China’s Employment Contract Law MNCs Must Know

Within China, rapidly changing demographics, rising incomes, increased consumer spending and an increasingly open business environment have all helped to make the Chinese market increasingly attractive to Western businesses across a variety of industries. Lacking the appropriate knowledge and a broad enough professional network can be a hindering factor that may make it difficult to overcome the barriers encountered when doing business in China.

There are many opportunities that foreign companies can take advantage of, including the large and fast-growing domestic market, an improving institutional environment, various investor-friendly policies in regional and centrally controlled special economic and high-tech development zones, an ever improving quality of human resources and better infrastructure. While it is true that China represents a huge potential market for foreign manufactured goods and services, it is also the case that understanding where these opportunities lie and how to access them can be extremely challenging.

The Development of Labor Law in China

As China moved from a planned economy to a more market-oriented one during the reform era, the government gradually introduced a broad range of legislation to regulate labor relations and stipulate the rights and obligations of both employers and employees. The aim of much of this legislation was to bring China into line with international standards and facilitate the country’s entry into and participation in global economic entities such as the World Trade Organization. China is not an at-will-employment jurisdiction. All China employees must be employed pursuant to a written employment contract and during the term of that contract, it is difficult to terminate them. If an employer wants to terminate an employee before his or her employment term ends, it can do so only for cause and cause must be clearly proven.

China Employment Contract

An employer establishes labor relationship with a worker as of the date of start to use the worker. It shall set up a roll of workers for reference. When hiring the workers, the employer shall faithfully notify them of the job contents, conditions and place, occupational harm, work safety status, remuneration, and other information as required by the workers. The employer is entitled to be aware of the basic information in direct relation to the workers and the labor contracts, and the workers shall provide such information authentically. Remember that employee terminations are usually very difficult in China because the employer must prove that its termination was legally permissible and that is often not an easy task. So, what happens when you wish to terminate an employee who has worked a couple of years but still has a few years left on the employment contract and you do not have any legal grounds for the termination. If an employer forces an employee to work by force, threat or unlawful restriction of personal freedom, or if an employer violates safety regulations to instruct or compel an employee to perform hazardous activities that endanger the employee’s private life the employee may terminate the employment contract immediately without prior notice to the employer.

Chinese employment law provides comprehensive and stringent rules covering everything from hiring to termination, and there is little room for the parties in an employment relationship to create new mechanisms in addition to these statutory mechanisms. Multinational corporations must localize their global employment policies and relevant practices in view of the special requirements of Chinese employment law.

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