LAW OF THE PEOPLE’S REPUBLIC OF CHINA ON EMPLOYMENT CONTRACTS
Adopted at the 28th Session of the Standing Committee of the 10th National People’s Congress on June 29, 2007
Effective from January 1, 2008
By Baker & MCKenzie
CHAPTER 1 GENERAL PROVISIONS
This Law has been formulated in order to improve the employment contract system, to specify the rights and obligations of the parties to employment contracts, to protect the lawful rights and interests of Employees and to build and develop harmonious and stable employment relationships.
This Law governs the establishment of employment relationships between, and the conclusion, performance, amendment, termination and ending of employment contracts by, organizations such as enterprises, individual economic organizations and private non-enterprise units in the People’s Republic of China (“Employers”) on the one hand and Employees in the People’s Republic of China on the other hand.
The conclusion, performance, amendment, termination and ending of employment contracts by state authorities, institutions or social organizations on the one hand and Employees with whom they establish employment relationships on the other hand, shall be handled pursuant to this Law.
The conclusion of employment contracts shall comply with the principles of lawfulness, fairness, equality, free will, negotiated consensus and good faith.
A lawfully concluded employment contract is binding, and both the Employer and the Employee shall perform their respective obligations stipulated therein.
Employers shall establish and improve internal rules and regulations, so as to ensure that Employees enjoy their labor rights and perform their labor obligations.
When an Employer formulates, revises or decides on rules and regulations, or material matters, that have a direct bearing on the immediate interests of its Employees, such as those concerning compensation, work hours, rest, leave, work safety and hygiene, insurance, benefits, employee training, work discipline or work quota management, the same shall be discussed by the employee representative congress or all the employees. The employee representative congress or all the employees, as the case may be, shall put forward a proposal and comments, whereupon the matter shall be determined through consultations with the Trade union or employee representatives conducted on a basis of equality.
If, during the implementation of an Employer’s rule or regulation or decision on a crucial matter, the Trade union or an employee is of the opinion that the same is inappropriate, it or he is entitled to communicate such opinion to the Employer, and the rule, regulation or decision shall be improved by making amendments after consultations.
Rules and regulations, and decisions on material matters, that have a direct bearing on the immediate interests of Employees shall be made public or be communicated to the Employees by the Employer.
The labor administration authorities of People’s Governments at the county level and above, together with the Trade union and enterprise representatives, shall establish a comprehensive tri-partite mechanism for the coordination of employment relationships, in order to jointly study and resolve major issues concerning employment relationships.
A Trade union shall assist and guide Employees in the conclusion of employment contracts with their Employer and the performance thereof in accordance with the law, and establish a collective bargaining mechanism with the Employer in order to safeguard the lawful rights and interests of Employees.
CHAPTER 2 CONCLUSION OF EMPLOYMENT CONTRACTS
An Employer’s employment relationship with a Employee is established on the date it starts using the Employee. An Employer shall keep a register of employees, for reference purposes.
When an Employer hires a Employee, it shall truthfully inform him as to the content of the work, the working conditions, the place of work, occupational hazards, production safety conditions, labor compensation and other matters which the Employee requests to be informed about. The Employer has the right to learn from the Employee basic information which directly relates to the employment contract, and the Employee shall truthfully provide the same.
When hiring a Employee, an Employer may not retain the Employee’s resident ID card or other papers, nor may it require him to provide security or collect property from him under some other guise.
To establish an employment relationship, a written employment contract shall be concluded.
In the event that no written employment contract was concluded at the time of establishment of an employment relationship, a written employment contract shall be concluded within one month after the date on which the Employer starts using the Employee.
Where an Employer and a Employee conclude an employment contract before the Employer starts using the Employee, the employment relationship shall be established on the date on which the Employer starts using the Employee.
In the event that an Employer fails to conclude a written employment contract with a Employee at the time its starts to use him, and it is not clear what labor compensation was agreed upon with the Employee, the labor compensation of the new Employee shall be decided pursuant to the rate specified in the collective contract; where there is no collective contract or the collective contract is silent on the matter, equal pay shall be given for equal work.
Employment contracts are divided into fixed-term employment contracts, open-ended employment contracts and employment contracts to expire upon completion of a certain job.
A “fixed-term employment contract” is an employment contract whose ending date is agreed upon by the Employer and the Employee.
An Employer and a Employee may conclude a fixed-term employment contract upon reaching a negotiated consensus.
An “open-ended employment contract” is an employment contract for which the Employer and the Employee have agreed not to stipulate a definite ending date.
An Employer and a Employee may conclude an open-ended employment contract upon reaching a negotiated consensus. If a Employee proposes or agrees to renew his employment contract or to conclude an employment contract in any of the following circumstances, an open-ended employment contract shall be concluded, unless the Employee requests the conclusion of a fixed-term employment contract:
(1) The Employee has been working for the Employer for a consecutive period of not less than 10 years;
(2) when his Employer introduces the employment contract system or the state owned enterprise that employs him re-concludes its employment contracts as a result of restructuring, the Employee has been working for the Employer for a consecutive period of not less than 10 years and is less than 10 years away from his legal retirement age; or
(3) prior to the renewal, a fixed-term employment contract was concluded on two consecutive occasions and the Employee is not characterized by any of the circumstances set forth in Article 39 and items (1) and (2) of Article 40 hereof.
If an Employer fails to conclude a written employment contract with a Employee within one year from the date on which it starts using the Employee, the Employer and the Employee shall be deemed to have concluded an open-ended employment contract.
An “employment contract with a term to expire upon completion of a certain job” is an employment contract in which the Employer and the Employee have agreed that the completion of a certain job is the term of the contract.
An Employer and a Employee may, upon reaching a negotiated consensus, conclude an employment contract with a term to expire upon completion of a certain job.
An employment contract shall become effective when the Employer and the Employee have reached a negotiated consensus thereon and each of them has signed or sealed the text of such contract.
The Employer and the Employee shall each hold one copy of the employment contract.
An employment contract shall specify the following matters:
(1) The name, domicile and legal representative or main person in charge of the Employer;
(2) The name, domicile and number of the resident ID card or other valid identity document of the Employee;
(3) The term of the employment contract;
(4) The job des cription and the place of work;
(5) Working hours, rest and leave;
(6) Labor compensation;
(7) Social insurance;
(8) Labor protection, working conditions and protection against occupational hazards; and
(9) Other matters which laws and statutes require to be included in employment contracts.
In addition to the requisite terms mentioned above, an Employer and a Employee may agree to stipulate other matters in the employment contract, such as probation period, training, confidentiality, supplementary insurance and benefits, etc.
If a dispute arises due to the fact that the rate or standards for labor compensation or working conditions, etc. are not explicitly specified in the employment contract, the Employer and the Employee may renegotiate. If the negotiations are unsuccessful, the provisions of the collective contract shall apply. If there is no collective contract or the collective contract is silent on the issue of labor compensation, equal pay shall be given for equal work; if there is no collective contract or the collective contract is silent on the issue of working conditions, the relevant regulations of the state shall apply.
If an employment contract has a term of not less than three months but less than one year, the probation period may not exceed one month; if an employment contract has a term of more than one year and less than three years, the probation period may not exceed two months; and if an employment contract has a term of not less than three years or is open-ended, the probation period may not exceed six months.
An Employer may stipulate only one probation period with any given Employee.
No probation period may be specified in an employment contract with a term to expire upon completion of a certain job or an employment contract with a term of less than three months.
The probation period shall be included in the term of the employment contract. If an employment contract provides for a probation period only, then there is no probation period and the term concerned shall be the term of the employment contract.
The wages of a Employee on probation may not be less than the lowest wage level for the same job with the Employer or less than 80 percent of the wage agreed upon in the employment contract, and may not be less than the minimum wage rate in the place where the Employer is located.
An Employer may not terminate an employment contract during the probation period unless the Employee is characterized by any of the circumstances set forth in Article 39 and items (1) and (2) of Article 40 hereof. If an Employer terminates an employment contract during the probation period, it shall explain the reasons to the Employee.
If an Employer provides special funding for a Employee’s training and gives him professional technical training, it may conclude an agreement specifying a term of service with such Employee.
If the Employee breaches the agreement on the term of service, he shall pay liquidated damages to the Employer as agreed. The measure of the liquidated damages may not exceed the training expenses paid by the Employer. The liquidated damages that the Employer requires the Employee to pay may not exceed the portion of the training expenses allocable to the unperformed portion of the term of service.
The reaching of agreement on a term of service between the Employer and the Employee does not affect the raising of the Employee’s labor compensation during the term of service according to the normal wage adjustment mechanism.
An Employer and a Employee may include in their employment contract provisions on confidentiality matters relating to maintaining the confidentiality of the trade secrets of the Employer and to intellectual property.
If a Employee has a confidentiality obligation, the Employer may agree with the Employee on competition restriction provisions in the employment contract or confidentiality agreement, and stipulate that the Employer shall pay financial compensation to the Employee on a monthly basis during the term of the competition restriction after the termination or ending of the employment contract. If the Employee breaches the competition restriction provisions, he shall pay liquidated damages to the Employer as stipulated.
The personnel subject to competition restrictions shall be limited to the Employer’s senior management, senior technicians and other personnel with a confidentiality obligation. The scope, territory and term of the competition restrictions shall be agreed upon by the Employer and the Employee, and such agreement shall not violate laws and regulations.
The term, counted from the termination or ending of the employment contract, for which a person as mentioned in the preceding paragraph is subject to competition restrictions in terms of his working for a competing Employer that produces the same type of products or is engaged in the same type of business as his current Employer, or in terms of his establishing his own business to produce the same type of products or engage in the same type of business, shall not exceed two years.