I am going to be speaking at USC this weekend and in poring over old PowerPoints (to create a new PowerPoint for my talk), I came across one with a fairly extensive China law bibliography of some of our most helpful posts.  This bibliography is definitely slanted towards the legal issues that confront foreign companies doing business in China.

Here it is:

CHINA CONTRACTS

CHINA LICENSING AGREEMENTS/CHINA DISTRIBUTOR AGREEMENTS/CUSTOMS

CHINA COMPANY FORMATION/CHINA WFOE FORMATION/CHINA JOINT VENTURES

NEGOTIATING WITH CHINA

CHINA —INTELLECTUAL PROPERTY

I spoke last week (for ten minutes) in Atlanta at NACA’s First Annual US-China Business Conference. I posted that speech (the written version of it, anyway) in a post entitled China Legal Issues For Business. The Ten Minute Version. In going through and deleting old emails today, I came across my first, very different version of the speech. Initially, rather than deal with an overall general approach to dealing with Chinese legal issues, my plan was to speak really fast and highlight specific legal issues relating to foreign business in China. Here is the outline I was going to use for that sort of speech, before I concluded it would be too legalistic, boring and scatter-shot:

1. Company Formation

  • Is it legal?
  • Spend AFTER Chinese government knows you are forming.

2. Contracts

  • Who’s your counterparty?
  • Spend a little, save a lot. Be diligent with your Due Diligence.
  • Arbitration is the only solution, except when it’s not.
  • How to get your Christmas lights before Christmas.
  • Contract language/Arbitration language

3. Intellectual Property

  • Register early and often, except patents
  • NDAs are not DOA
  • It’s more than just legal.

4. Joint Ventures

  • Why, why, why? The Peoria test.
  • Control is always critical, yet nearly always illusory.

5. Labor Law

  • How does lifetime tenure for everyone sound?
  • How does overtime for nearly everyone sound?
  • Written contracts for everyone.
  • Employer manual for everyone, to include FCPA and trade secret language

6. Choosing Your China Lawyer

  • English and Guanxi are overrated.
  • Lawyer ethics and confidentiality. Be careful.

7. The law is everything and nothing

  • Ex post facto. Sure, why not?
  • Obsolescence at warp speed.
  • You are not Chinese and you never will be.
  • Assume law in China is nothing like the U.S/Assume it is similar.

Think I’ll use this the next time someone wants me to speak for thirty minutes….

 

 

I was talking with a client today for whom we are doing what I consider to be our standard China start-up “package.”  We are helping them form a WFOE, helping with the legal side of their lease, registering and protecting their IP in China, and drafting their China employee manuals and employee contracts. 

I mapped out generally what the client could expect during its first year in China in terms of legal fees and then I very briefly talked about some non-legal accounting and wage issues with which it should be prepared to deal. The client then asked a great question and one that, surprisingly enough, I had never been previously asked. “How much should we set aside for China legal matters after the first year?  

I thought for a moment and then noted how unless there is a major corporate change, there usually is surprisingly little need for legal help after one’s first year in China. I then said our clients might call us after the first year with a labor law issue, but that those are usually very quickly and cheaply resolved. 

I got off the phone and five minutes later a client called. He had just been told by one of his female Chinese employees that she was entitled to 13 days leave for her marriage (as opposed to the standard three days) because she is 25 years old. The client thought his employee was making this up, but he wanted to be sure. Sure enough, brides over 22 years old are entitled to an extra ten days of leave time. They are entitled to thirteen days leave, but this leave shall include weekends (but not legal holidays). It took us all of ten minutes and we did not even bother to charge. 

Taikongren’s Advice Blog has a nice post setting forth and commenting on many of the various issues swirling about these days on labor in China. The post is entitled,”Taikongren’s definitive ‘What’s happening with Chinese Labor’ post,” [link no longer exist] and it does a very good job setting out China’s labor situation and raising some interesting issues attached to that. If you want to know more about China’s current labor situation, I recommend you read it.

Taikongren asserts the following:

1. Wages in primary manufacturing areas are rising.

2. Wages are rising due to a shortage of workers.

3. Wages rising in China’s interior are causing coastal wages to rise.

4. Foreign investment should be headed to second-tier cities and to the interior, but this is not really happening much.

5. Some capital-heavy manufacturing companies have decided to move back to the US. NOTE: I am NOT aware of this happening.

6. China should start making higher end products to fit its more-expensive industrial base.

7. The strikes of the Honda Factory and Foxconn suicides are often linked in the news but they are not really related.

8. The government is promoting higher wages.

9. China’s Labor Law is empowering China’s workers.

10. What is going on with strikes and other labor issues at the State Owned Entities?  NOTE: I have been wondering the same thing and I asked this question over at the China Law Blog Linkedin Group.

11. Chinese workers are using the internet and cell phone text messages to organize their labor protests.

In an unfortunate bit of pique that mars an otherwise thoughtful post, Taikongren pokes fun at Rebecca MacKinnon, for having told the New York Times that “QQ is not secure” and for having been described by the New York Times as “a China specialist.” I do not believe the average New York Times reader knows what QQ even is, much less that the Chinese government monitors it. I also feel I must note that Ms. MacKinnon is widely considered (by me too) as one of the most knowledgeable Westerners on China’s Internet.

I am three-quarters of the way through the book, Understanding Labor and Employment Law in China, by Ronald C. Brown. Brown is a Professor of Law and the Chair of the Pacific-Asian Legal Studies Committee at University of Hawaii Law School and can confidently state that it is a great book.

But it is not for those seeking merely a light dusting on Chinese labor and employment law. Not at all.

It is a 332 page exposition on the current state of China’s labor laws. It was just published so it is quite current. Its appendix consists of translations of the key Chinese laws relating to labor and employment.

Who should read this book?

  • Academics interested in China labor laws? Check.
  • Private practice lawyers seeking a deeper understanding of China’s labor laws? Check.
  • In-house lawyers wanting to better understand China’s labor laws? Check.
  • HR personnel with businesses operating in China? Probably check.
  • Lawyers who actually practice labor law in China? Maybe check.
  • The general businessperson doing business in China? Maybe check.

Let me explain my maybes.

Any lawyer actually doing employment law in China must be able to speak and read Mandarin fluently and so that lawyer probably does not have much need for a book like this, written in English. If you are going to be writing employee manuals and employment contracts in China or giving advice regarding China’s labor laws, you absolutely must know how to read and write Mandarin. You have to know how to read it because so many of the employment laws are local, rather than national, and because there is no substitute for reading a law in its original language. You have to know how to write in Mandarin because your employee manuals and your employment contracts pretty much have to be in Chinese if you have any Chinese employees.
This book is probably too intense, too thorough, too long, too deep, and too complicated for the typical businessperson seeking a general background on Chinese employment law and I do not think it was ever intended for that purpose.

But if you are looking for an English language book that really details China’s labor and employment laws, this is the book.

 

China employment lawyer

The implementation regulations for the new Chinese Labor Contract Law were promulgated on September 3. When the draft regulations were issued earlier this year, we discussed some of the proposed changes (here), and despite having shrunk from 45 articles to 38, the content of the regulations remain relatively intact. You can read the full text of the final version of the regulations, in Chinese, here.

The newly issued implementation regulations have four sections (compared to three in the draft version), dealing with establishing the labor contract, terminating the contract, special issues with dispatched workers, and an additional section on legal responsibility.

The biggest cuts were in the section on establishing the labor contract. A brief rundown of the contents of this first section of the final regulations follows:

  • Employees who refuse to sign a contract within the first month of employment may be terminated by the Employer without need for compensation.
  • Employees who have not yet signed a contract between the first month and first year of employment shall be paid compensation of twice their wage every month worked without a signed contract. If the employee refuses to sign a contract, the employer may terminate the employee, but must pay severance.
  • Employees employed for over a year without having signed a contract shall be compensated as above for that year, and shall be deemed to have entered into an open term contract.
  • Employees who have been moved from one company to another at the request of their employer shall have all their working time in all companies included in assessing whether they have satisfied the 10 year requirement for open ended contracts
  • If the contract term expires before the term of service agreed upon, the contract must be automatically extended to extend to the end of the term of service.

The second section deals with terminating contracts and it lays out the various conditions where this can occur. When the Labor Law came into effect at the beginning of this year, companies were concerned about having open ended contracts for employees of over 10 years and for those who had already signed 3 consecutive fixed term contracts. To some extent, the implementation regulations were designed to correct the misinterpretation that this, in effect, meant employment for life. The regulations do this by setting forth the following basis for terminating employees with open ended contracts:

  1. mutual consent between employer and employee;
  2. employee fails to satisfy the conditions for employment during the probationary period;
  3. employee materially breaches the employer’s rules and regulations;
  4. employee commits a serious dereliction of duty or practices graft leading to substantial damage;
  5. employee has an employment relationship with another employer that prevents the fulfillment of responsibilities and then refuses to rectify the situation;
  6. employee deceives or coerces the employer into signing or amending the employment contract;
  7. employee is under investigation for criminal charges;
  8. employee is unable to resume employment duties after the legally stipulated period for recovery after illness stemming from a non-work related injury;
  9. employee is incompetent and remains incompetent after training or new work assignment;
  10. a major change in the circumstances relied upon at the conclusion of the contract which makes it impossible to execute, and no agreement is reachable by both parties on any amendment;
  11. employer is undergoing restructuring under the Enterprise Bankruptcy Law;
  12. employer is unable to continue normal business operations;
  13. employer changes its production, introduces new technology or changes its operating method and needs to reduce its workforce; or
  14. there is a major change in the objective economic circumstances relied on when signing the contract and that circumstance now renders performance under the contract impossible.

This list mirrors the list under the Labor Contract Law. The Labor Contract Law further divides these 14 points into those which require severance pay and those which do not. The key to being able to terminate an employee for something like incompetence is to make very clear in an Employee Manual what is required of employees, and when employees will be in breach of their responsibilities to the company.

This section also states that employees with contracts that end upon completion of a job are entitled to severance pay. This has major cost repercussions for companies that hire seasonal workers.

The third section essentially notes that dispatched employees are to be treated as regular employees regarding compensation and regarding establishing and terminating labor contracts.

The last section sets the range for fines for infractions of the Labor Contract Law. Just by way of example, incorrect staff roster information leads to a fine ranging from 2,000 to 20,000 RMB. and fins for issues relating to dispatched workers range from 1,000 to 5,000 RMB. The regulations also give the labor bureau the power to force employers to pay the compensation outlined in the Labor Contract Law and the specific amounts listed in the regulations.