Employment contracts in China: Be sure to get it right and not run afoul of authorities

Understanding and implementing written employment contracts are essential to business operations. Equally, a well-written employment contract helps companies avoid labour disputes or prolonged disputes. It’s been our experience at Horizons, that, contrary to popular belief, Labour Law and Labour Contract Law of the People’s Republic of China establishes strict provisions for employment contracts. Employers in violation of such provisions can face penalties.

The Labour Contract Law mandates written contracts for all employees, including any labour-dispatched workers from dispatching agencies. Employment contracts shall include the following compulsory terms:

  • Employer name, domicile and legal representative or main personnel in-charge
  • Employee name, residential address and number of resident ID or a valid identity document
  • Terms of employment contract
  • Scope of work and placement
  • Working hours, rest and leave
  • Labour compensation
  • Social insurance
  • Labour protection, working condition and protection against occupational hazards
  • Other issues required by the Law

Apart from the above terms, the contract may include a probationary period, training, confidentiality agreement, supplementary insurance and welfare.

Employers should be aware that the labour relationship is established once the employee commences work; therefore, a written contract is mandated within one month of the employment start date. If there is no written contract within one year of employment, the employee is entitled to an open-ended contract. What’s more, in this instance, the employer is liable and may be forced to pay double the salary. Equally, employers receiving labour-dispatched workers from work placement agencies are subject to the same obligations. Oral contracts may only be established for part-time work that does not exceed four hours per day or 24 hours per week.

There are three types of labour contracts: 1) fixed-term of employment; 2) open-ended term of employment; 3) project/task-based employment, which is subject to termination once the project/task is completed.

Fixed-term contracts, if renewed, should be implemented with a newly written contract. Otherwise, in the instance that the employer assumes automatic renewal, it may be regarded as a situation where there is no written contract from the expiry date of the previous contract. Here, it is important to note that each city or province may impose additional provisions, of which employers shall adhere. What’s more, an employee is entitled to an open-ended contract upon the third consecutive contract renewal or having worked ten consecutive years for the employer.

Employer changes do not affect the validation of the contract. In a merger or division of the original employer, the original contract is still effective, and the rights and obligations of the original employer are transferred to the new employer. Similarly, changes to the employer’s name, legal representative, main person-in-charge or investor do not affect the validation. Any amendments to the labour contract shall be made in consultation and in writing.

For foreign employers, bilingual employment contracts in Chinese and foreign language (with the same legal effect) is common practise. In this manner, foreign employers may avoid arbitration commissions and local courts disregarding employment contracts drafted in a foreign language.

Written employment contracts are fundamental, and no employer should avoid concluding a written contract. As labour administrative departments of local governments at the county level and above have the authority to review contracts and conduct on-the-spot workplace inspection, employers should ensure contracts are regularly reviewed and renewals are made ahead of the expiry date.

If you would like more information on China Labour Law, Contract Law or other related corporate issues, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.  

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