If you have or are going to have employees in China, you need both a well-written China employment contract with all of your employees (both foreign and domestic) and a set of China-centric Rules and Regulations (often referred to as an employee handbook). An increasing number of China employers have realized how crucial it is to have both of these documents, but many fail to ensure these two documents actually work together. When conducting HR audits our China employment lawyers frequently find conflicts between a company’s employment contracts and its rules and regulations. These sort of language conflicts will nearly always favor the employee in an employment dispute.
Let’s consider this hypothetical. Employer and Employee enter into an employment contract for a fixed term which provides for a guaranteed year-end bonus during the term of employment. But the employer rules and regulations say that resigning employees will not receive a year-end bonus. Employee resigns in the middle of the year and demands Employer pay a prorated bonus based on the actual time Employee worked that year, citing the bonus provision in the employment contract. Employer refuses to pay the bonus, claiming the relevant provision in the Employer rules and regulations should apply. Employee then files a labor arbitration claim. How will the labor arbitrator rule?
In the real case on which this hypothetical is based, the arbitrator noted that the employee’s contract and the employer’s rules and regulations contradicted each other on whether a resigning employee is entitled to the year-end bonus. The arbitrator went on to hold 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 arbitrator or court will grant such a request. Therefore, the arbitrator applied the terms of the employment contract which explicitly stated that the bonus was guaranteed and it ordered Employer pay Employee a prorated bonus based on the time Employee put in for Employer during the year Employee left.
What are the key takeaways from this? First, you as employer need to take the necessary time to make sure your employee contracts are consistent with your employer rules and regulations on all essential issues, such as the terms and conditions for bonuses.
The Bottom line.
- If your China company is to have effective HR programs/policies, all of its governing employment documents must both fully comply with all applicable laws (national and local) and they must also be consistent with each other.
- This means you should search out and then root out all inconsistencies or conflicts in your employment documents.
- Verifying all your employee-related documents fit well together will eliminate employee and management confusion and will go a long way toward preventing problems and disputes down the road.
- Use clear, logical, practical and consistent employment documents that tell your management, your China employees, and the Chinese authorities that you are a law-abiding and responsible employer. This sort of signalling pays dividends.