China Employment Law Network
Shanghai Business Lawyer
How Chinese Employment Law works in practice

Employment Contract

Employer and employee are required to enter into a written employment contract but an oral employment contract is also enforceable when an employment relationship has actually been formed by conduct.

Employment contracts must include the following basic mandatory terms:

1. the name, domicile and legal representative or main person in charge of the employer;
2. the name, domicile and number of the resident ID card or other valid identity document of the employee;
3. the term of the employment contract;
4. the job description and the place of work;
5. working hours, rest and leave;
6. labor compensation;
7. social insurance;
8. labor protection, working conditions and protection against occupational hazards; and
9. other matters which laws and statutes require to be included in employment contracts.

Term of Employment Contracts

Employment contracts can apply to a fixed period, an open period, or just to a specific project. However, if an employee has worked for the same employer for more than ten years and both parties want to continue the relationship, the employee has the right to determine whether the contract should be for a fixed term or not. Normally, an employment contract has a trial period of no more than six months. During that period, the employer may terminate the contract if the employee is found to be unsuitable for the work he is doing.

Working Hours

According to the Labor Law, All employees work eight hours per day and generally no more than 44 hours per week. Employers have to give employees at least one day off per week.

However, Chinese law also provides for alternative working hours systems. Upon government approval, an employer may institute the Comprehensive Working Hours System or the Flexible Working Hours System. Under the comprehensive working hours system, employers may require employees to work longer hours without paying for overtime so long as the average hours worked in a certain period do not exceed the limit on total hours for that period. If the limit is exceeded, then overtime compensation must be paid. Under the flexible working hours system, an employer may require certain staff, such as high-ranking managerial staff and sales staff, to work in excess of 40 hours per week without paying overtime compensation. Local rules may have specific provisions concerning alternative working hours systems.

Overtime

Overtime must be negotiated with the relevant union, but normally not more than one hour per day is allowed. If there is a specific situation which requires overtime, the employer must ensure the employee is fit to do the work. The over-riding limit on overtime is no more than three hours per day, to a maximum of 36 hours per month. Overtime rates are time-and-a-half for normal workdays, double-time for weekends and triple time for public holidays.

Employees working under the comprehensive working hours system or the flexible working hours system are usually not entitled to overtime payment.

Annual leave

Employees who have worked between one year and less than 10 years are entitled to five days of paid annual leave. Those who have worked at least 10 years but less than 20 years are entitled to 10 days of annual leave. Finally, employees will be entitled to 15 days of annual leave once they have worked for at least 20 years.

Employees should take their entire annual leave entitlement each year. If an employee does not use all of the employee’s annual leave in a certain year, and does not agree to carry the leave forward, then the employer must pay the employee 200% of the employee’s average daily wage for each day of unused annual leave, in addition to regular salary.

Social Insurance

Employees are required to participate in social insurance scheme. And social insurance scheme consists of five funds:
1. Old Age Pension Insurance
2. Basic Medical Insurance
3. Occupational Accident Insurance
4. Unemployment Insurance
5. Maternity Insurance

Employers and, in some cases, employees are required to make contributions to these funds, in accordance with rates determined by local authorities.

Confidential information

The law provides that an employer may require an employee to keep business information confidential as a term of their contract. Damages are available to the employer if the employee breaks this or any other term of the contract.

Termination

There are different rules for the parties to terminate the contract. Under three of the statutory termination grounds, an employee must be provided 30 days’ prior written notice and severance:

  • he employee is ill or has a non-work related injury and is not able to carry out any of the work which he has been contracted to perform, provided all treatment to remedy the illness or injury has been completed. There is no right to terminate the contract while treatment is in progress;
  • the employee is not suitable for the work he is doing and after training or being given alternative work, he is still not suitable for that work;
  • the contract becomes unenforceable because a 'major situation' has changed on which the employment contract mainly relies.


Under six statutory termination grounds, an employee can be dismissed with no notice and no severance:

  • if the employee has not satisfied the conditions of employment during the probation period;
  • if the employee seriously violates the company’s rules or regulations;
  • if the employee commits serious dereliction of duty or graft resulting in major harm to the company’s interests;
  • if the employee is prosecuted for a criminal offense according to law;
  • the employee has additionally established an employment relationship with another employer which materially affects the completion of his tasks with the first-mentioned employer, or he refuses to rectify the matter after the same is brought to his attention by the employer; or
  • the employee uses such means as deception or coercion, or takes advantage of the employer’s difficulties, to cause the employer to conclude an employment contract, or to make an amendment thereto, that is contrary to the employer’s true intent.


Disputes

There are three ways to solve disputes between employers and employees: mediation, arbitration and litigation. Mediation is not compulsory, but if the dispute is not settled by mediation, arbitration becomes compulsory for the parties before they can actually go to the courts.

At the beginning of formal arbitration hearings, the presiding arbitrator(s) must attempt to settle the dispute. If the parties agree to settle the dispute, the arbitration tribunal must prepare a settlement agreement. This agreement shall be legally effective from the date on which it is served. If the attempt to settle fails or one of the parties challenges the settlement before it has been served with the settlement agreement, the arbitration tribunal must proceed with the arbitration hearing. An arbitration award must be made within 45 days from the date of receipt of the application. An extension of up to 15 days may be granted for more complicated cases.

The parties can either accept the arbitration decision, in which case it becomes enforceable, or they may then ask to be dealt with by the courts, but must apply to the courts within 15 days of receipt of the arbitration panel’s decision.
 

1. China Employment Contracts. Ten Things To Consider, from http://www.chinalawblog.com/2010/04/china_employment_contracts_ten.html

2. What Are the Major Aspects of Chinese Labor Law, from http://ebook.law.uiowa.edu/ebook/uicifd-ebook/what-are-relevant-issues-concerning-chinese-labor-and-employment-law

3. China Employment Law Guide, from http://www.bakermckenzie.com/files/Publication/d9da0984-e4db-4e1b-b0f4-0201192d2cf3/Presentation/PublicationAttachment/c0972537-d05e-4b75-af98-03411bc2d717/bk_employment_lawguidechina_13.pdf

 
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