Co-blogger Steve Dickinson wrote an email to a client the other day that nicely sets forth much of what is involved with China employment agreements and with China employee manuals.  Steve sent this email after having completed the first draft of the client’s employment contracts and its employee manual, both of which documents are absolutely essential for any company with an employee (foreign or domestic) in China.

Here is that e-mail:

We revised these documents to as closely as possible accord with the type of employment you will have in your China WFOE. Please review these documents and get back to us with your questions and comments.

Please note that the rules and regulations document is a virtual handbook on Chinese labor law. Most of the content in this is not optional; the terms are required by Chinese law. Review of the rules and regulations first will resolve many of your questions about other matters.

Please also note the following:

The labor contract requires you to set the term of the employment relationship and the term of the probation period. At the end of the probation period, you can terminate the employee with no further issues. At the end of the first term, you can terminate the employee and pay severance or you can retain the employee.

Under the current interpretation of the law in China, once the second term starts, you are required to retain the employee up to mandatory retirement age. Termination during that period requires good cause. We therefore recommend an initial period that is as long as possible to allow you the longest probationary period possible.

The probationary period should be treated seriously and no employee should be taken beyond the probation period unless you are clear that he or she will work out. We generally recommend a term of three years and a probation period of six months. Most of our foreign clients choose to do an initial term of one year. Most end up regretting  that decision.

The rules and regulations are the basis for the relationship between you and your employees. You can only terminate an employee for cause, and cause must be a violation of a written regulation. That is why the rules and regulations are so detailed and generally so negative in tone. If you have anything else you want included in the rules and regulations, please advise me now.

Since your employees will be dealing with your proprietary information, we have included an IP agreement for them to sign. Note that there is really no way to control their behavior through a non-compete agreement because they are not senior enough to be covered by such an agreement. Because you are going to essentially be limited to the terms of the IP agreement, you should review it carefully and let me know if you have additional concerns.

The sign off agreement is used to ensure that the employee agrees that he or she received all required documents.

Again, if you have any questions, please do not hesitate to ask. Our goal is always to provide you with documents that both comply and work with China’s laws, while at the same time maximizing your business objectives.

What do you think?

  • William

    “Under the current interpretation of the law in China, once the second term starts, you are required to retain the employee up to mandatory retirement age.”
    I’m so disappointed they decided to go the European route on this. I would be a lot more interested to start a business in China if not for this kind of nonsense.

  • David Buck

    Not surprisingly I agree completely with this advice. One year isn’t enough to know if someone is really going to work out and if they are in a subsequent contract you have both the greater difficulty in removing them and the greater risk in terms of the possible losses in labour arbitration/court if they are on a lifetime contract.
    I used 6 months probation and 3 years initial contracts but you do have to be aware that when making more experienced hires, some people will definitely be put off by the longer probation period so you might have to be flexible but demonstrate better pre-hire screening.
    You do also need to make sure that your handbook has been ratified by an employee group (labour union or your own Employee Representative Congress) or its validity could be challenged in court. I agree that the tone of the employee handbook became much darker post-2008 as you were forced to detail all of the things that people might be disciplined for terminated for. Not a particularly uplifting document to give new employees!
    Even if you could cover junior employees with a non-compete, the fact that the only way to enforce it is through paying for an extended period of gardening leave it would be cost-prohibitive anyway. It also has to be geographically quite specific. Even for a senior employee, I’m not sure if it would be acceptable to a court if an employer here in Hangzhou tried to prevent you moving to Shanghai to work for a competitor.

  • Hailisi Gao Pi

    Not mention of any foreigners. Should they be in HR Employee book?

  • Ann Lee

    Dave, for foreingers, the labor contract law will not directly apply unless the labor contract between the foreigner and the employer makes it clear that the chinese labor contract law apply.Also, about the second contract, acutally, in Shanghai, the judicial practice is if by the time the second contract terminates, if the employer chooses not to continue the contract, the employer is entitled to do so but if the employer chooses to continue with the employee, then unless the employee requires for a fixed term, it will be up to mandatory retirement age.
    Ever since the Labor contract Law takes effect on January 1st, 2008 till now, it is noticed employee’s abuse of right covers a great percentage in the labor disputes. As an attorney, what worries me is that employee lacks loyalty, seeks for quick money and white collar crimes are on the rise like embezzlement, commercial bribery and etc.

  • Ann Lee

    I would like to add one comment about Dave’s question, as referred in my last comment, if the labor contract between foreign employee and employee makes it clear the Labor Contract Law applies, it will apply. If not, the labor contract law will also apply except those provisions that may be inconsistent with the Labor Contract Law. Therefore, check your contract about the terms of the contract, if there is no definit terms, the labor contract law will apply and the employer will keep you till retirement age.

  • Kevin

    @Dave, Hailisi Gao Pi: yes, foreigners are also covered by the labor law. There are quite a few examples of companies that didn’t realize this getting sued for serious amounts of money.

  • Chicago Lawyer

    Thanks for the advice.

  • hmm, what happened my post? Thanks Ann Lee!
    So if there are no definite terms, the Labor Law applies.
    Good to know. I’d imagine there’s plenty of ESL teachers out there who could sue their old schools

  • Navian

    I am an expat in China with a contract. The Chinese company is deciding to give me a new contract and terminate the old one. I am told that the new contract must be equal or better than the old one according to China Labor Law. Is this true and if it is may have the reference to it? Thanks.

  • mylene

    We are a Filipino band working in some company in shanghai.We signed a contract with the talent agency. We also agree that they hold our passport (it is in the contract) for safe keeping.When we signed the contract it is only on one original copy and they kept it.after couple of weeks they give us a photocopy of the contract we signed.I would like to know if our contract with the talent agency is legal because its written in the contract that we signed that we have to pay 30,000.00 RMB if we breach the contract.We are quite scared of that contract. We like to get our passport back.

  • Innes

    As China becomes more and more of a player in the business world, it’s highly interesting to see them embracing the importance of having in place all of the legal employment documentation. Its important also for any businesses looking to set-up in China that they know what the laws are.

  • Jan

    @Dan: We are a service company trying to run a pilot Management Associate Program for one year in China. What must we include in the contract to safeguard ourselves in the event that we terminate the students after one year due to lacking performance? As this is considered a training program, do we even word it as an employment contract or does China Law provide for a training arrangement?

  • Andrew

    if my contract is one year and there is no mention of probation period, and the company terminates the employment within the first month… what do they have to pay me? the contract says that the employer could terminate the contract according to the PRC labour law