China employers must have written employment contracts with each of their full-time employees. Not having a written employment contract exposes employers to penalties (payable to their employees), administrative fines and the risk of being deemed to have entered an open-term employment contract with the employees lacking the written 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 employer rules and regulations as well.
The employer rules and regulations document (规章制度) (sometimes referred to as an employee manual or employee handbook) is usually 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 grounds for disciplining or terminating an employee.
It is important to note how China’s employment law system is completely different from the system in the United States. In the U.S., almost all states are at-will-employment states, which means an employer can terminate an employee at any time with or without notice, and with or without reason. China is not an at-will-employment jurisdiction. All China employees must be employed pursuant to a written employment contract and during the term of that contract, it is difficult to terminate them. If an employer wants to terminate an employee before his or her employment term ends, 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 reasonably detailed. Without this document, there is a real risk that even if your employee does something terrible and harms your business, you may find yourself without any basis for disciplining the employee (let alone terminating him or 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 it could not fire him because there was nothing in the rules and regulations against stealing.
Many locales (such as Shanghai) recognize it is just not possible for employers to list every single punishable act in the rules and regulations for which an employee can be disciplined or terminated. Their position is that the principle of good faith governs during the employment relationship, so even though a certain act is not specified in the employer rules and regulations as a punishable act, the employer may discipline or even fire the employee who fails to act in good faith. But the thinking on this varies by locale and even in the most employer-friendly city you should minimize your risks by being as explicit as you can. To that end, when drafting employer rules and regulations documents, it is best to include as much as you can (at least covering the employee misconduct you have encountered at your organization in the past) and also include appropriate catch-all language that provides some written basis to allow you to react to employee wrongdoing generally. Because receptivity to this sort of catch-all language can also vary by locale, it is still imperative that you specifically list out all that you can.
But be careful what you put in your rules and regulations. Just because it is incorporated into the document does not make it legally permissible. If a provision in your rules and regulations is contrary to the law and you rely on it in terminating your employee, your decision will be an unlawful termination. The same pretty much holds true for a provision that is too harsh on the employee or otherwise not considered reasonable by a Chinese arbitrator/judge. Therefore, you should regularly check your rules and regulations document (preferably every year) to ensure it remains in compliance with all applicable local and national laws.
Oh, and a couple of (quick) key things about the rules and regulations document. It should be in Chinese so your employees can fully understand what they are signing and so a Chinese arbitrator/judge can also easily understand what it says. You also should be sure to secure and save a signed, Chinese-language acknowledgement of receipt to prove your employees received your company’s rules and regulations, in case you need it in a future employee dispute/claim.
Bottom line: If you have China employees, you need enforceable in China rules and regulations.