One of the things our China employment lawyers often do is review and revise foreign company employee handbooks (a/k/a Employee Rules and Regulations). With China getting increasingly tough on foreign companies, especially American and Canadian companies, our China employment lawyers have seen a massive increase in China employee handbook work, and rightly so. A well-crafted Chinese-English employee handbook is probably the single best way to prevent employment law problems. See How to Avoid China Employment Law Problems, Part 1: An Employee Handbook That Works.
With this step-upped need for China employee handbook reviews, I thought it would be helpful to show what such a review actually looks like, and what better way to show that than to merge a bunch of emails reflecting such real life reviews. The below is an amalgamation of emails from our China employment lawyers to our clients whose employee manuals we reviewed. I made this an amalgamation of emails so as not to in any way reveal any particular client and so as to give you an even broader picture of this work than would have been possible had I pulled everything from just one email. The below though is fairly typical of what goes into a China employee handbook review, which is itself a key element of our China employer audits.
Hi _________ [client],
I reviewed your edits to the draft employee handbook and your questions and my responses and comments follow. I have also enclosed an updated employee handbook, with my edits in redline.
Article 3 (hiring of employees): The Company is not legally required to provide new hires with a copy of their health certificate. That being said, it is common for Chinese companies to do this, mostly to prevent Chinese employees from abusing the statutory recuperation leave (which happens often). Chinese employees generally expect this, but if you do not want to require this, we can delete it.
Article 6 (termination of employment contracts): You should have a renewal notice form and we will draft one for you. This notice will be short and will include a “comment” section where your employees can indicate their agreement to renew the contract.
Article 8 (dress code): You write that the “business casual” dress code “needs to be updated to follow your company’s updated dress code.” Can you please send me a copy of that updated dress code, so I can insert its provisions into your China handbook.
Article 12 (entering and leaving Company premises): You should keep this in the employee handbook because this covers situations where the Company restricts an employee’s entrance to the premises and it gives you a basis to act should it become necessary.
Article 14 (employee reports): Though this is not legally required you should keep this in the handbook as it gives you a basis for acting (e.g., terminating employment) against an employee who commits a serious breach of this article.
Article 19 (standard working hours): As a general matter, you should specify the standard working hours and lunch time. You also will need to specify if an employee is under “standard” or “flexible” working hours in the employment agreement. We can help you with this when we draft the employment contracts. Note that not all employees are legally eligible to work flexible hours and we will need to work with you on determining this eligibility as well.
Article 23 (travel and expense policy): It is okay to leave the travel/expense policy out of the handbook, but we should review that policy before its implementation so we can make sure it complies with Chinese law.
Article 25 (performance reviews & evaluation): We will remove these from the handbook and replace it with the following basic language: The Company will conduct performance reviews on an annual basis and may have formal check-ins with employees on a quarterly basis. Or would you prefer that we simply delete this entire article?
Article 27 (overtime): Yes, you should track all your employees’ time so you can stay on top of overtime so as to minimize/avoid overtime liabilities.
Article 28 (special protection for female employees):
28.2: The law is unclear on whether the one hour paid-rest per work day for employees more than 28 weeks pregnant applies only to standard hour employees, but since the law is very protective of pregnant employees, we recommend you apply this to all employees more than 28 weeks pregnant, regardless of their working hours. This means your flexible working hours employees can reduce their working time by a total of 1 hour each day in arranging their working schedule and this should apply when they travel for work as well.
28.5: The handbook covers the most important legal issues related to special protections for female employees but it is not designed to cover everything. There are other things that rarely occur but should still be covered and we will add those things. For instance, a Shanghai-based employee with a doctor’s note from a qualifying medical institution can take a two and a half-month leave at reduced pay prior to childbirth if she can prove she has some certain special condition, such as a history of miscarriages or serious pregnancy-caused complications.
Your HR people can check laws & regulations, latest policies, news updates etc. by going to the local authorities’ (Shanghai Municipal Human Resources and Social Security Bureau) official website. There is a lot of useful information/resources on there, but not all of the content is in English and even the Chinese content is often outdated. For these reasons, we always confirm the local laws/practices with the Shanghai authorities by phone or even with in-person visits.
Article 29 (attendance records): Yes, you should keep track of attendance of your employees under standard working hours because you as the employer bear the burden of proof on most issues should there ever be an employee dispute.
Article 30 (sick leave): Per your comment I removed “and the HR manager” because you no longer have a China-based HR manager.
Article 31 (recuperation period): Yes, you will need to track recuperation time. It is paid leave so long as it comes within the statutory recuperation period. Statutory recuperation leave pay for Shanghai is as follows.
If an employee takes a consecutive leave of less than 6 months:
|Years of employment at the Company||Pay rate|
|Less than 2 years||60% of employee’s salary|
|2 -4 years||70% of employee’s salary|
|4-6 years||80% of employee’s salary|
|6-8 years||90% of employee’s salary|
|8 years or more||100% of employee’s salary|
If an employee takes a consecutive leave that lasts more than 6 months:
|Years of employment at the Company||Pay rate|
|Less than 1 year||40% of employee’s salary|
|1 -3 years||50% of employee’s salary|
|3 years or more||60% of employee’s salary|
Employee’s salary is defined as 70% of the employee’s normal net pay. If the reduced pay is lower than 40% of the employer’s average monthly wage, then 40% of the employer’s average monthly wage should be used (or the applicable local minimum subsidy for workers in difficulties, whichever is higher). However, if the reduced pay is higher than Shanghai’s monthly average wage for the preceding year, the employer is allowed to cap the pay at this municipal monthly average wage (currently 7832 RMB/month). The absolute legal minimum standard is 80% of Shanghai’s minimum wage (excluding the employee portion of mandatory social benefits, overtime pay and certain subsidies/allowances): as the Shanghai’s current minimum wage is 2480 RMB/month, 80% of that would be 1984 RMB/month.
We typically do not put all of the above in the employee handbook, but rather work with the employer to determine if an employee is eligible to take the leave, how much the employer should pay during the period and any other related issues, such as what the employer can do if the employee requests an extension.
As explained above, the Shanghai wage is neither a ceiling nor a minimum. Many of our clients choose to deal with it on a case-by-case basis (provided the pay during the leave meets the legal minimum standard) and pay a higher rate for certain employees, such as those who have been with the company a long time.
With that said, as provided in the draft handbook, we generally recommend using the Shanghai average wage for the preceding year as the cap. Under what we have written, the Company will pay its employees a reduced salary ased on the applicable local rules, capped at the Shanghai monthly average wage for the preceding year, but we can include additional language if you’d like.
Article 32 (personal days—unpaid): Shanghai has no statutory minimum/maximum. Nonetheless we suggest you limit how many days an employee can take as unpaid leave each year and five days is considered standard for Shanghai. If you do not want to set a limit, I can delete this sentence, or we can leave it and you can grant permissions on a case-by-case basis. For now, I added this: Under normal circumstances, an employee should exhaust annual paid leave before applying for unpaid personal leave and the unpaid personal leave should be reserved for extreme circumstances as determined by the Company.
Article 34 (work-related injury leave): The primary applicable law on this is the Shanghai Work-related Injury Insurance Implementation Measures (上海市工伤保险实施办法); but there are other local policies/circulars/notices that may apply and this sort of thing is also subject to interpretations by the local authorities.
Article 36 (work transfer): These are standard provisions, but they are not legally mandated and it will make sense for us to further customize these to fit your specific situation.
Article 38: Shanghai’s current minimum monthly wage is 2480 RMB. Note that the following items cannot be included in the monthly minimum wage and must be paid separately by the employer (if applicable): 1) overtime pay; 2) post allowances including midnight shift allowance, summer high temperature allowance and allowances provided for working in special (e.g., toxic and harmful) work environments; 3) meal subsidies, commute transportation subsidies, and housing subsidies; and 4) employee portion of social insurance premiums and housing provident funds.
Article 40 (maintenance of a labor health and safety system): This is required by law; however for white collar workers, you are not required to do much beyond making sure the office is safe and sanitary and does not pose a safety hazard to your employees.
Articles 46 and 47 (training and competency examinations): As the wording (“The Company may arrange for employees to undergo training” and “The Company may require employees to undergo competency examinations after completing trainings”) indicates, these are not legal requirements, but having these provisions in your employee handbook gives you certain rights and so we recommend keeping them.
Article 48 (Incentives): It’s up to you whether to have a separate incentive policy.
Article 53 (Discipline): This policy is written to work for Shanghai so we would keep this progressive structure. If you require any specific changes, please send them to us so we can review and advise on their legality/enforceability. Note that this document allows immediate dismissal without severance for various different sorts of employee misconduct and it also allows you to proceed with unilateral termination without having to resort to lesser disciplinary measures such as written warnings.
An employee’s failure to obey a manager’s command without a valid reason gives you the right to discipline the employee. Since this is a common issue, we would keep this language.
The law permits an employer to terminate an employee for a serious violation of the employee handbook and so it is not necessary to say that the severity of a particular incident allows for dismissal. However, in determining whether certain misconduct is considered of sufficient severity to warrant dismissal, the authorities will not just look to what your handbook says; they will also consider whether the specific rule the Company relies on in making its dismissal decision is reasonable. Rules that are too harsh will be considered unreasonable. We know how to walk this line because we keep up with the case law and we stay in good touch with the local employment bureau.
The PRC Employment Contract Law is the main law that dictates when an employer can terminate an employee and this document already covers all the legal grounds under which you can terminate an employee, so the sentence saying that “the Company may also terminate employees pursuant to other relevant laws and regulations” is merely catch-all language that allows the Company to terminate someone if it is allowed to do so under other laws/regulations.
In the event of termination, the most important things the Company must do include the following: issuing a proof of termination of employment relationship document to the terminated employee, transferring the employee’s records and social insurance to the new employer or to the local employment center, and de-registering the terminated employee with the local labor authorities. The exact formalities required also depend on the employee’s situation. For example, if the employee is a foreign national, you will need to cancel the employee’s work permit.
Since China employee terminations are nearly always complicated and since China has gotten a lot tougher with its employment law enforcement in . the past year (especially as against American companies) it is more important than ever that you handle all your employee terminations carefully and correctly. We urge you to reach out to us when there’s an imminent employee termination or even when you are just considering terminating someone. See Terminating a China Employee: Why YOUR Rules and Regulations are Key.
Part 10 (appendices): As noted, these should not have be in the handbook and you should have a separate document to cover these policies and procedures.
Article 56 (amendments): Because Chinese law mandates you follow a democratic procedure in amending the employee handbook, especially the provisions that may have significantly impact your employees, it is important you follow this policy. When an employee challenges your employment decisions, he and she will almost always argue that the provision in the handbook it does not like should be struck down as invalid because you didn’t comply with the laws regarding implementation, and Chinese courts tend to side with employees on this issue if they determine the employer did fail to comply with the law.
This is also a good HR practice as gathering questions/comments/concerns from your employees will help you be sure your employees understand what’s being changed and it shows them that you are open about incorporating their constructive feedback. If you want to make any specific changes to this paragraph, please send them to me.
Please let me know if you have any questions. If you are good with the above, please let me know and we will get going on putting all of this into Chinese.