Hiring Employees in China: Key Legal Concerns for Foreign Businesses
Companies hiring employees in China need to understand key aspects of the country’s labor and contract laws, rules, and regulations. Here we answer simple questions about the employment process and discuss the different types of labor contracts in China.
In principle, any company located anywhere in the world may hire a Chinese person to physically work in China.
However, the employment contract will not be regulated by relevant Chinese legislation unless it is entered into via an invested entity on the Chinese mainland, or under circumstances where the overseas company is regarded as a permanent establishment in China.
Hiring employees in China
If a company is qualified to hire employees directly and decides to do so, it should be noted that employers are required to sign a written contract with their employees within one month starting from the employee’s first day of work at the company.
If the employer fails to conclude a written contract with the employee after a period of more than one month but less than one year from the date of employment, the employer must pay the worker double wages for each month.
Over one year, the employer and the employee will be deemed to have concluded a non-fixed term labor contract (explained later), and the employee can be entitled to double wages for the period of more than one month but less than one year.
If the employee refuses to conclude a written labor contract with the employer, the employer should terminate the employment relationship, notify the employee in writing, and pay monetary compensation to the employee in accordance with the PRC Labor Contract Law.
One exception to the above-mentioned rules is part-time work, where an oral agreement is considered sufficient, as stipulated in Article 69 of the PRC Labor Contract Law.
How to staff a representative office in China?
ROs in China cannot hire staff directly. Instead, Chinese staff must be seconded from an agency that will take the title of official employer (such as dispatch agencies).
Representatives working for ROs should have an employment relationship with the parent company abroad, and any disputes should be settled under the laws of that country.
This is because an RO is not a capitalized legal entity in China. An employee must have the right to claim against their employer, and an RO is not a suitable entity to file claims against.
By forcing ROs to employ staff through an agency (which itself is a capitalized legal entity in China), the interests of the employee are thereby protected.
When does the employment relationship start in China?
The employment relationship is deemed to have started from the first day that the employee works at the company, not from the date of signing of the contract.
As long as the employee can prove that they have physically been working for the company for over a month prior to signing an employment contract, this will be sufficient to make a successful claim against the company.
The simplest piece of evidence proving this will be the receipt of salary. To effectively lower the future risk of labor disputes, employers should build up reliable mechanisms to ensure the prompt conclusion of labor contracts.
Should the labor contract be written in Chinese?
The question of which language a labor contract should be written in is seemingly a trivial one, but it has the potential to render even the best written contracts unenforceable.
While monolingual foreign language contracts are accepted by Chinese courts, the foreign language contract must be translated by institutions that are approved by the courts, on a basis unknown to the plaintiff.
Bilingual contracts contain their own problems, principally in determining which language will be the controlling language and in ensuring uniformity in the translation.
More often than not, a bilingual contract that does not specify which language is the controlling version will automatically default to Chinese as the authoritative language.
Alternatively, in the event that both languages in a bilingual contract each claim to be the controlling version, the Chinese will again be accorded primacy, even though the Contract Law provides that the contract should be interpreted according to the aim of the contract.
Foreign investors are therefore advised to have a Chinese version contract for the purpose of legal certainty.
Types of labor contracts in China
Depending on how the term is defined, labor contracts in China could be divided into three types:
1) Fixed-term Labor Contract;
2) Non-fixed Term Contract; and
3) Job Contract.
1) Fixed-term labor contract
The fixed-term contract creates an employer-employee relationship for a fixed length of time. It can be used for part-time or full-time work.
The part-time worker has five characteristics:
- The employee may not work for over four hours per day on average and 24 hours per week;
- No probation period is allowed, and either the employer or employee may end the agreement at any time;
- The employee is not entitled to severance compensation;
- The employee must be paid at least every 15 days; and
- Part-time employees need not receive a written contract.
Part-time work could be appropriate for an office cleaner, or some other role where the tasks can be completed within a relatively short period of time each day.
Fixed-term contract is the most commonly used norm of labor contract in employment relationship.
It grants employer more flexibility in termination as compared to non-fixed term contract, and provides more legal certainty to the employment relationship as compared to job contract.
2) Non-fixed term contract
Non-fixed term contract refers to a norm of labor contract between employer and employee that has no fixed term.
Generally, there are four ways to obtain a non-fixed term contract:
- The employer and employee voluntarily sign a non-fixed term contract upon commencement of employment (not recommended);
- The employer has failed to give a written contract to a full-time employee who has been working for over one year;
- The employer wants to renew the employee’s contract for a second time, and the employee does not fall under any of the categories stipulated in ‘immediate termination for inappropriate behavior of the employee’ and the first two items of ‘termination with 30 days’ notice and compensation payment’ (provided later); or
- The employee has worked for the same employer for ten years continuously.
The non-fixed term contract effectively guarantees the employee job security until retirement age.
As there is no longer a contractual limit to the length of employment, companies will be unable to dismiss the employee upon the expiry of the labor contract.
This means employers can only terminate the employee by mutual agreement or based on valid grounds.
The non-fixed term contract effectively guarantees the employee job security until retirement age. As there is no longer a contractual limit to the length of employment, companies will be unable to dismiss the employee upon the expiry of the labor contract.
This means employers can only terminate the employee by mutual agreement or based on valid grounds.
3) Job contract
A job contract is defined by the task or project the employee is to work on, not the length of time. This type of contract allows a company to hire a person to implement a specific project.
Once the project is completed, the employment relationship comes to an end. At that stage, the company needs to make a severance payment to the employee accordingly.
Job contracts are sometimes used for seasonal jobs where the scope of work can be defined very clearly. However, in most cases, defining the scope of work proves to be a challenge.
It is often hard to adequately define the completion of a project. The relevant legal framework offers no guidance on what to do when a project is left uncompleted for whatever reason, or how employees should be compensated in such a case.
This lack of clarity makes job contracts relatively more prone to disputes and even litigation.
Unlike a contract signed by a company with another company for its provision of services to complete a project, the job contract forms an employer – employee relationship.
As such, in the event of a dispute, the court will tend to protect the interests of the employee to a greater extent than those of the employer.
In addition, the employer is not allowed to set a probation period for a job contract.
For these reasons, most employers avoid this type of arrangement.
China labor contract law: Mandatory and recommended clauses when drafting an employee contract
According to relevant laws, the following clauses are mandatory to be included in the labor
- Name of the company, address, name of the legal representative or a senior manager;
- Name of the employee together with a valid address and identification number;
- Commencement date and the term of the contract;
- Description of the job and the location where it is to be implemented;
- Salary details;
- Statement that the employer will contribute social insurance for the employee; and
- Labor protection, labor conditions and protection from occupational hazards.
Every local labor bureau will have standard labor contracts available in Chinese. However, we do not recommend using these in every case.
Each company may have specific requirements, and may wish to draft labor contracts with its employees in such a way as to offer the company more protection.
We therefore suggest combining a local standard template with terms you use in labor contracts for your operations abroad.
Recommended clauses in labor contracts
- Depending on the specific situation, a number of additional terms to the labor contract are recommended, including:
- Probation period;
- Non-competition clauses;
- Confidentiality clauses;
- Allowances and benefits (particularly for foreign employees); and
- Reference to the company rule-book or staff manual.
China Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Dalian, Beijing, Shanghai, Guangzhou, Shenzhen, and Hong Kong. Readers may write to firstname.lastname@example.org for more support on doing business in China.