Compliance of Employment

1.Introduction

For a Foreign Invested Enterprise, compliance of employment is not an easy task, because of the stringent, complex and sometimes ambiguous employment laws and labor regulations, particularly with regard to provisions about employment contracts. This article will provide basic and updated information about relevant China employment laws and how these laws discourage foreign investors.

2.  Employment Legal System

Two China employment laws that all foreign investors must consider before commencing a business in the country are as follows:

• Labor Law of the People’s Republic of China (1995) (“Labor Law”)

• Labor Contract Law of the People’s Republic of China (2008) (“Labor Contract Law”)

These are the two primary sources of China’s employment laws.

However, these are not the only laws that should be considered since there are several other employment laws and policies which are applicable to anybusiness affairs in China, including the followings:

• Law of the People’s Republic of China on Labor Dispute Mediation and Arbitration;

• Employment Promotion Law of the People’s Republic of China;

• Labor Union  Law of the People’s Republic of China;

• Law of the  People’s Republic of China on Work Safety;

• Social Security Law;

• Opinion on  Several Questions Regarding the Implementation of the Labor Law of the  People’s Republic of China; 

• Implementing Regulations for the Law of the People’s Republic of China on Employment Contracts.

3. Requirement of Employment Contracts

3.1 Types of Employment Contracts

Labor ContractLaw provides three types of employment contracts, as follows:

• Fixed-term labor contracts;

• Open-term labor contracts; 

• Specific-task labor contract, which sets the completion of specific tasks as the term to end the contract.

3.2 Requirement of Written Employment Contract with Full-time Employee

In China, hiring full-time employees means the enterprise must sign a written employmentcontract with the employer. It is a provision of the law and if an enterprise does not comply with it, corresponding penalties and sanctions will follow, which includes:

• Fines to be imposed on companies with full-time employees having no written employment contract;

• An employee working for one month in a company without an employment contract will legally compel the employer to pay double monthly wage to the concerned employee;

• If an  employee works in a company more than one year without an employment contract, the employer automatically enters an open-term employment with   the concerned employee where the latter must be retained by the employer until the age of retirement; and,

• Upon the employee’s completion of the probation period, termination will be difficult in the absence of a reason and without a compensation. Unlike the United States, there is no “employment at will” policy in China, which means companies may terminate an employment for any reason.

3.3 Recommending Written Employment Contract with Part-time Employee

It is permitted not to execute written employment contracts with part-time employees. However, to establish the employment relationship, it is recommended that a written contract be signed. Because employers must be quite vigilant when employing part-time employees. In the absence of a contract, and lack of an accurate recording of the employee’s attendance, it maybe difficult to prove that the employee works on a part-time basis.

3.4 Compulsory Provisions in Employment Contracts

Based on the Labor Law and Labor Contract Law, the following information and provisions mustbe included in the employment contract:

• Name,  address, and ID number of the employee;

• Company’s name and address;

• Company’s  legal representative;

• Compensation/remuneration;

• Term, time frame or probation period (whichever is applicable);

• Employment/job description;

• Employment  location;

• Work condition, ie. protection against occupation hazards and safety measures  employed;

• Provisions  on working hours, leaves and rest;

• Social  insurance terms.

To be continued.

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