Due to the travel bans and social distancing measures implemented amid the COVID-19 pandemic, businesses across the world are exploring electronic contracts and electronic signatures.
To help employers conclude legally compliant electronic labor contracts with their employees in China, the Ministry of Human Resources and Social Security (HRMSS) published the Guideline for the Conclusion of Electronic Labor Contracts (“the Guideline”) on July 1, 2021.
Based on the Guideline and combining with PRC Labor Contract Law, Electronic Signature Law, and Civil Code, this article expounds five of the key steps and considerations for employers when executing their labor contracts online in China.
China previously had no laws clarifying the legitimacy of electronic labor contracts. The PRC Labor Contract Law stipulated: “A written labor contract shall be concluded for the establishment of a labor relationship” (Article 10). However, the law itself did not explain what forms can be considered “written” forms.
To rectify this regulatory gap, on March 4, 2020, at the height of the COVID-19 outbreak, the MHRSS released the Letter on the Formation of Electronic Contracts Related Issues (“the Letter”). For the first time, the electronic labor contract was formally addressed by a central authority. It said: “Upon negotiation and consensus between an employer and a worker, a written labor contract may be concluded in electronic form.”
Starting January 1, 2021, the PRC Civil Code took effect and endorsed the legitimacy of electronic contracts in China. Article 469 of the Civil Code states that electronic data exchange or email can be deemed as a contract in written form: “Any electronic data that can show, in material form, the contents that it specifies through electronic data exchange or email and can be accessed for reference and used at any time shall be regarded as a written form.” (Article 469).
Most recently, on July 1, 2021, the Guideline from the MHRSS further affirmed the legal effect of a “lawfully concluded” electronic labor contract.
The Guideline specified that a “lawfully concluded” electronic labor contract must comply with the PRC Labor Contract Law, Civil Code, Electronic Signature Law, and other laws and regulations. “The employer and the employee shall perform their respective obligations fully as agreed in the electronic employment contract.” (Article 2).
Taking these points together, there are five main considerations for businesses when forming and executing a contract.
The employer should choose an appropriate contract management platform – either through building their own or purchasing a third-party electronic signing platform.
According to Article 4 of the MHRSS Guideline, the electronic labor contract formation system should have the following functions:
Olivia Wang, Business Advisory Services Associate, Dezan Shira & Associates Shenzhen Office, further breaks down what type of platform should be used to establish electronic contracts. Wang notes that the chosen platform should be able to support features, such as electronic signatures, trusted timestamps, encryption and hash value verifications, tamper-proof technology, and appropriate evidence collection methods.
What’s more, the fourth chapter of the Guideline – about “data security and protection” – puts forward higher requirements for the information protection system of the platform. As the information stored on the platform is related to the right of privacy stipulated in China’s Civil Code, the platform must abide by the rules and not allow outside parties to illegally access the contract data.
Considering all of the above requirements, it is well recommended that employers first consider a platform provided by the local government or a platform that meets the requirements of the Guideline and is recognized by the local judicial authorities.
Before moving on to the terms of the agreement, it is important to identify and verify the identity of the parties to the contract. This is a critical step when signing an electronic labor contract, as the usual checks and verifications that exist with contracts signed in person are not available with digital contracts.
Therefore, when choosing a contract management platform, a critical feature that is needed is one that has an inbuilt identity registration and verification system.
It is important for both parties to be able to manually upload or verify their information, including names, domicile, legal representative, or main person in charge of the employer, address, resident ID or other valid ID number, and contact information as well as other information relevant to the nature of the contract.
When the information is uploaded, it is important that the chosen system uses appropriate methods of identity verification methods on the respective parties. The most common types of verification include biometric identification verification like facial recognition or fingerprint recognition, mobile short message verification, bank card verification, security questions, etc.
At the same time, the chosen platform should also record and retain the verification and confirmation process.
After the basic content of the contract has been agreed upon, both parties may begin negotiating the terms of the contract in accordance with the provisions of the PRC Labor Contract Law.
Article 3 of the PRC Labor Contract Law is a particularly critical provision that should underpin the nature of the contract negotiation process. Article 3 states that “the labor contract shall follow the principles of legality, fairness, equality and voluntariness, consensus through consultation and good faith.”
In short, this means that the two parties should both reach a fair agreement on the main terms of the labor contract.
Under Article 17 of the PRC Labor Contract Law, every contract should have the follow clauses:
The labor contract will become effective once the employer and employee have signed or sealed the text of the labor contract. For electronic contracts, this can be done through an electronic signature or an electronic chop.
According to the Electronic Signature Law, employers and workers should use “reliable electronic signatures” when signing electronic labor contracts, which is comprised of the following characteristics:
In practice, it is a good idea to select a third-party organization to provide independent electronic authentication services of the signatures.
According to the Guideline, the parties to the contract should use the “digital certificate” and “key” issued by the legally established electronic authentication service agency in compliance with the E-Signature Law.
The contract should also be affixed with a credible timestamp to pinpoint the exact effective date of the contract.
After completing the electronic contract, an auxiliary verification of the full text of the electronic contract should be conducted to ensure that the contract has not been tampered with when it was signed.
Employers can choose a variety of different methods, including auxiliary encryption or confidential technical facilities like QR codes, time stamps, watermarks, and SMS notifications.
This point is emphasized by Article 11 of the Regulations on Several Issues Concerning the Trial of Cases in Internet Courts, issued by the Supreme People’s Court.
In practice, the more widely used and recognized encryption technology are blockchain or trusted timestamps.
Finally, once everything is signed and verified, the final version of the electronic contract should be securely backed up in the employer’s system, or on the third-party storage system.
Under Clause 3, Article 4 of the “Regulations on the Online Formation Process of Electronic Contracts (Draft for Soliciting Comments),” if the electronic contracts are signed through the employer’s own system, then this contract shall be stored on the third party’s storage system.
Wang explains that in this way, both parties are able to check the signed contract at any time during the contract term – via online or offline methods. The full content of the electronic contract should be backed up, including the contract terms, signing time, subject information of both parties, signature information, and any modifications made to the contract content. The storage period of the electronic contract shall not be later than five years from the date of conclusion of the contract.
To protect employees’ right to know and other interests, the Guideline sets out the employer’s obligations before and after signing an electronic labor contract. Employers are suggested to comply with their obligations, which include:
For further advice on how to prepare an electronic labor contract in accordance with Chinese laws, please feel free to contact our business advisory professionals at email@example.com.
This article was originally published in July 2020. It was last updated on February 14, 2022.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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