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Employment Contract in China

Employment Contract in China

China’s large size and the potential for development are two of the most relevant reasons why foreign investors choose to open a business in China. The country is attractive for foreign investors also because of its cheap labor, its immense market, and its preferential investment policies. This is why the foreign entrepreneurs who come here must know the legal provisions regarding the employment contract in China for their future employees, in order to provide job security for them. Consequently, the employer must be very careful and obey all the specific regulations and employment law’s provisions in order to keep a clean profile. 

In case you are interested, our attorneys in China will offer more information about the matter.

Mandatory provisions of the employment contract in China 

Chinese employers must have written employment contracts with all of their employees. Under China’s labor laws, the employment contract is required to contain the following mandatory provisions:

• basic information about the employee and the employer;

• the exact duration of the employment contract;

• a (job) description on the type of work the employee will perform;

• the workplace;

• the working hours;

• rest and leave time;

• social insurance;

• remuneration;

• the work conditions and protection against occupational hazards and applicable labor protections;

• other aspects that should be included in the contract under any laws or regulations.

Our Chinese law firm will provide support regarding all relevant aspects of concluding an employment contract in China.

Other important conditions of the employment contract

Chinese employment contracts must be in writing. Generally, the establishment of an employment relationship is subject to the satisfaction of the following conditions:

• the employer and the candidate are in compliance with relevant laws and regulations;

• rules and systems regarding employment provided by the hiring entity in accordance with relevant laws are applicable to the individual; the individual will be under the management of the hiring entity, and the individual works on tasks given by the employer in exchange for a wage; 

• work provided by the employee to the employer is a part of the employer’s business.

The failure to conclude an employment contract in China can have the following consequences:

• when an employer fails to conclude a written employment contract with an employee for more than one month, but less than one year from the start of employment, it must pay double the employee’s monthly wage to the employee each of the following months;

• if, after a year from the day of employment, the employer still has not concluded a written contract, a permanent employment contract is considered to have been concluded between the employer and the employee.

If you want to be sure that as an employer you will follow all the labor regulations, please contact our Chinese lawyers for specific guidance on employment contract in China.

Moreover, given the mandatory employees’ engagement pursuant to a written employment contract, it is very difficult to terminate an employee during the term of the contract. An employee can only be fired for cause clearly proved. Therefore, the employer must maintain careful discipline records to be able to establish grounds for dismissal and a detailed set of rules and regulations. This situation makes the employment relationship and the employment documents much more controversial.

Types of unilateral termination by the employer

1. Termination with cause

This takes immediate effect upon the employee’s receipt of termination notice when talking about misconduct or fault of the employee. Under one of the following circumstances, Chinese Labor Contract Law permits employers to unilaterally terminate labor contracts in China without having to provide economic compensation or notice:

• the employee significantly breaks the employer’s rules and regulations;

• the employee does not fulfill the employment conditions during the probation period;

• serious dereliction is committed by the employee, causing substantial damage to the employer;

• the establishment of another employment relationship that impacts the completion of the employees’ tasks with the existing employer/ the refusal to terminate the employment relationship with the other employer, after required to do so by the existing employer;

• taking advantage of the employer’s difficulties to terminate a labor contract or the employee using coercion or deception in order to determine the employer act contrary to his/her true intent;

• criminal liability is found against the employee. 

Our Chinese attorneys will provide documented guidance regarding the conditions of properly terminating an employment contract in China.

2. Termination without cause

Being required to serve a 30-day prior written notice to the employee (or pay him/her the amount that would have been obtained as a wage during the notice period), the employer is permitted to unilaterally fire the employee in China under the following legally recognized grounds:

• being unable the engage in the original work, the employee suffers a non-work injury or an illness;

• the employee is deemed incompatible with the job position even after being assigned to another position or receiving training; 

• the objective circumstances under which the employment contract was concluded have significantly changed, causing the performance of the employment contract impossible; the parties fail to reach an agreement on the amendment to the labor contract.

On the other hand, there are certain circumstances in which an employer cannot fire an employee in China; these are legally defined as blocking termination, such as:

• pregnancy/maternity leave or in the nursing period;

• labor capability partially or completely lost (due to a work injury or occupational disease);

• more than 15 years of continuous work for the same employee and less than five years from retirement etc.

Because of the drastic consequences of unlawful dismissal under the Chinese law and the strict requirements on unilateral termination of an employment contract by the employer, most employers in China choose to negotiate a mutually agreed termination of each employee. Most often, employers would normally offer a termination package higher than the amount that the employee would be strictly entitled to receive under law, in order to convince the employee to agree to termination.

Our team of lawyers can provide trustworthy assistance and can help you understand all the provisions of the employment contract in China. For further details feel free to contact us.