China Employees Without A Written Contract: Who Is At Fault?

To understand China’s labor and employment laws, one fundamental premise to understand is that an employer and an employee are not considered equal parties under the law. The law provides the employee with more protections because it’s presumed that the employer is the more powerful party. A lot of employers (Chinese or foreign) do not understand this. Among other things, two important rules that stem from this premise should be noted:

1. Many China employment laws cannot simply be contracted away.
2. Employers (NOT employees) bear the burden of many things under China employment laws.

I talked about #1 before, so I will discuss #2 today. To give you an example, let’s consider a hypothetical based on a question our China employment lawyers regularly get asked. A China employer hired an employee about 13 months ago. The employer kept asking the employee to sign a written employment contract and the employee refused to cooperate. The employer thinks it is the employee’s fault for her not having a written contract. Can the employer now terminate the employee?

To be clear, when we receive this type of question from prospective clients, we need to first make sure there is no conflict of interest. And we really can’t even start to answer this question without gathering up more facts. However, for purposes of the discussion here, I am going to assume a lot of things, and just to name a few here:

• the parties are in a pro-employee jurisdiction;
• the employee is not the head of the employer’s Human Resources department nor is she otherwise in charge of making sure all employee agreements are duly executed;
• the employer did not document its efforts in asking the employee to sign a written contract;
• there is truly no written document between the parties that can be deemed an employment contract for purposes of China’s labor laws;
• there is no legal ground to terminate the employee.

Before I give my analysis, here is a super quick review of the law: China employers must have written employment contracts with all of their full-time employees. If an employer goes more than one month without having a written employment contract with an employee, the employer will be required to pay the employee double the employee’s monthly wage and immediately execute a written employment contract with the employee. If the employer goes more than one year without having a written employment contract, it will be deemed to have entered into an open-term employment arrangement with that employee and is required to sign a written contract with her to the same effect.

So, what has the employer done wrong? The below is an non-exhaustive list:

First, it did not deliver a notice of its intent to execute a written employment contract within 1 month after the employee’s commencement date. The burden is on the EMPLOYER to remind the employee that the parties need to enter into an employment contract before it is too late. The employee does not have this burden. If all the employer did was to ask her orally, it does not meet the legal requirements. The fact that the employee acted in bad faith by refusing to cooperate (assuming the employer can meet its burden of proof on this) is generally not going to be relevant.

Second, it did not terminate the employment relationship by the end of the first month, but instead retained the employee without a written contract. The employer may argue that it tried and that it had no way to force its employee to sign a legal document. Though true, the employer should have terminated the employee before the one-month period elapsed. And by termination, I mean it should have issued a formal written notice stating the reason why it had to terminate the employee in accordance with Chinese law.

Third, the employer still has no written contract in place for its employee. The employee has been converted to an open-term employee by law because she has been employed for so long without a proper written contract. Once her status has changed to becoming an open-term employee she has essentially become a lifetime employee and the employer must immediately execute an employment contract reflecting the new open-term employment arrangement. Failure to do so will subject the employer to legal and regulatory risks.

Finally, because there has never been an employment contract, the employer has failed to fulfill its obligation to maintain the employee’s employment contract on file for two years after employee departure. This means that even if the employer can find a legally permissible ground to terminate the employee (unilateral termination is probably not a good idea here), the employee’s termination will likely cause problems for the employer. An audit by the labor authorities will turn up this issue and the employer will likely face penalties for this noncompliance.

Bottom line: Oftentimes employers think they have everything they are supposed to do with their employees but they haven’t. At least not according to China employment laws. And blaming employees for employer shortcomings is virtually never a solution because the Chinese authorities and courts will not side with you. Still think you are in compliance with China’s employment laws? Maybe you need to think again.

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.