours and any overtime pay will be dealt with accordingly. Bad idea. The validity of these sorts of agreements has been tested by China’s courts, and the employers have lost nearly every time. In a recent case in Fujian Province, an employer argued that the local law requiring prior government approval for a flexible hours system is not mandatory and because the employer and his employees had agreed to such a system of their own free will, their agreement did not violate any mandatory laws and should be respected. No surprise to anyone who knows China’s employment laws, but the court did not side with the employer and it instead ordered it to pay all overtime, plus penalties.

There are actually a few very limited circumstances under which employers do not need prior government approval before they can make an employee work flexible hours, but those exceptions vary by locale and they can change without notice as well. On top of this, we are aware of situations where the law says government approval is not required for certain positions but the local labor authorities nonetheless still mandate prior approval. Your outcome will ultimately come down to your locale, but our advice to clients is never to institute a flexible hours program without first getting sign off from the relevant authorities. Failing to do so can lead to lawsuits and penalties.

Even if you do everything right in securing relevant government approval, you also must then follow all the requirements of a flexible hours system and these too can be complicated and local. For example, in a case in Tianjin, an employer that obtained government approval to have an employee work under the flexible working hours system lost a lawsuit to an employee who worked 8 hours a day, 6 days a week for years without overtime. The court ruled that even though the employer had secured government approval for the employee to work flexible hours, because the employer made the employee report her attendance and work overtime as though she were still on a standard hours system, the laws on standard working hours must apply and the employer must pay this employee overtime pay for all past overtime work.

When it comes to China employment laws, you really need to get clear on what can be contracted away, and what cannot.

Towards that end, it is with great pride that I announce the recent publication of my book on China’s employment law, entitled, The China Employment Law Guide: What You Need to Know to Protect Your Company. The Kindle edition is already out and the softcover version will soon follow. I wrote this book intending it to be a quick and easy off the shelf reference for companies with employees in China. Please check it out and let me know what you think.

 

 

 

China HR AuditsEarlier this year I wrote about Beijing’s new labor laws, called the Responses to Several Issues Regarding Application of Law in Trial of Labor Disputes (关于审理劳动争议案件法律适用问题的解答)(“the Responses”). These new laws focus mostly on adjudicating labor disputes more fairly, effectively and consistently. My previous post focused on the new rules on reinstating employees to their old jobs when an employer’s termination decision has been deemed unlawful. A super brief summary is that an employer that unlawfully terminates an employee must reinstate that employee to his or her previous position unless one of a limited number of circumstances exists that render the original employment contract no longer able to be performed. As I noted, one of the “defenses” the employer may raise is that the employee has started working for another employer and it therefore would not make sense to grant the employee reinstatement.

The new rules set out in the Responses were not an attempt by Beijing to make itself an employer-friendly jurisdiction, but rather, to increase uniformity in the law across the different courts within the municipality of Beijing. Nonetheless our China employment lawyers have been seeing employer-friendly interpretations that seem to be bringing Beijing one step closer to Shanghai, which is the most employer-friendly among China’s major expat cities. One example is Article 13 of the Responses, which provides that an employer may terminate an employee who seriously violates labor disciplines or professional ethics, even if the employer’s rules and regulations and employment contracts are silent on the specific employee misconduct. The Responses refer to paragraph 2 of Article 3 of the PRC Labor Law which mandates employees shall comply with labor disciplines and professional ethics. The Responses state that an employee’s serious violation of this requirement will allow the employer to terminate that employee based on paragraph 2 of Article 3 of the PRC Labor Law.

This means employers need worry just a little bit less about listing every single possible punishable offense in their rules and regulations. However, what constitutes a “serious violation” of labor disciplines or professional ethics is unclear and will be determined on a case-by-case basis. What has not changed in Beijing (or even Shanghai for that matter), is that an employer’s termination decision must be reasonable and the employer must prove the reasonableness of the employee’s termination to prevail in a labor dispute. In other words, Beijing is becoming more like Shanghai with respect to employee terminations but it is NOT like the United States which mostly allows for employee terminations at will.

Beijing employers still must proceed with extreme caution in terminating anyone and mutual terminations with settlement agreements and claim releases are still usually the safest route for employers to take. We still routinely see China employers’ unilateral termination decisions stricken because of defects in either their rules and regulations or in how they implemented those rules and regulations. We constantly perform HR audits of foreign companies doing business in China and more than nine out of ten of these companies are clearly not doing enough to withstand an employee termination dispute.

I will be writing more about Beijing’s Responses in later posts so please stay tuned.

 

 

China employment lawyers
China employment law: it’s a maze out there.

It is usually very difficult to back out of or even change a China employment contract once a China employment contract has been signed, it is particularly difficult for the employer to unilaterally change any of its terms, especially the important terms such as the employee’s wages and position. China employers that try to change employment contracts often find themselves in arbitration or in court, paying legal fees and fighting against damages and oftentimes bad publicity as well.

A case in Zhejiang province illustrates the difficulties employers can face when they try to change an employee contract. In this case, the employer and an employee entered into a fixed-term employment contract that was to run from April 2012 until April 2015. The contract stated the employee’s position as assistant to the general manager, with pre-tax monthly wages set at 11,000 RMB. The contract also provided that if the employee met certain evaluation criteria at the end of the calendar year, he would get an additional 30% in monthly wages, which would make his annual wage 190,000 RMB. In July 2013, the employer unilaterally demoted the employee to HR administrative staff and reduced his monthly wage to about 3800 RMB. The employee handed over his unfinished tasks to his colleague immediately after he learned of this decision and filed for labor arbitration the very next day. The following month, the employer issued a written decision terminating this employee’s contract on the basis that he had failed to show up at work for six consecutive days.

The employer’s policy stated that employees would receive periodic evaluations (with A being the highest score, and E the lowest) and if an employee received 2 Ds or 3 Cs or 1 E during a 6-month period, the employer would consider the employee incompetent at his/her current position, and would then have the right to demote or adjust the employee’s position and reduce or adjust the employee’s pay.

The employer argued that the demotion of this employee was because of poor evaluation results: the employee had received three Ds three months in a row, from April 2013 to June 2013. However, the court said that because the evaluations conducted concerned the employee’s fundamental rights, including labor remuneration and work position, the employer must come forward with definitive and strong evidence to justify the demotion and salary reduction. The court ruled that it was inappropriate for the employer to make such significant changes based solely on three poor evaluation sheets and the evidence supporting the employer’s unilateral decision was not sufficient.

The employer also argued that even though it unilaterally amended the employment contract, it did not give the employee the right to unilaterally terminate the contract without prior notice and if the employee had wanted to terminate the contract, he should have given 30 days’ written notice, his failure to provide such notice constituted absenteeism justifying his terminating for failing to show up at work for several consecutive days. The court did not side with the employer on these arguments either, finding that because the employer had received notice of the employee’s labor arbitration claim it had no basis for issuing a termination notice based on the employee’s not showing up at work.

The court held that an employer may in some circumstances amend an employment contract, but amendment of significant issues such as an employee’s salary or work position should be done through mutual consultation. The court also stated that under ordinary circumstances an employee must give 30 days’ written notice for unilateral termination, that was not the case here since the employer unilaterally amended essential employment terms without first consulting with the employee, where the employer had failed to provide the labor conditions or protections required by Article 38 of the PRC Labor Contract Law. According to the court, the employee had every right to unilaterally terminate his employment contract without notice. As expected, the court also held that the employer’s inappropriate conduct was the basis for the employee’s departure and the employer must pay severance to the employee.

The employee also brought a claim for 30% of his wages from January through July; which according to his contract, he would be entitled to receive only if he passed the year-end evaluation. The court ruled that because the employee had to leave his employment because of employer abuse, he could not receive his year-end evaluation and for that reason, the employer must pay the full amount of the employee’s wages, including the 30% bonus. Long story short, the employer lost big time.

Even though unilateral salary reduction is possible in China, there are many hoops to jump through to accomplish this and the evidentiary burden for an employer to succeed with this is quite high. This case is yet another instance showing how Chinese courts are very protective of employees’ basic rights.

Bottom line: You as employer need to think long and hard before you take any unilateral action involving your employees in China. Unilateral amendment of an employment contract is just as difficult and risky as unilateral termination of an employee and it rarely is the most effective solution to employee problems. As Confucius said, more haste, less speed (欲速则不达). Or as our China employment lawyers are always telling our clients, please, please, please come to us before you make your employment decisions, not after!

 

Employee probationChina employee probation is one of the most often misunderstood China employment law issues. Many employers understand employee termination in China is difficult because China is not an employment-at-will country. But far too many wrongly believe things are otherwise for employees still on probation. Needless to say, this mistaken belief often leads to big problems.

Consider this scenario: an employer hires an employee on January 1st and sets a 2-month probation period, well within the legal maximum probation period. The employer conducts employee evaluations and carefully preserves evidence demonstrating the employee’s failure to meet the conditions of employment clearly specified in the employment contract. The employment contract was in Chinese and was properly executed by both parties. In other words, everything has been done right. But then the employer sends the employee his termination notice on March 1, one day after the employee’s probation period ended.

Should this employee pursue a claim against its former employee, what will happen will depend on the locale, but many courts in China will rule that the employer’s late termination notice means it cannot use “failure to meet the conditions of employment during the probation period” as a basis for unilateral termination without severance pay. This scenario is based on real cases and shows both how technical China’s courts can be when it comes to employee protections and how one day does make a difference!

Clever employers will argue that even though it notified the employee of its termination decision after the probation period had ended, its reasons for such termination occurred DURING the probation period, so it should not lose on a technicality. But this “technicality” matters for purposes of China employment law. Over two decades ago, after receiving a request from a provincial labor department seeking guidance on how to determine an employer’s right to terminate an employee for failing to meet the conditions of employment during the probation period, China’s Office of the Ministry of Labor issued a formal reply stating that after the probation period has passed, an employer cannot use probationary rules as grounds for terminating a labor contract. Many China courts still either explicitly or implicitly abide by this guidance statement.

Probation issues tend to be rife at foreign companies in China and our employer audits invariably reveal such problems. The issue goes beyond making sure you terminate an employee before the probation period ends. It is important you also check your overall HR practices regarding  probation periods across your organization. Are you using probation correctly? Are you setting your probation periods so short as to make employee terminations practically impossible? Are you preserving the evidence necessary to support a termination? If you don’t fully understand how employee probation actually works in China, you may end up worse off making your termination based on that as opposed to just waiting.

China employment lawyers
China employment contracts. Don’t wait.

Our China employment lawyers often get questions from employers on what they should do to onboard new hires. The number one rule with a new employees is to have a written employment contract with them, assuming you have already done the following:

  • You checked your new hire’s credentials, made sure his/her previous employment relationship ended properly (you usually can do this by checking your new hire’s proof of termination of employment relationship document), confirmed your new hire completed the hand-over and exit procedures required by his/her former employer, and made sure there are no encumbrances or restrictions on your new hire coming to work for you, such as a signed non-compete agreement;
  • You extended an offer letter to the new hire, which was accepted.

Do not wait until your new employee requests a written employment contract to present one. You essentially have only one month after hiring to ensure that your employee has entered into an appropriate written employment contract. It is therefore a best practice to get your employees to sign a written employment contract — along with a signed acknowledgement of having received your Employer Rules and Regulations — before they start working for you. Sometimes it may be impractical to do all this in the timeframe you have and it is better to wait than to get pressured into signing something you have not fully reviewed or fully understand. We have had to clean up too many sticky employment situations where foreign companies signed employment contracts drafted by their employee based on something downloaded from the Internet. You need to firmly say no to such a contract, because any contract you sign will become a legally binding document and it is much more difficult for an employer to back out of such an agreement than for your employee.

If your employee is failing to sign your employment contract within the first month of employment, you should notify that employee in writing that you will terminate their employment before the first month is out unless they sign a written employment contract. This is usually necessary because in most places in China, once you go past a month without an employment contract with one of your employees, you will be at a perpetual disadvantage as against that employee.

Bottom line: The first month of your employee’s commencement is critical. Having a high quality dual-language employment contract tailored for your industry and your locale in place before your employee’s first day at work will avert HR headaches down the road.

 

 

China employment lawyers
Don’t pay twice for your employee’s vacation

Employers in China are constantly getting sued over employee vacation days. The very short version of the general rule is that any employee who works continuously for one year is entitled to statutory annual paid leave (a/k/a paid vacation days). This is not news to China-based foreign employers as their parent companies all have vacation policies. However, what is not so well known is the legal requirement that they make arrangements for the employees to be able to enjoy their statutory vacation days. What this means is that employers in China must stay on top of how their employees take (or not take) their vacation days and, more importantly, they must pay their employees for unused vacation days, unless they can prove the relevant employee has voluntarily given up such vacation days. But the tricky part ain’t over.

Foreign employers in China far too often assume their employees cannot prevail on claims for payment for unused vacation days if they have waited too long. But this is only sort of correct. As with pretty much everything else involving China employment law, how the statute of limitations is calculated varies. Some courts treat compensation for unused vacation days as normal wages and apply the longer statute of limitations and give employees until one year after their employment is terminated to sue for all such compensation. Some courts treat it as a pure penalty payable by the employer and apply the shorter statute of limitations, which may bar a portion of the unused vacation pay the employee is claiming to get. Some courts completely ignore the issue of statute of limitations and this usually means an employer that cannot produce evidence to show its employee actually took the vacation days at issue will need to pay for any “unused” vacation days, no matter how long ago.

Our China employment lawyers advice our clients not to focus on how a particular Chinese court in a specific city will apply the statute of limitations on any given day, especially since courts in different districts in the same city have been known to use different standards. Rather, we tell them to focus on working to prevent the problem. From day one, your HR department should be keeping track of how each of your employees takes his or her vacation days. If there are lingering issues or claims, clean them up right away. Get your employees to execute an agreement (in Chinese!) making clear the employee acknowledges having been paid in full for any unused vacation days.

Though employees in China should plan their own vacation days and do have the freedom to give them up, it is not a good strategy for an employer to leave it to their employees to track and/or accumulate their vacation days without checking. When employees sue for vacation time years after that time was accrued, you want to have good evidence that no payment is owed.

China employment law auditChinese employees constantly litigate overtime claims against their China employers. Many foreign employers in China assume their employees have the burden of proving overtime was actually incurred. But they are only sort of correct. The governing judicial interpretations (i.e., Interpretation (III) of the PRC Supreme People’s Court of Several Issues on the Application of Law in the Trial of Labor Dispute Cases) shift the burden to the employer if the employee produces evidence showing the employer holds the relevant evidence. What does this mean in practice? In employee-favorable jurisdictions like Beijing, it means that if an employee has just minimal evidence of having put in overtime without getting paid for having done so, the courts will require the employer prove the employee’s overtime claims are untrue. The Beijing courts take this position because they know employers often verbally transmit their overtime requirements/requests and thereby leave their employee with no good evidence of having worked overtime. On the other hand, the employer’s mandatory attendance records usually show who worked when.

The Beijing courts have recognized that copies of work shift schedules signed by a supervisor were enough to shift the burden of proof to the employer and even declarations and witness testimony. But even where the employee comes forward with sufficient evidence to shift the burden to the employer, the employer can still prevail if it can produce sufficient evidence to rebut the employee’s overtime evidence. For example, the courts have accepted wage payment acknowledgment forms signed by an employee who specifically acknowledges having been paid in full and had no issues concerning such payments and fully accepted the amount.

Many China employers also assume that if their employees follow an order to work overtime and then do not object to the wages received, they have accepted that no overtime pay is owed to them. This is WRONG. Employees do not need to file a complaint or voice any rejection right away. Generally speaking, they have one year until after their employment is terminated to sue for overtime wages. And sue they do, which is all the more reason why it is so important to get your departing Chinese employees to sign settlement agreements with you making clear they have no wage claims. See China Employee Termination: Avoid These Mistakes.

What all of this means in real life is that employees can and often do keep minimal evidence of unpaid overtime and patiently wait for years before taking any legal action. They can (and do) also unilaterally terminate the employment relationship and sue their employer for severance and damages or they can wait until they are terminated or the employment term has expired. In other words, if you have not been properly handling your employee overtime and compensation correctly, you could be sued for years of unpaid overtime pay. Our China employer audits often find lingering potential overtimes claims and we typically advise our clients to clean those up right away while they still have leverage over their employees, rather than waiting for the nearly inevitable claims once the employees have left.

“Clever” employers may argue that their local labor authorities have told them that they are obligated to keep employee wages records on file for  only two years in case of audits, so everything will be fine if they do just that. Wrong. Yes, this does mean you have fulfilled that specific employer obligation/law, but that law is not intended to prevent employees from pursuing you for overtime wages going back more than two years. Also note that like pretty much everything else involving China employment law, even the amount of time you must keep your employee wage records can vary.

The bottom line on employee overtime claims in China is that China employers should just assume they will end up having the burden of proof on overtime claims and should therefore start both cleaning up past problems and preparing for future problems.