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Employment Contracts in China

1. Minimum requirements

Under the Labor Contract Law, a written employment contract is necessary to establish an employment relationship. However, a part-time employee, who works no more than 24 cumulative hours per week and four average hours per day, is subject to different requirements and may be employed under an oral contract.

The law gives a one-month grace period to employers that commences upon the employee’s first day of work. The employer must execute a written employment contract within this grace period or else it will owe double wages to the employee for each month of employment after this grace period without a written contract. If an employer fails to execute a written employment contract with a full-time employee for over a year, the employer and the employee shall be deemed to have executed an open-ended employment contract.

In addition, an employer and an employee may, in their sole discretion, agree on matters such as probation, training, confidentiality, supplementary insurance, welfare, other incentives and other matters in the employment contract.

Usually, the contents of an employment contract can only be modified in writing after both parties have reached a consensus through mutual negotiation. However, a verbal modification of an employment contract may also be valid if the modification has actually been performed for longer than one month and does not violate any law, administrative regulation, state policy, public order or good morals.

2. Fixed-term/Open-ended Contracts

Employment contracts in China can have three different types of terms: fixed, open-ended or terms that expire upon completion of an assignment.

Under the Labor Contract Law, if an employer opts to enter into a fixed-term contract with an employee, after the completion of two fixed terms, that employer must offer the employee an open-ended contract. Since open-ended contracts are inherently difficult to terminate, employers may want to use fixed-term contracts for new hires. This would give the employer a chance to evaluate its new employees. If the employee’s performance is poor, a fixed-term contract provides the employer with the option of discontinuing the employment relationship at the end of the term.

3. Trial Period

In China, the employee trial period is also known as the probationary period.

A probationary period is commonly included in employment contracts. However, Chinese labor law contains restrictions on the length of the probationary period.

Probationary periods are not permitted for employment contracts that expire upon completion of an assignment or those with terms shorter than three months.

4. Notice Period

In China, an employee may unilaterally terminate his or her employment contract by giving a written notice 30 days in advance or 3 days in advance during the probationary period.

On the other hand, an employer may unilaterally terminate an employment contract by giving a written notice 30 days in advance or providing one month’s salary in lieu of notice in certain situations.

If the employer intends to reduce its workforce by 20 persons or more or by a number that is less than 20 but accounts for 10% or more of the total number of its employees, the employer must explain the situation to the trade union or all employees 30 days in advance and provide relevant information regarding the employer’s production and operation status.

For more information on these articles or any other issues involving labour and employment matters in China, please contact Carol Zhu, Partner at Zhong Lun Law Firm (www.zhonglun.com) at carol.zhu@zhonglun.com
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