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 employment lawyers

It is not news that Chinese labor authorities have been cracking down on employers that fail to make social insurance payments for their employees. What is news is that Chinese labor authorities are taking that enforcement to the next level. Last week, 28 government departments (including the National Development and Reform Commission, the People’s Bank of China, the Ministry of Human Resources and Social Security, and the State Administration of Taxation) jointly executed a Memorandum of Understanding on Joint Punishment against Serious Dishonest Enterprises and Related Personnel in the Social Insurance Sector (the “MOU”) that defines “serious dishonest employer behavior” to include the following:

(1) Failing to participate in social insurance in accordance with the law and refusing to rectify the situation;

(2) Failing to truthfully declare the social insurance contribution base and refusing to rectify the situation;

(3) Failing to pay social insurance premiums;

(4) Concealing, transferring, misappropriating or embezzling social insurance premiums, funds or engaging in illegal investment operations;

(5) Participating in fraud by, among other things, falsifying certification materials or social insurance fund expenses or social insurance benefits;

(6) Illegally obtaining, selling or disguising trading of social insurance personal rights and interests data;

(7) Refusing to assist the social insurance administrative department in its efforts to investigate accidents and problems; refusing to assist the taxation department in its efforts to supervise or inspect social insurance, and failing to provide relevant information related to social insurance; or

(9) Otherwise violating applicable laws and regulations.

Numbers 1, 2 and 3 above — that is, not paying or under-paying employee social insurance — are the violations our China employment lawyers most often see among foreign employers in China, and even before the MOU, we often saw foreign employers get in trouble for such violations.

The Ministry of Human Resources and Social Security, the State Administration of Taxation and the Medical Security Bureau will pass on information regarding employers that violate the social insurance laws to other Chinese government departments via the national credit information sharing platform and publish that information on Credit China, China’s National Enterprise Credit Information Publicity System, and on the official websites of these government agencies. In other words, the dishonest parties will be publicly named and shamed.

Employers/relevant personnel determined by Chinese government authorities to be dishonest may face a number of adverse consequences imposed by different government departments –not just limited to social insurance. Punishment might include restrictions on participating in government procurement as a supplier, financial subsidies and social security funds support, government assistance on streamlining the handling of social insurance, and participating in social insurance cooperation projects. The list of potential punishments also includes enhanced scrutiny or regulations. For example, when a dishonest enterprise applies for customs-related business, its import/export activities will be more strictly supervised and regulated, such as more stringent customs inspection, supervision and audit. The relevant authorities will also consider the “dishonest behavior” of the employer, its legal representative, actual controlling person, directors, supervisors, officers, and senior management in determining whether to grant preferential policy support. Punishment also may include prohibitions on purchasing airplane tickets and withdrawals of previous honors (e.g., taking back a previously-awarded model of high morality honor).

In October of this year, China’s Ministry of Human Resources and Social Security released a set of draft Interim Measures for the Management of a Blacklist for Serious Dishonesty in the Social Insurance Sector for public comments. This blacklist would be publicized on local and national credit information platforms and be made available to all government authorities. The MOU mirrors the spirit of these draft Measures. As always, the localities are expected to come up with their own detailed implementation rules.

Life in China for foreign employers has never been easy, but don’t make it harder by getting your company and its personnel on the “blacklist.” Can you confidently state that your company is in full compliance with its social insurance obligations? If not, you need to take action now to make sure it is.

 

 

 

 

China Sexual Harassment MeToo
By Prentsa Aldundia

On September 5, 2018, the PRC National People’s Congress issued a new draft of Several Sections of the PRC Civil Code (the “Draft”) for public comments until early November. The Draft would provide heightened protection against sexual harassment on a national level and would also impose more obligations on China employers. Below are a few highlights of the proposed law.

First, and perhaps most importantly, Article 790 defines sexual harassment as unwelcome behavior against another person by sexual language or actions or by sexual advances against a subordinate. Though a few China locales formally define sexual harassment in their local regulations — for example, Jiangsu Province’s provincial regulations on the protection of women’s rights define sexual harassment as harassment against women in any form of sexual content or sex-related language, words, images, sounds, and body movements — China does not have any national law defining sexual harassment. That means these PRC Civil Code revisions would constitute China’s first national definition for sexual harassment.

The wording of this sexual harassment definition would greatly increase protection against sexual harassment. Before the Draft, the national laws that cover sexual harassment limit protection to only female employees. For example, the Law on the Protection of Women’s Rights and Interests prohibits sexual harassment against women and it further says female sexual harassment victims may file a complaint with their employer and/or with the authorities. The Special Rules on the Labor Protection of Female Employees require employers prevent and stop sexual harassment against female employees in the workplace. The local rules also protect only female employees against sexual harassment. The Draft would extend sexual harassment protection to include male employees for the first time.

The Draft also makes clear employers will need to take reasonable (whatever that means) measures to prevent sexual harassment in their workplaces, create procedures for employees to file sexual harassment complaints, and create an internal company system for handling sexual harassment complaints. Though the Draft is not yet very detailed about any of this, it would still be a substantial improvement over the current law which says little more than that employers must seek to prevent and stop sexual harassment against female employees in the work place. This Draft is a clear signal that China is getting tougher on enforcement against employers that fail to fulfill their obligations under the sexual harassment protection law.

With its increased protections against sexual harassment, the Draft should serve as a clarion call to China employers to increase the protections they provide against sexual harassment in their workplaces. In other words, employer risks for not having proper sexual harassment policies/rules/measures in place to deal with sexual harassment are quickly increasing. Though the Draft has not yet been finalized, now would be a good time to audit your employment situation to make sure you have an enforceable and practical set of company rules and policies on anti-sexual harassment that complies with both China’s national and local laws (as noted above, your locale may already have more developed and detailed regulations than the national requirements and you must follow them).

#MeToo has gone international and any employer that ignores this is asking for trouble.

China employee terminationsIf you are a China employer, you must have a written employment contract with all your employees. This means that once you hire an employee in China it is generally difficult to terminate that employee during his or her contract term.

Consider this hypothetical (based on a real case with its facts greatly simplified for this post). Employer and Employee enter into an employment contract for a non-fixed term. Several years into employment and before the end of the year, Employer issues a termination notice to Employee for immediate termination of the employment contract, but the termination notice fails to specify any basis for the unilateral termination. Employer pays Employee a big severance and an additional amount of money in lieu of advance notice for the termination. Employee demands Employer pay the year-end bonus and Employer claims no bonus is required because Employer’s rules and regulations document says if an employee is terminated for any reason (including as a result of employee serious wrongdoing), the employee will not be entitled to any portion of the year-end bonus for that year. Employee brings a labor arbitration claim against Employer to collect the unpaid year-end bonus, among other things.

Employer lost big. What did Employer do wrong here?

Mistake #1: Issuing a termination notice without specifying the reason for termination. This can and will lead to problems for the employer and yet many foreign employers in China do this, oftentimes because they want to quickly wrap up the employee termination. Terminating a China-based employee is almost always complicated and proceeding with a termination in haste is almost always a bad idea. In this case above, the employer did not have any legal basis for terminating the employee and it only claimed the employee was terminated for employee wrongdoing after it was sued. As a China employer you need to provide your soon-to-be-former-employee with appropriate notice of what led to the employee termination and you must do so at the time of the termination. If the employee did something wrong to bring about your unilaterally terminating that employee, you must make that clear in the termination notice.

Mistake #2: Claiming the employee was terminated for wrongdoing yet giving the employee a big severance payment. This sort of thing confuses everyone from the employee being terminated to other employees in the company to — most importantly — the arbitrators and judges that eventually get the case. If an employer has a legally permissible ground for a unilateral termination, why pay severance? Paying severance oftentimes is used to show that the employer probably had no good legal grounds for termination. If that is the case, fine; but that would be a completely different type of termination and you cannot call that unilateral termination due to employee’s fault. It is called an employer-initiated mutual termination. On the flip side, if you as the employer know that your facts or evidence are not looking great from a legal standpoint, why not make clear that you are entering into a mutual termination deal with the employee? When terminating an employee it is critical that both your severance payments and your termination documents line up with each other and that both truly fit the situation.

Mistake #3: Not possessing good evidence to support the unilateral termination for alleged employee wrongdoing. In a China employment dispute, the employer bears the burden of proving it had a valid basis for the employee’s termination. In real life this means that the moment you as a China employer realize you have a problem employee or the moment you realize that one of your employees has done something wrong you should start documenting everything you can so that you will eventually be prepared to argue your case in the event of a termination or employee dispute.

Mistake #4: Not resolving all outstanding issues at the time of termination. In the real case on which the above hypothetical is based, the employee was a high-paid employee and the employer paid the employee a big severance before the employee sued. The employer should have had its employee sign a termination agreement that set forth employer-employee agreement on all necessary issues before it paid the employee the large severance. If you are going to pay one of your employees severance, there is no excuse for not doing what is necessary to get full resolution for doing so.

Mistake #5: Not understanding that an employee termination does not absolve the China employer from having to pay a year-end bonus. And please note: just because you have a company rule that says your employees are not entitled to something (like a year-end bonus) when their employment relationship with your company ends does not give you the right to terminate the employee. In other words, even if your company rule is legal in your locale, the fundamental rule of China’s employment laws does not change: China is not employment-at-will jurisdiction.

Employee terminations in China always require you make sure the termination is done legally and correctly so you will not get sued over a termination after you thought you had completed the employee separation.

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.