China employers must have written labor contracts with each of their full-time employees. Not having a written labor contract exposes employers to penalties (to their employees) administrative fines and the risk of being deemed to have entered an open-term labor contract with the employees lacking the contract. Most companies now understand this, but many do not realize that just a contract is not enough; every employer should have a set of rules and regulations as well.
The rules and regulations (规章制度) (sometimes referred to as an employee manual) are a long and complex document that sets out the full set of terms governing the employment relationship. One of the primary reasons employers need this document is because it provides the the grounds for terminating an employee.
Again, it’s important to note how China’s employment law system is very different from the system in the Unite States and much of the rest of the world. In the U.S., employers can terminate employees pretty much at any time and pretty much any reason. This is called employment at will. China is not an at-will employment jurisdiction. All China employees must be engaged pursuant to a written labor contract and during the term of that contract, it is very difficult to terminate them. If an employer wants to terminate an employee before his or her employment term has ended, it can do so only for cause and cause must be clearly proven. For this reason, if you are a China employer, you should maintain careful discipline records so as to be able to establish grounds for dismissal.
The rules and regulations document should be detailed. Without this document, even if your employee does something terrible and harms your business, you will likely find yourself without a basis to discipline the employee (let alone terminate him ore her) unless your rules and regulations make clear that the employee’s actions were prohibited. One of our China lawyers loves to tell about a China case involving an employee who sued after being fired for stealing hundreds of thousands of dollars from his employer. The judge noted that the employee was a terrible person, but ruled that his employer could not fire him because there was nothing in the rules and regulations against stealing. I kid you not.
In some cities though, such as Shanghai, employers do not have to list every single punishable act in the rules and regulations to be able to discipline an employee. Shanghai is of the view that the principle of good faith governs during the employment relationship, so even though a certain act is not specified in the company rules and regulations as a punishable act, the employer may discipline or maybe even fire the employee who fails to act in good faith. But since many municipalities are not of a similar view and because even in Shanghai you are minimize your risks by being explicit, we generally put just about everything in the rules and regulations we draft for our clients.
But be careful what you put in your rules and regulations. Just because it is incorporated into the document does not make what is illegal permissible. If a provision is against the law and you relied on it in terminating your employee, your decision will be deemed to be unlawful termination. It is also a really good idea for you to review your rules and regulations document to ensure it remains in compliance with all applicable laws.
Oh, and one more key to a rules and regulations document. Put it in Chinese or you are at real risk of it being deemed unenforceable. We also like to see all employees sign something to prove they received it.
Bottom line: If you have China employees, you need a set of rules and regulations.