China employment lawyer

The implementation regulations for the new Chinese Labor Contract Law were promulgated on September 3. When the draft regulations were issued earlier this year, we discussed some of the proposed changes (here), and despite having shrunk from 45 articles to 38, the content of the regulations remain relatively intact. You can read the full text of the final version of the regulations, in Chinese, here.

The newly issued implementation regulations have four sections (compared to three in the draft version), dealing with establishing the labor contract, terminating the contract, special issues with dispatched workers, and an additional section on legal responsibility.

The biggest cuts were in the section on establishing the labor contract. A brief rundown of the contents of this first section of the final regulations follows:

  • Employees who refuse to sign a contract within the first month of employment may be terminated by the Employer without need for compensation.
  • Employees who have not yet signed a contract between the first month and first year of employment shall be paid compensation of twice their wage every month worked without a signed contract. If the employee refuses to sign a contract, the employer may terminate the employee, but must pay severance.
  • Employees employed for over a year without having signed a contract shall be compensated as above for that year, and shall be deemed to have entered into an open term contract.
  • Employees who have been moved from one company to another at the request of their employer shall have all their working time in all companies included in assessing whether they have satisfied the 10 year requirement for open ended contracts
  • If the contract term expires before the term of service agreed upon, the contract must be automatically extended to extend to the end of the term of service.

The second section deals with terminating contracts and it lays out the various conditions where this can occur. When the Labor Law came into effect at the beginning of this year, companies were concerned about having open ended contracts for employees of over 10 years and for those who had already signed 3 consecutive fixed term contracts. To some extent, the implementation regulations were designed to correct the misinterpretation that this, in effect, meant employment for life. The regulations do this by setting forth the following basis for terminating employees with open ended contracts:

  1. mutual consent between employer and employee;
  2. employee fails to satisfy the conditions for employment during the probationary period;
  3. employee materially breaches the employer’s rules and regulations;
  4. employee commits a serious dereliction of duty or practices graft leading to substantial damage;
  5. employee has an employment relationship with another employer that prevents the fulfillment of responsibilities and then refuses to rectify the situation;
  6. employee deceives or coerces the employer into signing or amending the employment contract;
  7. employee is under investigation for criminal charges;
  8. employee is unable to resume employment duties after the legally stipulated period for recovery after illness stemming from a non-work related injury;
  9. employee is incompetent and remains incompetent after training or new work assignment;
  10. a major change in the circumstances relied upon at the conclusion of the contract which makes it impossible to execute, and no agreement is reachable by both parties on any amendment;
  11. employer is undergoing restructuring under the Enterprise Bankruptcy Law;
  12. employer is unable to continue normal business operations;
  13. employer changes its production, introduces new technology or changes its operating method and needs to reduce its workforce; or
  14. there is a major change in the objective economic circumstances relied on when signing the contract and that circumstance now renders performance under the contract impossible.

This list mirrors the list under the Labor Contract Law. The Labor Contract Law further divides these 14 points into those which require severance pay and those which do not. The key to being able to terminate an employee for something like incompetence is to make very clear in an Employee Manual what is required of employees, and when employees will be in breach of their responsibilities to the company.

This section also states that employees with contracts that end upon completion of a job are entitled to severance pay. This has major cost repercussions for companies that hire seasonal workers.

The third section essentially notes that dispatched employees are to be treated as regular employees regarding compensation and regarding establishing and terminating labor contracts.

The last section sets the range for fines for infractions of the Labor Contract Law. Just by way of example, incorrect staff roster information leads to a fine ranging from 2,000 to 20,000 RMB. and fins for issues relating to dispatched workers range from 1,000 to 5,000 RMB. The regulations also give the labor bureau the power to force employers to pay the compensation outlined in the Labor Contract Law and the specific amounts listed in the regulations.