Photo of Grace Yang

Working out of Seattle and Beijing, Grace is Harris Bricken’s lead attorney on China labor and employment law matters and the author of a book, the China Employment Law Guide.

China non-compete lawyers

It has become increasingly common for both foreign and Chinese companies to require their expat employees sign a non-compete agreement as part of their employment contract package. The below are some of the more common issues that arise with most expat non-compete agreements.

Non-compete timing. When it comes to China employment contracts, our China employment lawyers represent both foreign companies and expats. One of the things we have been noticing lately when retained to review expat employment documents is what we have taken to calling a “future” non-compete agreement. We mostly see this where a high level expat is negotiating employment with a Chinese company and the Chinese company’s employment contract will explicitly mention a non-compete agreement and explicitly state that the expat will sign a non-compete agreement, but the Chinese company will not provide the expat with a non-compete agreement for signing. To make matters worse, this mention of a non-compete is a lot clearer in the Chinese language portion of the employment contract than in the English portion and always to the expat’s detriment. This really matters because unless specifically specified otherwise in the Chinese language portion of the agreement, the Chinese portion of any China employment contract is all that legally matters in a Chinese court or arbitration. See Dual Language China Contracts: Don’t Get Fooled! This means an expat who is negotiating with its putative Chinese employer without the assistance of an experienced China employment lawyer will be signing on to sign on to a (very likely onerous) non-compete agreement without ever having seen it.

Non-compete compensation. Will the expat receive fair compensation for performing her or his non-compete obligations? According to China’s Supreme People’s Court, if the employee and the employer agree on the employee’s non-compete obligations but the employment agreement is silent on the post-employment compensation for the non-compete, the employer must pay the employee 30% of the employee’s average monthly salary in the twelve months before termination or the local minimum wage where the employment contract was performed, whichever is greater. This generally means the post-employment non-compete compensation agreed to in the employment contract or in the non-compete agreement will prevail because the parties are free to agree on this amount by a mutual agreement. There are though some China courts and judges and arbitrators who will disregard the parties’ own agreement and apply the 30% standard if the parties’ agreement calls for a lower than 30% payout. No matter what, it is generally a good idea for both the employer and the employee to agree in writing to a clear and specific compensation amount for the employee’s agreement not to compete with the employer.

Geographic scope. Far too often the agreement that sets forth the non-compete obligation fails to clearly address exactly what this obligation will be. We most commonly see this in its failure even to address the geographic scope of the non-compete. In other words, will the expat be forbidden to compete with her employer in Shenzhen? In China? In China and Hong Kong? In China, Vietnam and Thailand? In all of Asia (and how is that defined?)? In the entire world? Uncertainty on geographic scope usually works against the expat down the road because it can limit the expat’s ability to get hired. Sure, you can as an expat argue that your non-compete does not extend beyond China, but will potential employers in Hong Kong or Vietnam be willing to hire you and take on the risk that it extends beyond that?  On the employer side, one of the more common mistakes we see is a non-compete that extends so far that few courts anywhere would ever enforce it. It behooves both the employer and the employee to have a non-compete that reasonably coincides with the employee’s position/company role and the employer’s business, size, and industry. A multinational with offices in 85 countries will be given more geographic leeway than a company that sells tortillas in just Qingdao.

Non-compete period. China’s legal maximum is two years after the employment contract is terminated or ends so the first thing our employment attorneys do is make sure the non-compete agreement complies with this. We then focus on making sure the non-compete period makes sense for our client. What this usually means is that when we represent the expat we seek a non-compete duration of less than two years. Because so much of our expat representation is for high level management and physicians, both of whom are in high demand by China employers, we have a very good track record of being able to narrow the scope of the employer’s proposed non-compete, both in duration and in geographic scope.

Termination rights. What are the termination rights (if any) for either party? Is the employer allowed to terminate the non-compete agreement at any time without making any additional payment? Can the employee terminate the non-compete agreement and, if so, how? Keep in mind once a non-compete agreement is signed it is usually difficult for either party to get out of it.

Contract damages. Is there anything in writing specifying the damages the employee will need to pay for breaching the non-compete agreement? If yes, what does it say? When dealing with Chinese employers we often see the damages provision be a lot clearer in the Chinese portion of the contract than in the English portion and always to the expat’s detriment. Since the Chinese portion of any China employment contract is all that legally matters in a Chinese court or arbitration (unless clearly specified otherwise in the Chinese language portion), this really matters. At minimum, the damages you as the expat must pay should be proportional to the non-compete compensation you will receive. Note also that it typically makes sense to impose specific breach of contract damages against the employer as well.

The non-compete agreements my firm’s China employment lawyers review for expats always favor the employer; this makes sense because the employer prepares this agreement. Non-compete agreements are not “just a formality” and it is critical you as the expat fully understand what you are being asked to sign and that you make a concerted effort to negotiate for better terms and protection. The fact that the Chinese language portion of the agreement is nearly always the only portion that legally matters further tilts the playing field against you. Having an experienced Chinese employment lawyer who is completely fluent in Mandarin review your non-compete agreement is usually your only real protection.

 

 

 

China employment lawyers

As promised in my post from last week, China Employment Contract FAQs, I am back to write about some of the most commonly asked questions we get about China employer rules and regulations with short answers to each of them. The below are the questions that we field most often when doing our China employer audits.

Question 1: I have several separate company policies that deal with different topics such as overtime, employee leaves and discipline. Do they need to be in one document called employer rules and regulations?

Yes. You need a comprehensive employer rules and regulations document that includes all your employer policies/rules. First, this is what Chinese authorities like to see. Second, the fewer documents you have, the easier it will be for your management to enforce your company polices and for your employees to learn about and follow them. Third, by including all the policies in the same document, it will be easier to search out and eliminate any potential inconsistencies. Fourth, this makes it easier for you to be sure to keep everything updated. Lastly, having all employer policies and rules in one document and then getting each of your employees to sign a receipt proving they received it will give you added protection.

Question 2: I have more than one office in China. Do I need a different set of employer rules and regulations for each of my offices?

Yes. China’s employment laws are highly localized and this means employment rules/practices can and usually do differ by city and even by district within the same city. The differences between your various rules and regulations will depend on where your offices and your employees are based. For example, if you have an office in Beijing and an office in Shanghai, you will likely have a very different set of rules and regulations for these two cities. On the other hand, if all your offices are located in Guangdong Province, you likely will have quite similar employer rules and regulations among your offices.

Question 3: I have been operating in China for a long time and I’ve never had a set of rules and regulations. Is it too late to start doing it now?

Absolutely not. Having a well-drafted set of employer rules and regulations will not solve past problems but it will certainly go a long way towards preventing future problems.

Question 4: The rules and regulations seem negative in tone. Will my employees accept them?

Your rules and regulations need to be reasonable to be enforceable in China. But so long as they are reasonable and enforceable, and you implement them according to Chinese law, your employees need to abide by them. One thing you as employer need to do is to get an acknowledgement of receipt signed by your employees proving they received a copy of your rules and regulations. Their signing that acknowledgment also means they have agreed to follow your rules and regulations. It is true that a big part of the standard China employer rules and regulations relates to employee discipline and terminations, but a well-drafted set of these rules and regulations should also provide detailed explanations regarding employee rights and benefits, which will give your employees clarity and protections. Well-written employer rules and regulations are good for both employers and employees and most China employees recognize this and they virtually always are willing to sign off. See China Employee Rules and Regulations: Use Them as a Talent Magnet.

Question 5: Can I just use a template set of rules and regulations from the Internet? 

Only if you do not care at all about preventing all sorts of future employee problems and setting yourself up for difficult and costly employee litigation. Your rules and regulations should match your specific situation, your industry, your locale, and, most importantly, your specific issues, goals, and concerns. Every employer client for whom we have drafted rules and regulations has had their own unique programs/policies/rules and the job of our China employment lawyers is to work with our clients to determine whether what they want is workable and legal for their specific situation and locale.

 

 

 

 

China employment lawyers
China employment contracts: the questions we get

With the end of the year fast approaching, our China employment lawyers have been handling an onslaught of China Employer Audits and with those audits comes an onslaught of China employment law questions. The below are some of the most commonly asked questions we get about China employment contracts with short answers to each of them.

Question 1: I have an English version of the employee agreements our parent company uses around the world. Can I put that into Chinese and send it to our China employees to sign?

Not a good idea. When it comes to China employee agreements, localization is key and I have yet to see a single non-Chinese style employment agreement that does not contain at least one thing that is completely unenforceable under Chinese law. You need a China-centric contract because that sends a strong signal to your China employees and to China’s labor authorities and arbitrators/courts that you understand how China’s employment laws work and you have made the effort to comply with those laws. Using China-centric employment contracts will greatly decrease the odds of your having China employment law problems and greatly increase the odds of your prevailing in any China employment law dispute.

Question 2: The labor authorities in my locale provided me with an employment contract template. Is it okay for us to just use that?

Not a good idea. First off, these templates are often outdated and often fail to keep up with national (and even local) law changes. Second, they completely fail to account for your specific situation and goals or for the situation of your employees. Third, they virtually always favor the employees and fail to sufficiently protect the employer.

Question 3: Our China employment contracts are just in Chinese. That’s okay, right? 

Not really. Legally, this makes complete sense in that you really do need to have all of your China employment contracts in Chinese. But if you also are going to want all of your China employment contracts to be in English as well if anyone in your company who might be making what even looks like an employment decision cannot read Chinese. We always draft our Chinese employment contracts in both Chinese and in English because that works best.

Question 4: How easy it is to terminate an already signed China employment contract?

Not easy at all. Since China does not have employment-at-will it is generally difficult to terminate an employee during his or her contract term and, contrary to popular belief, this includes employees on probation. Under Chinese law, a probation period is part of the contract term and so probationary employees are also not at-will employees. Once you bring someone on as your employee in China it is difficult to terminate them. See Terminating a China Employee: Why YOUR Rules and Regulations are Key.

Question 5: Will an open-term employment contract mean that I will not be able to terminate the employee until his or her statutory retirement age? 

Not exactly. Open-term employees have greater protections against termination than employees on fixed-term employment contracts, but they can be terminated. For example, an open-term employee can be unilaterally terminated without severance if the employer can prove that the employee engaged in serious wrongdoing in violation of the employer’s rules and regulations. But it does often make economic sense to try to work out a mutual termination even with your most troublesome employees.

Despite the issues that arise from open-term contracts, they are sometimes all but required for business reasons. We see them most often in situations where our client is intensely competing for a particularly desirable job candidate and offering this candidate an open-term contract is necessary to get him or her to work at their company.

Question 6: Does not this offer letter constitute our employment contract?

It most certainly does not. An offer letter is not an employment contract and no offer letter I have seen even comes close to including all that is necessary for a good China employment contract. We regularly take our clients’ offer letters and incorporate the relevant terms from those letter into employment contracts, but doing so always requires we get additional information from our clients for the employment contract.

Question 7: We have been using this same employment contract template for years and no employees have complained about it. Why then do I need to have you review it?

There are many benefits in our reviewing your employment contracts, especially if they were drafted years ago. The mere fact that no employees have complained about your employment contracts does not mean they do not need to be improved. Most importantly, China’s national and local employment laws and enforcement policies are constantly changing and you want your employment contracts to reflect those changes. See China Employment Law: Local and Not So Simple. Not only that, your own situation may also have changed over the years and you want your employment contracts to reflect that as well. We often review employment contracts that made sense for a company that had 20 employees in one city doing one thing and now make no sense at all for the same company with 200 employees doing ten different things in three different cities. You do not want your company to get ahead of its employment contracts.

Next week I will write about the questions we get about Employer Rules and Regulations.

China employment lawyer

We have done a ton of China employer audits this year and from those our China employment lawyers have compiled the following list of the top six “warning signs” of impending employment problems.

1. All or some of your employment documents are in English only. If your employment documents are in English, you are handing your employees with a valid defense for not abiding by them. Nearly all Chinese courts and arbitrators will either refuse to enforce such contracts and documents or just rule in the employee’s favor. Equally bad is that anyone who believed that having their China employment documents in just English has no clue about Chinese employment law and the documents (in English) reflect this. You are almost certainly not going to be able to enforce your English language employment documents and yet your employees will be able to sue you for what you put in them, including any provisions that violate Chinese law. Your only real remedy is compliant documents with the English and the Chinese in one document.

2. All or some of your employment documents are in Chinese only. This one is very common and almost always a big mistake. I hate to sound like a broken record (actually I don’t) but you need your employment contracts and agreements to be in both English and Chinese and these two languages should be drafted together in each document, not as separate documents. You need these contracts in both Chinese and in English unless ALL of your relevant higher level employees (typically your HR personnel and management or anyone else who will be overseeing your employees in China) can read and understand written Chinese perfectly. Separate documents can lead to all sorts of problems. For example, when one version gets updated or amended and the other version does not (trust me when I say this happens all the time) you have a problem. Having separate documents also creates headaches for your HR people in terms of document retention. Much of the time when we see the employment documents in just Chinese they were drafted by a “trusted” Chinese employee not an HR expert and this usually means they fail to comply with either the national or the local employment laws AND they favor the employees. This situation also commonly leads management (especially out of the home office) to make employee decisions that run counter to what their own documents say simply because they do not know what their documents say. Again, your only real remedy is compliant documents with the Chinese and English versions in one document.

3. You get a lot of employee questions regarding your employment document or your employment policies. For example, your company recently implemented a new leave of absence policy and many employees are asking whether they are eligible and what they need to provide if they want to apply for the leave. This does not necessarily mean the relevant document is unworkable or even that the provision needs a re-writing. But it usually means you should at least consider making the document that is generating so many questions more clear. Similarly, if your employees are frequently contacting you with questions not addressed in your documents, you likely should put the answers in your employer rules and regulations or your employment contracts.

4. Your employer documents were implemented years ago. China’s national and especially its local employment laws and rules are constantly changing. On top of this, local interpretations and enforcement policies are constantly changing as well. See China Employment Law: Local and Not So Simple. Just last week, one of our China attorneys got an email from a reader thanking us for our employment law blog posts and for our China employment law book and saying that his new China WFOE had used those to draft all of its employment documents. Our lawyer wrote back with the following:

Using our blog posts and our book to draft your employment documents is a huge mistake. These are meant to give you general information and general guidelines but much of what we write becomes outdated soon after we write it and much of it will not apply to your specific locale or your specific industry or your specific situation. You need real employment law help and fast.

You should have someone who truly understands Chinese national and local employment laws review your employer rules and regulations at least once a year and, ideally, audit your entire HR program at the same time.

5. Your China office(s) has undergone or will be going through a significant change (such as a merger or an exit of key personnel). Your employment documents need to fit your existing situation, not what it was a week ago when you were half or twice your size. Your solution is to be sure to stay current.

6. Some or all your employment agreements are not signed or chopped. Check now to make sure all of your employees have signed your latest version employment contracts and written acknowledgments confirming receipt of your latest version employer rules and regulations. If this is not the case, your remedy should be clear and immediate. Do what it takes to update what you need to update and get signed what you need to have signed.

Bottom Line: If you see your company in the above, get moving. Now.

China employer audit

As we have been saying pretty much since we started this blog, tough times in China bring on tough enforcement measures against foreign companies doing business in China. What with the tariffs and all, these are tough times in China and we are seeing increased enforcement of China’s laws against foreigners in countless areas, including employment law. Foreign companies — especially American companies — are realizing this and in response they are seeking to clean up their employment practices with employer audits.

Our employer audits typically begin with our reviewing all HR-related documents but they often graduate to our going to the employer’s facility to interview key personnel and other employees on site. No matter what we do though, the goal is always the same: figure out what the employer needs to do to minimize employee legal issues and to thereby reduce the likelihood of lawsuits and government fines. We do this by crafting a course of action to remedy any issues/problems/concerns we find during our review. Such a course of action nearly always involves our revising existing employment documents and drafting new ones.

I attended a really good employment law seminar last week where a speaker mentioned that one of the best things about being an employment lawyer is being able to answer her client’s employment law questions. She then went over a number of frequently asked questions and provided quick answers. I too most enjoy being able to answer employment law questions and so in that spirit I below put forth some of the most commonly asked China employment law questions we get related to our China employer audits and provide short answers to each of them.

Question 1: Why do we need to do this now when none of our employees has ever filed a claim against us?

You need to know your potential regulatory/lawsuit risks/exposure and the only way to know those is to have someone assess the adequacy of your HR program. If problems are revealed during this process that need to be fixed immediately (which happens a lot), you can get on it quickly. But if you don’t have an employer audit, the chances are high that you will not become aware of a problem until it is too late (which also happens a lot). I should also note that many of our clients who have employees make claims against them in the last six months were getting claims for the first time.

Question 2: Can we limit the document review to just employment contracts?

You can if you want to, but you should not want to. If you just want us to review and revise your employment contracts, we will do so but that is not a China employer audit and just doing that is not going to be enough to truly minimize your employer risks.  If your goal is to reduce risk we strongly recommend we comprehensively review all your employment-related documents, not just your employment contracts. If your employment documents consist of just employment contracts, I can tell you right now that you need more. See e.g., China Employer Rules and Regulations: A Must Have No Matter Your Size.

Question 3: We currently have an employee dispute. Can we have an audit conducted in parallel with that?

Absolutely, and all the more reason to have one. Your having employee problems now does not necessarily mean you are not complying with China employment laws, but it probably does mean there are important things in your HR program that need fixing. For example, it is very common for employees to bring claims seeking something they were promised in the employer rules and regulations (often referred to as the employee handbook) but not provided. In this sort of situation we start out asking if the employer knew it had promised the benefit on which it is being sued and if it ever wanted to promise the benefit on which it is being sued and if it wants to keep promising the benefit on which it is being sued. Much of the time, the employer did not even know because its rules and regulations are in Chinese only and were drafted by their first Chinese employee many years ago. Virtually always, the employer wants to remove or at least modify the promise. So yes, the short answer is that looking at all of your employee documents and considering how to revise them in light of an existing employee claim is always a good idea.

Question 4: What exactly do you do in an employer audit and what is the turnaround time?

The first thing we do in an employer audit is to request all of the employer’s written employment document used for their China office(s). At the same time, we ask the employer to advise us of any pending or imminent employee problems of which they are aware. Our lawyers then review all of the documents we receive from the employer and then we usually ask for more documents. If you have been following, you should at this point be asking why we need to ask for more documents when we previously asked for every document. The answer is that most of the time the employment documents we receive will mention other documents we did not receive. Much of the time the other documents do not even exist either because the employer did not know that they were referred to in their existing employment documents or because they forgot to get around to having them drafted. Needless to say, this is something that calls for remedying.

We then draft a memorandum providing the client with a general assessment of their HR situation, along with document-by-document comments and proposals on next steps. The more quickly we are provided with the documents we request, the more quickly we can complete our review, but generally speaking, it usually takes 2-4 weeks.

Question 5: We are just a small company. Do we really need an employer audit?

First off, the size of your WFOE does not matter in terms of whether you are complying with China’s employment laws or not. Second, though the odds of your facing an employee claim when you have ten employees will obviously be less than if you have 10,000 employees, the negative impact on your business will be greater the smaller you are. The need to avoid time consuming and costly labor arbitration and/or litigation is in many respects greater the smaller you are.

Think of an employer audit as a sort of wellness check for your HR program. Any company with employees can benefit from that.

 

 

 

China employment lawyersThe issues related to China employee probation are usually more complicated than they first appear and though many of our employer clients and potential clients are telling us “we get it now,” our China employer audits consistently find the opposite to be true.

Let’s consider a hypothetical based on an amalgamation of some document-based HR audits we performed for China employers. Employer and Employee enter into an employment contract that does not specify either a probation period nor a term of employment. The contract provides for a monthly base salary amount. For the first six months of employment, Employer pays Employee an amount less than the base salary amount specified in the contract. Employee later resigns and brings a claim against Employer for the six month difference between her reduced rate and the contract amount. Employer argues it does not need to pay because of a provision in its Employer Rules and Regulations stating that all new employees have a six month probation period during which they receive a reduced salary — it even provides a specific salary amount for the probation period. So the basic issue is whether the employer and the employee agreed on a probation period.

They did not.

There was no explicit agreement between the parties regarding the probation period. Under Chinese law, the probation period is not one of the mandatory items that must be included in an employment contract. This essentially means that an employer that wants a probation period to test out a new employee must clearly describe the probation period in the employee’s employment contract. An employer cannot unilaterally impose a probation period on an employee and that means that an employer that wants to pay a reduced rate to a probationary employee must explicitly provide for that in its employment contract.

Note also that because the cited provision in the employer rules and regulations applies to all new employees it could be deemed illegal and unenforceable for a couple of reasons. First off, it fails to exclude certain categories of employees for whom a probation period is not permitted. For example, Chinese law prohibits an employer from setting a probation period for part-time employees. For that reason, if the employer applies this provision to any of its part-time employees, it is in violation of the law. In addition, the term of the probation period should be proportional to the term of the employment. Specifically, for an employment term of more than three months but less than one year, the probation period cannot be more than one month; for an employment term of one year or more but less than three years, the probation period cannot exceed two months. The employer can only use a six-month probation period for 1) an employment term of three years or more or 2) an open-term employment arrangement. Unless the employer always brings on new employees under either of those circumstances, this provision needs to be revised to accord with the law.

Note another mistake made by the employer in the hypothetical above: it fails to clearly specify a term of employment in the contract. What this usually means is that the employer will be “stuck” with the employee indefinitely as the employee becomes an open-term employee, which basically means there is no definitive end date for the employment relationship.

Our China employment lawyers see problems related to probation periods far too often — well over 50 percent of the time for companies that have or seek to use probation periods. To ensure you as a China employer are in full legal compliance, you should check both your employer rules and regulations and your individual employment contracts. If you find they contain a provision similar to the above, you should update your documents now.

 

China employment law firm
Change your mindset for China employment contracts.

If you have or are going to have employees in China, you need a China-centric written employment contract with each of your employees. Around once a month, one of our China employment lawyers will get a company asking us to “translate our existing employment agreements into Chinese for our China office.” Our response to this request is always the same: “Sorry, we cannot do that because the end result will not work at all for China. You need a China specific employment agreement and our translating what you are using (in the United States or the UK or Canada or Australia or Spain or France or wherever) is not going to work.” At all.

I want to be very clear: translating a foreign country employment agreement into Chinese for use in China is a flat out dangerous thing to do. Even if your translation is perfect and it captures everything you want it to say (which seldom happens), an employment agreement not written specifically for China will contain provisions that do not comply with China’s employment laws or are unworkable in your specific locale in China. For these same reasons, our unwillingness to “just translate a contract into Chinese” extends to every contract we do. See Translate Your Contract For China? The Answer is No.

The most common example our China employment lawyers see in foreign employment agreements of something that will not work under China’s employment system and that can be harmful is a provision stating that the employment is at-will. Under an employment at-will system, an employer is said to be able to terminate an employee for good reason, bad reason or no reason at all, but in China, terminating a China employee almost always requires specific cause both allowed under China’s national and local employments laws and under your employer rules and regulations. Putting an at-will employment provision in your employment agreements will not help you but it can hurt you by making your China management team believe they can fire their China employees for any or no reason at all. We have seen many wrongful termination actions brought by employees terminated by managers who believed they could do so at-will.

If you now think that merely eliminating any references to at-will employment will solve the translation problem, you’re dreaming. China’s entire employment law system is very different from those in Western countries and this necessitates very different employment contracts across the board.

Take overtime pay as another example. If your China-based manager is working under the standard working hours system (this usually means 8 hours on a work day and 40 hours in a week), you must pay or otherwise compensate him or her for any overtime incurred. See China Employee Working Hours and The Things You Cannot Skip. If your manager has been approved by the government to work flexible hours, you may be able to avoid paying overtime, but not always. The foreign country managerial contracts we see usually contain a provision making clear there will be no overtime. If one of your China managers sues you for unpaid overtime in China, you should expect this provision will be Exhibit 1.

Many foreign companies have their own policies on how much notice their employees must give when resigning and these sort of notice requirements are often put into their employment agreements. China though has its own very strict notice requirements and an employer that seeks to require resignation notice longer than China’s own minimum requirements is just asking for legal trouble.

We have also found that using a non-China centric employment agreement causes companies to lose sight of what most matters for China. Seniority, for example, is a huge issue for China employees as it is tied to other important employee benefits, such as statutory vacation days, and statutory severance. It is therefore important as a China employer that you deal extensively and clearly with this issue in your China employee contracts. But because this issue is usually not covered or covered very differently in foreign employment agreements, your using your foreign employment contract as your template for your China employment contracts will mean you either fail to address this critical issue or you will do so very badly. Either way, this will end up hurting you if/when you are sued.

This is not to say that what you have in your existing employment contracts is wholly worthless in formulating your China employment contracts because it isn’t. My firm’s China employment lawyers will often like to review our clients’ existing employment contracts before we start drafting their employment contracts for China. We though want to see those contracts not because we intend to translate them or even because we intend to use them as a template for the China contracts. Rather, we want to see them just because they often broadly outline what is important to our client in its employer-employee relationships.

In terms of your own thinking though, it is best for you to start from scratch. China employment laws are that different and that local and so what you know from Barcelona or Boston or Brisbane or Berlin may not matter or may just get you in trouble.

China employment law

Residents of Taiwan, Hong Kong and Macau no longer need a work permit to work in mainland China. The PRC Ministry of Human Resources and Social Security earlier this month issued this notice that will obviously make it easier for residents from these three regions to work in mainland China. This means Taiwan, Hong Kong and Macau citizens will — for employment purposes — be treated (almost) the same as mainland residents.

A few quick highlights:

  1. Residents from these three regions can use their Taiwan/Hong Kong/Macau residence cards and mainland travel permits to seek or take up employment in the PRC. The following will now be deemed to constitute proof of employment in the PRC: a business license, an employment contract, a wage payment voucher and/or a social insurance payment record.
  2. Residents from Taiwan/Hong Kong/Macau can now register for and receive unemployment benefits in mainland China.
  3. Improvements will be made to public employment services, such as policy advising, information on job opportunities, and business incubation in an effort to help Taiwan/Hong Kong/Macau residents who wish to work in mainland China better navigate China’s employment system and gain access to more job-related services.
  4. Local governments are expected to offer more support to local employers and to Taiwan/Hong Kong/Macau residents and to protect the employment rights and interest of these residents so as to create a suitable environment for such residents working in China.
  5. Effective July 28, 2018, residents from these regions no longer need a work permit to work in mainland China. Starting August 23, 2018, applications for such a work permit will not be accepted and if an employer has submitted an application but no permit has yet issued, the relevant authorities will inform the employer that it need no longer pursue its application.
  6. Up until December 31, 2018, still valid work permits still within the validity period can still be used as evidence of employment.

One thing that has not and will not change is that regardless of where you are from, if you are looking to work in China, you should have your employment contracts thoroughly reviewed before you signing them.

China Employment Lawyers

Our China employment lawyers are asked by China employers about pursuing claims against an employee who fails to give sufficient notice of their resignation. Generally speaking, you cannot demand an employee pay damages for an early resignation unless you can show actual damages as a result. Just a quick summary of the relevant law on employee resignations: in accordance with China’s Employment Contract Law, a China employee during his or her employment contract term can generally leave by giving 30 days written notice while an employee on probation can leave with 3 days notice. We usually (but not always) recommend our employer clients not  make it more difficult for their employees to leave than the law mandates. Though it’s not an easy task, it is possible to pursue an employee for failing to abide by legal standard on resignation or a contractual standard, provided the contractual arrangement does not violate applicable law.

Let’s consider a hypothetical. Employer and Employee enter into an employment contract for a fixed term for Employee to work as a front-desk cashier at a hotel. Employee leaves before her employment term is up without providing a reason or a notice of resignation. Employee’s manager tries to get in touch with her, but to no avail. Employer leaves the employee a text message warning her that if she does not return to work or otherwise get in contact with her Employer right away, Employer will take legal action. When Employee is no show, Employer hires a temp to perform her job duties. Employer then brings a labor arbitration claim for damages as a result of Employee’s unauthorized departure. Will Employer prevail?

In the real case on which the above hypothetical is based, the arbitrator noted that pursuant to China’s Employment Contract Law, an employee who violates the law on employment termination notices and causes damages to the employer by having done so shall be liable to the employer for damages. The arbitrator went on to hold that this particular had failed to provide adequate resignation notice as required by law (that is, 30 days’ written notice), had left her work position without authorization, and that her behavior had caused economic losses to her employer. It therefore ordered this employee to pay her employer damages. The employer did not get the amount it was seeking because the arbitrator held that the daily salary the employer claimed it paid to the temp was much higher than workers in similar and even higher positions and it significantly held that damages should be roughly $20 a day, not the $50 a day the employer had sought. To make a long story short, the employer had sought a little over $1300 in damages and it ended up being awarded a little over $200 instead.

This case affirms that it is possible for an employer to pursue an employee for leaving without providing proper notice which causes damages to the employer. However, as is true of so many other claims against an employee, the amount of possible damages are likely to be so low that it will rarely make sense on economic grounds to pursue an employee for leaving early. Of the times a China employer has asked one of our China employment lawyers about pursuing an employee for leaving early, I can recall only one time where we thought it might make sense and that one time involved a very high level employee who the employer believed had left with trade secrets and a plan to compete against his former employer. Bringing the action in that instance would be done as much to send a message to the ex-employee and to other employees as for economic reasons.

Bottom Line: As is true of so much employment litigation and of litigation in general, the decision to pursue a claim needs to be based on more than just the likelihood of success on the merits. If you are going to bring any sort of arbitration claim or lawsuit in China you should first weigh the likelihood of success on the merits and the amount you will be awarded if you prevail and your likelihood of collecting on the one hand against the economic and emotional and opportunity costs on the other hand. In most cases, your best course of action will be to walk away.

 

China employment lawyersWhen our employer clients seek our counsel on new China employee hires, we usually (but not always) advise they use an initial fixed term of three years. We also recommend that before the initial employment term is up, they consider whether to extend the employee’s contract for a second employment term. Because China is not an employment at will jurisdiction and terminating a China employee is generally very difficult, you as the employer should be sure not to take an employee beyond an initial term unless you are certain you wish to continue employing that person. If you choose not to renew an employee for a second term you can terminate the employment but you will have to pay severance based on the employee’s years of service for not renewing the contract. This holds true unless you have a legal/contractual basis for terminating the employee without severance, such as an employee’s serious wrongdoing.

Consider this hypothetical. Employer and Employee enter into an employment contract for an initial fixed term. Both before and shortly after the expiration of the initial term, Employer provides Employee with notices that it wishes to renew the contract and each time Employee fails to sign a new contract. Employee then files a labor arbitration claim, demanding statutory severance for the termination. Will Employee prevail? The short answer is that it depends.

In the real case on which this hypothetical is based, the court (the case went from labor arbitration to the court level) noted that 1) Employer provided convincing evidence, including minutes of conversations between the parties and witness testimony, that showed Employer truly intended to renew Employee’s initial contract and 2) Employee failed to produce any evidence to show Employer’s proposed terms and conditions were worse than the terms and conditions in Employee’s initial contract. The court went on to rule that Employer was not obligated to pay statutory severance upon termination because the applicable law stipulates an employer must pay an employee statutory severance for not renewing a contract, unless the employer has offered the employee the same or better terms and conditions for the renewal and the employee does not agree to renew on such proposed terms.

What are the key takeaways from this? First, you as the employer should start thinking about whether to renew an employee’s contract before that employee’s employment term expires. I cannot tell you how many times our China employment lawyers get called by China employer’s asking us what to do with an employee’s contract that expires tomorrow or expired last week — NOT good. Next, regardless of whether you wish to renew or end the employment, you must provide the employee with a written notice of such intent before the end of the employee’s contract term. If you do not want to continue employing the employee, pay the employee statutory severance and process the employee separation in a timely manner. Avoid putting the employee on another probation to see if maybe things will work out this time. If you want the employee to continue working for you but the employee does not wish to renew (assuming the terms and conditions in the proposed new contract are the same or better than the first contract), document that in writing and process the employee separation. In this situation, you don’t have to pay statutory severance since essentially it is the employee terminating the employment.

If the employee is ambiguous as to what he or she wants, do not have the employee work beyond the last date of his or her contract. In other words, you should not have the employee work without a current written contract. This is because China’s employment laws require an employer use a (current) written employment contract with its employees. Even if you signed a first written contract with that employee but since that contract has expired, you likely will be treated as having no contract at all and subject to all the problems and penalties that go with this.

Under China’s written employment laws, an employee is entitled to an open-term contract after two consecutive fixed-terms. However, in practice, in most places in China, once an employee has been renewed at the end of the initial fixed term, that employee has become an open-term employee, which means he or she must be retained as an employee until his or her mandatory retirement age. Therefore, the first renewal should be treated seriously and no employee should be taken beyond the first term unless you want to see the employee on your team long-term. Like forever long term.

Have employees who are approaching the end of their contract terms? NOW is the time to get on it.