If you are a China employer, you need written employment contracts with all of your China employees. But merely putting the terms and conditions regarding the employment relationship in writing is not sufficient to protect you. An unenforceable employment contract or even an unenforceable provision in an otherwise well-written employment contract can hurt you as the employer.
Consider this hypothetical based on a recently decided case in Shenzhen. The employer and the employee enter into an employment contract which provides that if the employee is incompetent at her job, the company may require the employee to stop working and undergo training, during which time she will be paid the local minimum wage instead of her regular salary. The employer sends a notice to the employee listing a number of reasons why she is incompetent and requiring she undertake training at minimum wage. A month later, the employee provides the employer with a notice saying she must resign because she is owed her regular salary as well as demanding the employer pay her severance for the involuntary termination. The employer rejects the employee’s requests and the employee brings a labor claim.
The Shenzhen trial court held that employers are permitted to require an incompetent employee to undergo training but the law does not permit employers to reduce an employee’s salary during the training period. Most importantly, it held that the provision in the employment contract purporting to give the employer the right to reduce the employee’s salary during the training period had damaged the employee’s legal rights and was therefore invalid.
The employer appealed and lost. The intermediate court ruled on appeal that even if the employer arranges the employee’s off-job training, it must still pay the employee his/her normal salary according to law. The court confirmed the lower court’s conclusion that the provision at issue (minimum wage for off-job training) was intended to allow the employer to deduct the employee’s salary without justification and therefore the employee was entitled to a severance payment for her forced resignation arising from the employer’s failure to pay her full salary owed. In the end the employer had to spend significantly more than it would have saved by reducing the employee’s salary during the training period.
Though one could argue there is no mandatory Chinese employment law prohibiting the sort of provision described above, the courts’ rulings prohibiting it again show that how most China employment laws cannot be contracted away and seeking to do so can be costly. Put simply, you need to be careful about anything you put in your employment-related documents and your costs to ensure an employment document complies with all applicable national and local employment laws will invariably be considerably less than your costs to defend yourself in an employment lawsuit.
What if the parties in this Shenzhen case had executed a separate agreement regarding the minimum wage payments during the training period. The answer is not entirely clear — at least not from this decision — but we can say that Chinese courts would be more likely to uphold the validity of a separate agreement because this presumably would have given the employee the option to refuse to sign the agreement. Chinese law does allow employers to reduce an employee’s salary with the employee’s written consent, assuming there is no coercion or fraud that would render that agreement invalid.
A key feature of China employment law is that the laws are localized, thus it is possible for the same case to elicit different court rulings in different locales. Having said this, it does bear mentioning that Shenzhen is a generally pro-employee city and most cities in China with large numbers of foreign companies are as well. So if you are a foreign company employer, you should think about whether it even makes sense to impose off-job training without just paying your employee his/her regular salary during any such training.
Our China lawyers often see multinationals get in trouble with China employment laws by insisting on maintaining consistency with their offices outside China by, among other things, using the same employment contract provisions across the globe. So even though our employment lawyers understand the benefits of worldwide consistency we often find ourselves counseling our clients on the risks of maintaining that consistency in China.
Bottom Line: China’s employment system is very different from the rest of the world and employment contract provisions and employer actions that might be fine outside China can be risky and costly in China.