China Employment Audits

Though many of our clients that manufacture in China are leaving China because of the costs, the difficulties and the tariffs, many of our clients that sell their goods and services into China are looking to move into China or grow their operations there. No matter what is going on in or regarding China, China remains a huge market with plenty of opportunities and companies moving forward in China are finding themselves in need of new workers.

To operate with employees in China, it is essential to have proper employment documents in place for each employee, which should, at minimum, consist of the following:

  1. An Employment Contract;
  2. A set of Employer Rules and Regulations;
  3. A Trade Secrecy and IP Protection Agreement; and
  4. A Sign Off Agreement (acknowledging each employee’s receipt of the Employer Rules and Regulations).

On March 4, 2020, the PRC Ministry of Human Resources and Social Security (MOHRSS) issued a notice on signing electronic employment contracts. This notice provides guidance on when an electronic employment contract may be deemed valid. Specifically, an electronic employment contract is valid provided the following conditions are met:

1) The employer and the employee mutually agree to execute a written employment contract in electronic form;

2) The parties must use data messages which can be considered written and electronic signatures which are considered reliable under the PRC Electronic Signature Law and other applicable laws and regulations;

3) The employer must ensure that the generation, transmission, and storage of the electronic employment contract meets requirements of the Electronic Signature Law and other applicable laws and regulations, and that the electronic employment contract is complete, accurate, and not tampered with; and

4) The electronic employment contract complies with the PRC Employment Contract Law regarding employment contracts.

Nonetheless, employers should proceed with caution because in the event of a labor dispute, it will be the employer that will bear the burden of proving the validity of the electronic employment contract. And because there are few Chinese court cases which recognize electronic signatures for employment-related agreements, we expect Chinese courts will remain uncomfortable with them for some time. Also, some local labor authorities still require hard copy employment contracts (with wet signatures) in many proceedings such as employment audits and an employer’s inability to produce hard copy employment contracts may subject them to adverse consequences.

It also bears mentioning that the MOHRSS notice was issued in response to an inquiry from Beijing employment authorities regarding electronic employment contacts during the period of epidemic prevention and control and it is not even clear whether that notice applies beyond that period.

So for now anyway, our general recommendation to China employers is that when executing employment-related documents, it is still best to do all of the following (the old-fashioned way):

  • have both parties provide wet signatures;
  • affix the company’s official chop on all hard copies;
  • provide one copy of the fully executed employment documents to each employee for their own records; and
  • hold onto at least one original copy of each fully executed documents for company records.

Accomplishing the signing process does not mean your work is done. You should assess your China employee situation regularly (even if everything appears to be going well) at least yearly primarily to make sure you are keeping up with China’s (and your own locale’s) ever-changing, complex employment laws. This yearly employment audit should include the following:

  • reviewing your employment-related documents,
  • checking for any possible non-compliance against all national and local employer laws,
  • speaking with your HR people and/or management regarding any imminent or potential employee problems or issues (including employee contract renewals/non-renewals, and any anticipated terminations), and
  • taking necessary steps to resolve or remedy any employment matters or any issues revealed.

Identifying employee issues and taking appropriate actions early will reduce your headaches and costs. China employee terminations are difficult in general and your costs to ensure an employee termination is handled correctly will be significantly less than your costs to defend against a wrongful termination lawsuit. China (and many locales in China) have enacted many new laws to deal specifically with COVID-19. This includes new laws on employee terminations and all sorts of new restrictions on who and who may not be terminated so you need to be sure to comply with those requirements as well.

Doing the above is crucial to making sure you as a China employer are protected.