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Employment Procedures

Signing of Labour Contract

Labour contracts are agreements reached between an employer (hereinafter referred to as “employer”) and its employees upon negotiations and take effect after being signed or sealed. There is no need for contract verification and authentication.

There are clear provisions in the Labour Contract Law and the relevant rules and regulations regarding requisite provisions, contract duration, alteration, dissolution and termination, and compensation for contract dissolution. The labour administrative departments of various localities shall provide enterprises with labour handbooks for use as reference when signing labour contracts.

The Implementation Regulations sets clear definitions for the time for the signing of labour contracts between an employer and its employees:

(a)  An employer 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 employer shall notify the employee in writing to terminate the employment relationship. No financial compensation shall be paid to the employee, but the employee shall receive wages for the time of service actually rendered.

(b)  Where an employer fails to conclude a written labour contract with an employee after the lapse of more than one month but less than one year from the date of employment, it shall pay to the employee his monthly wage in double amount and shall conclude a written labour contract with the employee. If the employee does not sign the written labour contract, the employer shall notify the employee in writing to terminate the employment relationship. Financial compensation shall be paid to the employee in accordance with the Labour Contract Law.

The start time of the period when an employer is required to pay an employee his monthly wages in double amount shall be the day following the full month from the day when the employee is employed, and the end time shall be the day before the day when the written labour contract is concluded.

(c)  Where an employer fails to conclude a written labour contract with an employee after the lapse of one full year, the employer shall pay his monthly wages in double amount, and the period from the date the employee starts his employment and the day before he has worked for a full year shall be deemed to be the period when he has been working for the employer on a labour contract without a fixed term. A written labour contract without a fixed term shall be concluded with the employee immediately.

The start time of the period when an employer is required to pay an employee his monthly wages in double amount shall be the day following the full month from the day when the employee is employed, and the end time shall be the day before the lapse of one full year.

Provisions of the Labour Contract Law regarding the probation period:

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 employer 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.

Provisions regarding the dissolution of labour contracts:

Under the Labour Contract Law, there are nine situations where an employer may unilaterally dissolve a labour contract.

An employer may immediately dissolve 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 employer’s rules and regulations;

(3)  commits serious dereliction of duty or practices graft, causing substantial damage to the employer;

(4)  has concurrently established an employment relationship with another employer which seriously affects the completion of his tasks with the original employer, or refuses to rectify the matter after the same is brought to his attention by the employer;

(5)  causes the employer to conclude a labour contract or make an amendment thereto, that is contrary to the employer's true intent using such means as deception or coercion, or by taking advantage of the employer's precarious position, so that the labour contract becomes invalid; and

(6)  has his criminal liability pursued in accordance with the law.

In the event of immediate dissolution of contract due to situations listed above, the Labour Contract Law stipulates that the employer is not obligated to make any financial compensation to the employee in question.

An employer may dissolve a labour contract with advance notification, if:

(7)  the employee is sick or is injured outside of work, and is unable to resume his original position after the prescribed medical treatment period, nor can he assume any other position arranged by the employer;

(8)  the employee is incompetent for his position, and remains incompetent after being trained or being assigned to another position;

(9)  the objective circumstances on which the original labour contract was based have undergone major changes which have rendered the contract inoperable, yet no agreement can be reached between the employer and the employee despite attempt made to modify the labour contract.

In any of the above situations, the employer may dissolve the labour contract after giving the employee one month's advance notification in writing or paying him/her an additional one month's wage.

Situations when an employer may not dissolve a labour contract:

Under the Labour Contract Law, an employer may not unilaterally dissolve a 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, childbirth or breast-feeding period;

(5)  if the employee has worked for the same entity for 15 years, and is within five years of legal retirement age; and

(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 mandatory basis.

In labour dispatch, an employer may not return a dispatched worker to the labour dispatching entity in accordance with Article 12 (1) of the Interim Provisions on Labour Dispatch [1] prior to the expiry of the dispatch period; the dispatched worker may be returned only by extending the dispatch period upon its expiry until the disappearance of the circumstances.

When an employer unilaterally dissolves a labour contract, it shall give the trade union advance notification of the justifications, study its views, and keep it informed in writing of the result of the handling of the matter.

Provisions regarding layoffs:

Under the Labour Contract Law, the scope of mass layoff has been expanded on the basis of the Labour Law:

If, under any of the following circumstances, an employer has to reduce its workforce by 20 persons or more or by less than 20 persons but the number accounts for more than 10% of its total workforce, the employer 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 administrative 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 employer;

(2)  those who have signed a non-fixed-term labour contract with the employer;

(3)  those who are the sole wage earner in their families and have to support elders or minors at home.

If an employer 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.

An employer may return a dispatched worker to the labour dispatching entities in any of the following situations:

(1)  If the employer is in a situation specified in Article 40 (3)[2] or Article 41[3] of the Labour Contract Law;

(2)  The employer is declared bankrupt in accordance with law, its business licence is revoked, it is ordered to close down or to dissolve, or it decides to dissolve on an earlier date or not to continue business operation after its business licence expires;

(3)  The agreed period of labour dispatch has expired.

Provisions on financial allowance and financial compensation:

According to the provisions of the Labour Contract Law and its Implementation Rules, an employer shall pay its employees financial compensation in the following situations:

(1)  The employer proposes to dissolve the labour contract and reaches an agreement with the employee on the dissolution through negotiations;

(2)  The employer has dissolved the labour contract with advance notification according to regulations;

(3)  The employer has dissolved the labour contract to carry out mass layoff and restructuring in accordance with the provisions of the Enterprise Bankruptcy Law;

(4)  The labour contract is terminated due to the expiration of the stated contract period, except when the employer extends the labour contract under the same conditions or offers more favourable conditions but the employee declines the offer;

(5)  The labour contract is terminated because the employer is declared bankrupt in accordance with the law, its business licence is revoked, it is ordered to close down or to dissolve, or it decides to dissolve on an earlier date;

(6)  The employee terminates the labour contract in accordance with the law; and

(7)  The labour dispatching entity dissolves or terminates the labour contract with the dispatched worker in accordance with regulations.

Financial compensation is paid to an employee based on the number of years he has worked for the employer according to the standard of one month's salary for each full year he worked. Any period of more than six months but less than one year shall be counted as one year. Any period of less than six months shall be paid half his monthly salary.

The monthly salary for financial compensation shall be based on the salary due to the employee, including pay at hourly or piece rate and other monetary income such as bonus, allowance and subsidies. If the monthly salary of the worker is three times higher than the average monthly salary in the previous year for employees as announced by the people's government at the municipal level or city-with-district level where the employer is located, the rate for financial compensation paid to him shall be three times the average monthly salary of employees and shall be for not more than 12 years of work. An employee whose average salary in the 12 months before the dissolution or termination of labour contract is below the local minimum wage shall be paid compensation at the local minimum wage. If an employee has worked for less than 12 months, the average wage shall be calculated according to the number of months worked.

Special provisions regarding compensation upon labour contract termination with employees who have sustained work-related injury:

When an employee dissolves or terminates his employment relationship with his employer due to work-related injury, he shall not only be paid financial compensation in accordance with the Labour Contract Law but shall also be paid a lump sum medical allowance from the work-related injury insurance fund in accordance with the Provisions on Work-Related Injury Insurance and a lump sum disability allowance from his employer. The specific standards for the lump sum medical allowance and lump sum disability allowance shall be determined by the provincial, autonomous region and municipal people's governments.

Record Filing of Employment of Workers

The Ministry of Human Resources and Social Security issued its Circular on Establishing a System of Record Filing of Employment of Workers in 2006, requiring employers to establish a system of record filing of employment of workers.

Information to be included in the record filing of employment of workers by an employer shall include: Name, legal representative, economic type and organisation code of the employer; number, name, gender and ID number of the workers employed; time of commencement and termination of the labour contracts signed; and number, name of employee and time of labour contracts terminated or dissolved; as well as other information required by the local labour and social security department at the provincial, autonomous region or municipal levels for record filing purposes.

An employer that hires new employees or renews its labour contracts with employees shall complete record filing procedures within 30 days of the employment of employees or renewal of labour contracts. An employer that terminates or dissolves its labour contract with employees shall complete the record filing procedures within seven days of the termination or dissolution of labour contract.

After changing its name, legal representative, economic type or organisation code, an employer shall complete the change of record filing within 30 days. After an employer has made its exit, it shall complete cancellation of record filing of employment of employees within seven days.

Where the place of registration of an employer is not the same as the actual place of operation, recordation shall be completed at the labour and social security administrative department at the place of actual operation.

Personal Files Management

The personal files management organ for professional and technical personnel hired by foreign-invested enterprises and the Chinese employees of the resident representative office of foreign companies shall be the talent exchange service agencies under the organisation department of the party committee or the department of personnel administration of the government at or above the county level. In the case of talent exchange across regions, the management of personal files may be entrusted to the talent exchange service agencies at the place of domicile registration or current work place of the staff concerned. The talent exchange service agencies are responsible for verification of the staff's identity, salary track record and political records examination (for overseas travel) and other matters relating to personal files management. Other services, such as assessment of technical qualifications and social insurance, are also provided.

 


[1] Article 12 (1) states that: An employer may return the dispatched worker to the labour dispatching entity under circumstances specified in Article 40 (3) and Article 41 of the Labour Contract Law.

[2] Article 40 (3) states that: A material change in the objective circumstances relied upon at the time of conclusion of the labour contract renders it impossible for the parties to perform and, after consultation, the employer and the employee are unable to reach an agreement on amending the labour contract.

[3] Article 41 stipulates the statutory ground of mass layoffs.

Content provided by Picture: HKTDC Research
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