Formation of Employment Contract
With the enactment of the Law of the People’s Republic of China on Employment Contracts (hereinafter “LEC”) on January 1st, 2008, employers have become more serious and cautious about the formation of employment contracts. We hereby introduce the basic rules governing the entry of employment contracts under the new law.
1. Requirement of Writing
From the moment when the employer starts to use the service offered by an employee, the employer-employee relationship, also termed as labor relationship in the LEC, is created at law. Upon the creation of the labor relationship, it is required that a written employment contract shall be concluded. In case that the employer fails to enter into such a written contract at the same time of the creation of the labor relationship, the employer may have one (1) month period to put in place such written contract.
In the event that the employer fails to conclude such written contracts, the consequences are significant: if the written contract is in absence for a period of one (1) year from the date of using the labor of the employee, the employer shall pay twice the wages every month from the next day after the end of the one (1) month mentioned above till the day immediately prior to the date on which the absence has reached one (1) year; further, if the contract is not put in place during that one (1) year period of absence, an open-ended employment contract shall be deemed to have been concluded by the employer and the employee on the date on which the absence has reached one (1) year.
2. Conclusion of Open-ended Employment Contracts
An open-ended employment contract is one in which the employer and the employee agree that there is no definitive termination date for the contract in question.
In addition to agreement on the conclusion of such a contract, in any of the following circumstances, if the employee requests or agrees to renew or enter into the employment contract, an open-ended employment contract shall be entered into thereby, unless the employee otherwise requests to enter into a fixed-term employment contract:
(1) The employee has worked for the employer continuously for ten years; or
(2) There have already been two fixed-term employment contracts concluded between the employer and the employee and the employee has not committed serious violation, derelict of duties etc..
(3) The circumstance described in Section 1 hereof.
3. Probation Period
The provisions concerning the length of probation period are quite straightforward. For an employment contract of a term of less than three (3) months, there shall be no probation period; for an employment contract of a term of more than three (3) (inclusive) months and less than one (1) year, the probation period shall not be more than one (1) months; for an employment contract of a term of more than one (1) year and less than three (3) years, the probation shall not be more than two (2) months; for an employment contract of a term of more than three (3) years and the open-ended contract, the probation shall not be more than six (6) months.
A performance contract or task contract shall not stipulate probation period.
The probation period shall constitute a part of the term of the employment contract.
4. Requisite Clauses
The LEC has made it a must to have the following items written into the employment contracts:
(1) The name, domicile and the legal representative or main responsible person of the employer;
(2) The name, domicile, ID card number or other valid identification number of the employee;
(3) Term of the employment;
(4) The job responsibilities and work place;
(5) Working hours and rest and leave;
(6) Remuneration;
(7) Social insurances;
(8) Work protection, work conditions and prevention of occupational hazards;
(9) Other matters required to be contained in employment contracts by law and administrative regulations.
In the case of missing of any of the items listed above, the labor authority will order rectification of that omission. Further, the employer shall compensate for any loss incurred by the employee due to such missing.
5. Restraint of Trade
While recognizing the restraint of trade in an employment contract, the LEC attempts to limit its application by laying down certain restrictions.
Ø Such restraint may only be imposed on employees subject to obligation of confidentiality such as senior officers, senior technical personnel.
Ø Such restraint of trade may only be effective upon the termination of the employment and on the condition that the employer shall pay economic compensation to the employee every month after termination during the period of restraint. It shall be noted that such economic compensation is required to pay AFTER termination of employment. Payment intended to be such compensation made during employment will be held void.
Ø The period of such restraint shall not be more than two (2) years.
Ø Restraint of trade shall only mean that the restrained employees shall not work for other employers engaged in manufacturing or operating the same type of products and businesses in competition with the employer in question, and shall not set up his or her own undertaking engaged in manufacturing or operating the same type of products and businesses.
6. Liquidated Damages
Since it is a contract, liquidated damages are applicable thereto. However, the LEC has left slim room for an employer to impose liquidated damages on an employee.
According to Article 25 of the LEC, only in the following two (2) occasions can the employer stipulate liquidated damages against the employee in the employment contracts:
(1) The employee fails to abide by the agreement on the service term after he has received professional technical training provided and financed by the employer. The liquidated damages here shall not exceed the amount of training fees and the actual payment thereof shall not exceed the amount of liquidated damages proportionate to the unperformed service term.
(2) The employee violates the stipulation regarding restraint of trade.
Though the LEC has made it hard for employers to use liquidated damages mechanism, employers may resort to tort law to recover damages caused by bad employees.
7. Annulment of Employment Contract
It is important to guard against that the employment contracts and their contents conflict with public policies and laws. The following employment contracts shall be void in whole or in part:
(1) Conclusion or amendment of employment contracts results from fraud, duress or undue influence on the part of one party;
(2) The employer exempts itself from its statutory duties, and/or excludes the rights of the employee; or
(3) In breach of compulsory provisions in laws and administrative regulations.
The invalidity of certain provisions in an employment contract shall not affect the validity of the remaining provisions therein.
Despite the annulment of a contract, the employer shall still be obligated to pay remuneration for the labor furnished by the employee, which shall be calculated by reference to the remuneration of an identical or similar position. |
