Key Aspects of China Employment Contract

The employment law in China offers compact rules and regulations. From appointing an employee to termination, every aspect of employment is clearly defined in it leaving a little room for the parties in an employment relationship to create new mechanisms in it. China is not an employment at will jurisdiction and terminating a Chinese employee is generally very difficult. Foreign employers are advised not to take an employee beyond an initial term unless you are certain you wish to continue employing that person. That’s why having a well-defined China employment contract is one of the most important parts of doing business over here.

Opening a legal entity in China is extremely process-intensive. The continuous changes in relevant laws, normally several times a year. If a company is qualified to hire employees directly and decides to do so, it should be noted that employers are required to sign a written contract with their employees within one month starting from the employee’s first day of work at the company. An employee contract that is efficient for regulating the relationship between overseas employers and their China employees will basically require to have three characteristics:

>> Clarity

>> Compliance with obligations

>> Threat of litigation

In China, if foreign companies wish one of their employees to be bound by a non-compete provision, they must pay them consideration for their not competing during the entire term of the post-termination non-compete period. A non-compete that comes into force after termination of employment and the consideration for this non-compete is the promise of employment works in the USA but not in China. If an employer fails to execute a valid employment contract with an employee within a month, the employer will be required to pay that employee double the employee’s monthly salary. Where an employer fails to enter into a written contract with an employee within one year or more of their commencement, an open-term employment contract will be established.

According to the article 4 of Labor Contract Law of the People’s Republic of China, employers shall establish and perfect labor bylaws so as to ensure that workers can enjoy labor rights and perform labor obligations. An employer may in some circumstances amend an employment contract, but amendment of significant issues such as an employee’s salary or work position should be done through mutual consultation. The law also states that under ordinary circumstances an employee must give 30 days’ written notice for unilateral termination. The employment contract shall specify the term of the contract, the job description and place of work, working hours, rest and leave, labor remuneration, work safety protection etc.

China employment contracts need to be officially stamped by the company in order to be valid. This Law is formulated for the purposes of improving the labor contractual system, clarifying the rights and obligations of both parties of labor contracts, protecting the legitimate rights and interests of employees, and establishing and developing a harmonious and stable employment relationship. In general, China employment contracts last for one year, with a probationary period of three months. Employers then have the option of renewing the contract after expiry or taking the employee on under an indefinite contract.

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