10 May 2012
Signing of Labour Contract
The new Labour Contract Law sets out stricter stipulations on the signing of labour contracts between employing units and employees. The new law specifies that an employing unit must sign a written labour contract with its employee within one month after the commencement of service by the employee. If the employee receives the written notification after one month of service but does not sign the written labour contract, the employing unit shall notify the employee in writing to terminate the employment relationship. No financial compensation shall be paid to the employee, however the employee shall receive wages for the time of service actually delivered. If an employing unit fails to sign a written labour contract with an employee who has worked for the employing unit for more than one month but less than one year, it should pay the employee double his wage each month. Any employing unit failing to sign a non-fixed term labour contract with an employee in violation of the Labour Contract Law should pay the employee double his wage each month starting from the date on which the non-fixed term labour contract should have been signed.
In hiring an employee, an employing unit should truthfully inform the employee of the job duties, conditions of work, place of work, occupational hazards, safe production conditions, remunerations and other matters that the employee wishes to know. Meanwhile, the employing unit has the right to know the basic information about the employee which directly relates to the labour contract, and the employee should truthfully provide the same.
On probation, the new Labour Contract Law sets out the following provisions:
For a labour contract with a term of more than three months but less than one year, the probation period may not exceed one month; for a labour contract with a term of more than one year but less than three years, the probation period may not exceed two months; and for a fixed-term labour contract of more than three years or a non-fixed-term labour contract, the probation period may not exceed six months. The same employing unit and the same employee may agree on only one probation period. For a labour contract with a term on project basis or a labour contract with a term of less than three months, no probation period is required. The probation period must fall within the term of the labour contract. If the term of a labour contract covers the probation period only, such probation period is deemed invalid and the term will be the term of the labour contract.
Based on the stipulations of the new Labour Contract Law, the Implementation Regulations provide for the following nine situations where an employing unit may unilaterally terminate a labour contract:
An employing unit may immediately terminate a labour contract when an employee:
(1) is proved to be not meeting the requirements for employment during the probation period;
(2) seriously violates the employing unit’s rules and regulations;
(3) commits serious dereliction of duty or practices graft, causing substantial damage to the employing unit;
(4) has simultaneously established a labour relationship with another employing unit which seriously affects the completion of his tasks with the original employing unit, or refuses to rectify the matter after the same is brought to his attention by the employing unit;
(5) causes the labour contract to be invalid due to the circumstances specified in item (1) in the first paragraph of Article 26 of the Labour Contract Law;
(6) has his criminal liability pursued in accordance with the law.
In the event of immediate termination due to situations listed above, the Labour Contract Law stipulates that the employing unit is not obligated to make any financial compensation to the employee in question.
An employing unit may terminate a labour contract with advance notice, if:
(7) the employee is sick or is injured outside of work, and is unable to resume his/her original position after the prescribed medical treatment period, nor can s/he assume any other position arranged by the employing unit;
(8) the employee is incompetent for his/her position, and after being trained or being assigned to another position s/he remains incompetent;
(9) the objective circumstances on which the original labour contract was based have undergone major changes which have rendered the contract inoperative, yet no agreement can be reached in the attempt to modify the labour contract.
In the above situation, the employing unit shall make financial compensation according to the Labour Contract Law, and also give one month’s advance notification to the employee, or pay him/her an additional one month’s wages prior to dismissal.
Regulations regarding layoffs:
According to the Labour Law, staff layoff for economic reasons was only allowed if the employing unit was on the brink of bankruptcy or its production or operation had run into great difficulties. Under the new Labour Contract Law, the scope of staff layoff for economic reasons has been expanded:
If, under any of the following circumstances, an employing unit has to reduce its workforce by 20 persons or more or by less than 20 persons but the number accounts for more than 10 percent of its total workforce, the employing unit may only lay off its staff after it has explained the situation to the labour union or to all its employees 30 days in advance, has considered the opinions of the labour union or the employees, and has subsequently submitted the staff layoff plan to the labour department:
(1) restructuring pursuant to the Enterprise Bankruptcy Law;
(2) serious difficulties in production and operation;
(3) changes in production, major technological innovations or adjustments in the operation mode of the enterprise have made it necessary to reduce workforce even after changes have been made in the labour contract;
(4) the economic circumstances at the time of the signing of the labour contract have undergone major changes which have rendered it impossible to execute the contract.
In retaining staff in the course of carrying out layoffs, priority should be given to the following staff:
(1) those who have signed a fixed-term labour contract with a relatively long term with the employing unit;
(2) those who have signed a non-fixed-term labour contract with the employing unit;
(3) those who are the sole wage earner in their families and have to support elders or minors at home.
If an employing unit that has laid off its staff in accordance with the rules recruits staff again within six months, the laid off staff should be notified and should be given priority in employment under the same conditions.
The new Labour Contract Law and the relevant regulations clearly state the mandatory terms and conditions to be included in a labour contract, such as the term of the contract, changes in the contract, dissolving or terminating the contract, as well as compensations in the event of dissolving the contract. The Labour Handbook provided by the local labour department should be used as reference by enterprises in formulating their labour contracts.
Under the Labour Contract Law, employing units may not unilaterally terminate the labour contract in the following situations:
(1) if the employee is engaged in operations exposed to occupational disease hazards and is not given pre-departure occupational health examinations, or is suspected of an occupational disease and in the process of being diagnosed or under medical observation;
(2) if the employee is confirmed to have totally or partially lost the ability to work due to an occupational disease contracted at work, or due to a work-related injury;
(3) if the employee has contracted an illness or sustained a non-work-related injury, and is within the prescribed medical treatment period;
(4) if the employee is a female during her pregnancy, puerperal or breast-feeding period;
(5) if the employee has worked for the same unit for 15 years, and is within five years of legal retirement age;
(6) other situations specified in laws and regulations. Generally, these include: while the employee is serving as the chairperson, vice-chair, or committee member in the labour union; serving as an equal consultation representative; or serving in the military on a voluntary basis.
According to China’s Labour Contract Law and the Implementation Regulations, an employing unit shall pay financial compensation to the employee under one of the following circumstances:
(1) the labour contract is terminated immediately by the employing unit, according to regulations;
(2) the labour contract is terminated with advance notice by the employing unit, according to regulations;
(3) the labour contract is terminated as a result of a lay-off, due to economic hardships of the employing unit;
(4) the labour contract is terminated due to the expiration of stated contract period; except when the employing unit extends the contract under the same conditions or offer more favourable conditions but the employee disagrees;
(5) the labour contract is terminated as a result of the employing unit’s declaration of bankruptcy, suspension of business licence, court order to close or terminate business, or decision to dissolve the business prematurely;
(6) the labour contract is terminated due to the completion of specific work performed by specific personnel as specified in the labour contract.
Special provisions regarding compensation upon labour contract termination with employees who have sustained occupational injury:
According to the current provisions of the Regulations on the Implementation of the Labour Law, employing units not only shall pay the employee financial compensation according to the Labour Contract Law, but shall also pay the work-related injury medical allowance and disability employment allowance in a lump sum, according to the occupational injury insurance regulations of the state.
Contract authentication is a legal process whereby the labour administrative department conducts full-scale examination, verification and validation upon the signing, modification procedures and the validity, authenticity, completeness and feasibility of content of all labour contracts signed between an enterprise and its employees. Hence, the process confirms the legality of a labour contract. At present, it is compulsory for all labour contracts signed between enterprises and their staff to be authenticated.
The enterprise should submit the labour contract to the local labour administrative department for authentication within 30 days after the commencement of service by an employee upon signing a labour contract. In the case of collective labour contracts, they should be filed with the local labour administrative department for the record. Collective contracts automatically enter into force 15 days after the date of receipt by the labour department if no objection is raised during that period.
The following documents are required for contract authentication (the list may vary in different localities, so enquiry at relevant local departments is advised):
(a) Labour contract and its copy;
(b) Business licence or its copy;
(c) Proof of identity of legal representative or authorised person;
(d) Identity card or proof of domicile registration of the employee;
(e) Proof of education attainment, medical report, Labour Handbook, and other relevant information of the employee.
Personal Files Management
An enterprise or its resident representative office may entrust a service agency specialised in human resources employment to manage the personal files of its mainland staff. Such agencies should be located at the place of domicile registration or current work place of the staff concerned. The services they offer include verification of the staff’s identity, salary track record and political reports (for overseas travel). Other services such as assessment of technical qualifications, contract authentication and social insurance are also provided.
Foreigners Working in China
According to stipulations, foreigners (including Hong Kong residents) are allowed to work in China. Any organisations or individuals employing foreigners (including Hong Kong residents) in the mainland are required to complete the necessary formalities with the labour bureau which is responsible for granting approval and handling registration. Otherwise, the employees and employers concerned would become “illegal workers” and “illegal employers” and may be fined or even prohibited from working in the mainland.
(a) Departments Responsible for Administration of Employment of Foreigners in China
The labour administration departments at provincial, autonomous region and municipal levels and their authorised labour administration departments at prefecture and city levels are responsible for the administration of employment of foreigners in China.
(b) Criteria for Foreigners Taking up Employment in China
At least 18 years of age and in good health;
Possessing the professional skills and working experience required for the work of intended employment;
No criminal records;
Having a confirmed employer;
Having a valid passport or other international travel documents;
Being able to obtain employment and residence permits for foreigners upon entry into China.
(c) Application Procedures for Foreigners Taking up Employment in China
China has a more liberal and permissive foreign labour policy than Hong Kong or other western countries. Hong Kong residents or foreigners wishing to work in the mainland are only required to register with the “foreign labour employment service centre” under the local city-level labour bureau by presenting the following documents:
|Category||Hong Kong, Macau and Taiwan Residents||Foreign Nationals|
|Formalities||Employment Permit for Personnel from Taiwan, Hong Kong and Macau||Employment Permit for Foreigners|
The term of the employment permit for foreigners (including Hong Kong residents) issued by various mainland cities depends on the duration of the current labour contract and is usually one or two years. It is advisable to apply for extension of the employment permit within one month before its expiration as overdue applications are not only more costly and time-consuming but also involve more complicated procedures. Formalities for extending the employment permit are as follows:
|Category||Hong Kong, Macau and Taiwan Residents||Foreign Nationals|
|Formalities||Extension of Employment Permit for Personnel from
Taiwan, Hong Kong and Macau
|Extension of Employment Permit for Foreigners|
The extension formalities are generally the same for foreigners and personnel from Hong Kong, Macau and Taiwan:
 Item (1) in the first paragraph of Article 26: A labour contract will become invalid or partially invalid if: (1) A party uses such means as deception or coercion, or takes advantage of the other party’s unfavourable position, to cause the other party to sign a labour contract or to make an amendment thereto, that is contrary to that party’s true intent.