Sensible Inclusions Employers can make in the Employment Contract in China

There are so many rights in a China employment law that employees simply cannot contract away. Employment contract in China greatly differs from the commercial contract where involving parties can enjoy the liberty of making agreement on almost anything they like. It is not a regular contract that is governed by the China’s Contract Law. It is entirely governed by the Labor Contract Law. This sharp distinction sometimes makes it really difficult for the foreign companies to understand properly.

Chinese employees don’t have the liberty to contract away their rights. So being an employer, you need to think sensibly before imposing penalty or added burden on your China employee. For instance, you cannot deduct the salary of your employee if they failed to offer you 30 days written notice before resigning. If you make provision in your contract that you can charge a certain amount of salary if they fail to give at least 30 days written notice before resigning, it will be considered unacceptable and unenforceable under Chinese law. For the foreign companies it is really hard to impose a penalty to an employee for terminating the employment contract early without giving any notice. Two main aspects of the China Labor Contract Law are-

1- The law does NOT give an employer the right to penalize an employee for failing to give 30 days written notice

2- The employer already has the right to pursue the employee if the employer suffers actual damages as a result of the employee’s failure to give adequate notice

The foreign companies need to convince the court that the early and unnotified exit of the employee will significantly harm the company and if the employer cannot prove the damage then he could not ask for the deduction of salary for not giving 30 days written notice. But luckily there are exceptions in the rule. In case of the following two circumstances an employee has to pay the penalty to the employer.

First- An employer can require its employees reimburse the company for the education expenses if the employer pays major expenses for an employee’s employment-related education or training, but soon after the training is complete, the employee can leave. It is known as service period agreement.

Second- Pursuant to a non-compete agreement, an employer can require an employee pay a penalty to the employer for violating non-compete terms by joining a competitor after leaving employment.

In the view of the China lawyers, if a foreign company is planning or already have invested a lot of money to their employee(s), they must include the provision of education reimbursement in their employment contract. This will give them the upper-hand when an employee will make an attempt to leave their company without putting a prior notice. Furthermore, it will save them the money they have spent on the training/education of their employee. It is good to be safe than sorry while drafting employment contract in China.

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