China Employment Contracts: If Yours Are Not Current, You Have A Problem

Under China’s labor laws, China-based employers are required to have written employment contracts with all of their full-time employees. At minimum, that employment contract must contain the following mandatory provisions:

• Basic information about the employer and the employee
• The explicit term/duration of the employment contract
• A description of the work the employee will be performing
• The place of work
• The working hours
• Rest and leave time
• Wages
• Social insurance
• Applicable labor protections and labor conditions and protection against occupational hazards
• “other matters required by relevant laws and regulations”

If within one month of the commencement of the employment relationship (and upon written notice from the employer) an employee refuses or fails to sign a written employment contract with the employer, the employer must provide the employee with a written notice terminating the labor relationship. In this case, the employer is not required to pay any economic compensation but must compensate the employee for the time he or she actually worked.

If an employer goes more than a month without having a written employment contract with an employee, the employer will be required to pay its employees double the employees’ monthly wage. In addition to having to paying double the employee’s monthly wage, the employer must immediately execute a written labor contract with the employee. Once this second one-month period has passed, even where the employee refuses to enter into a written contract, the employer still must pay applicable economic compensation upon termination.

If an employer goes more than a year without having a written employment contract with an employee, the employee lacking the written employment contract will be deemed to have entered into an open-term labor contract with his or her employer, which essentially means there is no definitive end date to the labor relationship.

It is important to note that all of the above rules apply with equal force to foreign employees who are working in China and that some Chinese labor arbitration commissions and courts do not recognize anything other than Chinese language agreements as constituting a valid written employment contract.

Now consider this question: An employer and an employee executed a fixed term written employment . After that contract expired, the employer and the employee did not renew the contract, but the employee continues working for the employer. Will the employer be penalized for not having a written labor contract with the employee?

As explained below, none of the national rules provide clear guidance on this issue and so (like so many China employment law issues) the answer will depend on the employer’s location.

According to the Interpretation of the Supreme People’s Court on Several Issues Regarding the Application of Laws for the Trial of Labor Dispute Cases (最高人民法院关于审理劳动争议案件适用法律若干问题的解释), the parties will be deemed to have agreed to continue to perform under the original terms of the labor contract, and either party may end the labor relationship at any time. The Reply of the General Office of the Ministry of Labor and Social Security Concerning Issues of Whether Economic Compensation Shall be Paid When the De Facto Labor Relationship is Terminated (劳动和社会保障部办公厅关于对事实劳动关系解除是否应该支付经济补偿金问题的复函) provides that the relationship between the parties is a de facto labor relationship. This however does not mean that the parties have signed a new labor contract for the same term as the original labor contract. Note both the judicial interpretation and the Reply were published before the 2008 Labor Contract Law (which was then amended in 2012) came into effect. The Labor Contract Law, however, does not directly deal with the issue in question.

Here is a summary of the rules in Beijing. Though the Provisions of Beijing Municipality on Labor Contracts (北京市劳动合同规定) are silent on this question, the Beijing Labor Bureau, citing these Provisions, is of the opinion that the employer must pay double the employees’ monthly wage for all work performed after the initial written agreement expired. A 2009 judicial document, the Supreme People’s Court of Beijing and Beijing Labor Dispute Arbitration Committee Meeting Minutes of the Seminar on the Application of Law in Labor Dispute Cases (北京市高级人民法院、北京市劳动争议仲裁委员会关于劳动争议案件法律适用问题研讨会会议纪要), also imposed a double wage penalty on the employer for not having a written contract for a labor relationship that continued after the initial written employment contract expired. Finally, in January 2014, Beijing issued the Draft Several Provisions of Beijing Municipality on Labor Contracts (北京市劳动合同若干规定（草案送审稿）) making clear that when employment continues after expiration of the employment contract (even if the employer can be terminated on statutory grounds without severance pay), the employer should still be issued a double wage penalty for not having a written contract. Though these new rules have not yet been implemented, it is clear that in Beijing employers will get hit with a double wage penalty for continuing to employ someone after their labor contract has expired.

And if I have not scared you enough already, let me note that in addition to the double wage penalty payable to the employee, the relevant authorities usually also fine (sometimes quite substantially) the employer for failing to execute a new written labor contract with their employee.

Some cities (e.g., Beijing) require that the employer notify the employee in writing before the expiration of the current contract of its intent to end/renew the labor contract, and formally start the relevant process. Even in cities where no such requirement is imposed, it is still advisable to start the renewal process early.

Bottom Line: If you have employees working without a current written contract (in Chinese) you are sitting on a ticking time bomb in need of immediate defusing.

The post China Employment Contracts: If Yours Are Not Current, You Have A Problem appeared first on China Law Blog.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.