China Employment Law Network
Shanghai Business Lawyer
Employment Law in United States of America

The US Employment Law reflects its federal legal system in that every state can make its own Employment Laws. It is also based on the common law, which is the driving force behind equitable doctrines, such as 'promissory estoppel', 'good faith' and 'fair dealing'. The USA has an embedded belief in the freedom of contract and party autonomy, which allow for a lot of flexibility in the employment relationship. This is especially evident from the creation of the employment contract, which is the heart of this relationship. This must be contrasted to the Chinese legal system that is centralised and has a defined source for all legal obligations that govern employment relations. However, this offers a greater degree of certainty in conducting and planning business ventures. This makes the comparison between these two legal regimes essential to comprehend the difficulties and opportunities for foreign investors in conducting business in China.

Employment Contract:
One of the most fundamental differences between the US Employment Law and Chinese Employment Law is that in the USA there is no need for a written contract of employment. The requirement for a written employment contract and its contents in Chinese law is codified within Article 17 of the PRC Labor Contract Law (2007), which requires a written employment contract that must contain employer's name, residence, legal representative or major principal, employee's name, residence, identity card number, time limit for the employment contract, work requirements and place of work details, work time, rest and vacation details, remuneration details,

In a huge contrast to such strict requirement, in the USA all employees are presumed to be covered under the 'at-will doctrine'. This essentially refers to an employment relationship where either employer or employee can freely terminate the contract of employment without any financial or legal repercussions, provided that there are no contractual or statutory limitations present. However, the 'at-will' doctrine has been severely limited by the federal and state legislation, which makes it generally dangerous for the employers to adhere to it. For example, the 'good cause' doctrine was reinforced by such federal acts as Age Discrimination in Employment Act (1967), which prohibits dismissals of employees between 40 and 65 years old on age grounds, and Family and Medical Leave Act (1993), which allows for at least 12 weeks unpaid leave per year without losing their jobs.

Moreover, under the US Employment Law there is a possibility of an 'oral' contract of employment, which is protected by equitable doctrines, such as promissory estoppel, which is a creation of the common law courts. It is used by the courts to enforce oral promises made by the employer to the employee in the absence of a written contract. But it requires the employee to prove that there was a promise to create a binding employment relationship, the employee relied upon this promise to his own detriment and it would be unjust to let the employer breach this promise. It is important to note that even without reliance on the 'promissory estoppel' an 'oral' contract of employment is still enforceable and the employer can only dismiss the employee for a 'good cause', which is another doctrine defined through the common law courts.

All of the above reflects the significant differences between the US Employment Law and the Chinese Employment Law. However, the flexibility of the former leads to the lack of certainty and the fundamental source of the employment relationship, whereas the latter offers a greater degree of certainty and a strict definition of the employment relationship. Article 17 of the PRC Labor Contract Law (2007) provides all the necessary components to determine how to structure employment relations with all employees throughout China rather than lack of knowledge how to structure your business in a particular state or across a number of states in the USA.

Social Insurance:
The USA does not have compulsory 'social insurance' provisions under the federal law. However, employers must provide 'workers' compensation insurances' to cover workers injured in the course of employment, all of which are regulated by state law and vary significantly between states. All other insurance schemes are voluntary but employers in the USA provide some sort of pension plans, disability income plans and medical, dental, vision and life insurances. Thus, Employment Law in the USA does not impose an obligation on employers to provide extensive insurance for its employees but in practice employers provide similar cover to the one that is compulsory under the Chinese Employment Law under Article 2 of the the PRC Social Insurance Law (2007). Thus, although the US legal sources do not contain the same degree of detail, the reality is that in China the employers will have very similar requirements for social insurance as in the USA.

Non-compete clauses:
The crucial question of non-compete clauses under the US Employment Law is, once again, covered by state law. These take form of restrictive covenants that are codified within the employment contracts or as separate contractual agreements. However, some of the states prohibit use of restrictive covenants outright. This means that, in huge contrast to the Chinese Employment Law, which codifies the right to insert non-compete clauses into employment contracts under Article 23(1) of the PRC Labor Contract Law (2007), the employers in some US states not only lack the legal obligation to use non-compete clauses but are outright prohibited from doing so. Nevertheless, it must be pointed out that due to the importance of these clauses employers in the USA insert non-compete clauses in all employment contracts, especially at the senior and executive levels, or find a way around prohibitions on restrictive covenants under a specific state's law. Therefore, there is a greater possibility for the employers to protect their business in China because they have an express legal right to insert non-compete clauses and restrictive covenants into all employment contracts. Furthermore, there is an express elaboration in Article 24 of the PRC Labor Contract Law (2007) on the kinds of individuals that can be targeted with the non-compete clauses, which essentially provides the freedom to the employer to apply non-compete clauses on any employee. Thus, there is a lot of freedom on the employers to impose non-compete clauses on any employees.

Intellectual Property:
The protection of intellectual property under the US Employment Law relies on a variety of laws protecting trade secrets and proprietary information rather than Employment Law itself. In stark contrast, the Chinese Employment Law has an explicit provision (Article 21(1) of the PRC Labor Contract Law, 2007) that protects employers' intellectual property and allows for the employer to insert a confidentiality agreement into the employment contract. This is further reinforced by Chinese patents and copyrights legislation, such as Article 16 of the PRC Copyright Law and Article 6 of the PRC Patent Law, which grew in importance in the last twenty years due to the rapid growth and innovation. However, certain USA states, such as California, require protection of intellectual property to pass through its labor legislation to be effective. Therefore, there is an important similarity between the two laws because the bulk of the protection of the employers' intellectual property rights comes from supplementary legislation. But the Chinese Employment Law implies the right within the main source, which places it directly into the ambit of its applicability.

 
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