A China Employment Best Practices Guide

Table of Contents

China Employment Best Practices

Navigating China’s employment laws is a bit like untangling a complicated puzzle. One wrong move? You could face hefty fines, damaging lawsuits, or even criminal charges. But don’t worry! We’ve poured our extensive experience into this guide to help you navigate with greater confidence. If you want to better understand China’s employment scene, this is your starting point. Just keep in mind that we are covering just the broader picture and local nuances are always in play. In China, local practices are just as vital as national rules. See China Employment Law: Local and Not So Simple.

1. Valid Employment Contracts

Chinese law mandates written employment contracts for all employees, full-time and part-time. Using an overseas template or direct translation from English to Chinese won’t suffice. Employment contracts must comply with China’s national labor laws as well as with pertinent provincial and local regulations. Key issues your China employment contracts should address include:

Precise employment term and conditions, such as working hours, overtime pay policies, vacation, and leave time allotments
Probation period duration and performance requirements
Compensation and bonus structures
Grounds for termination and severance clauses

Your China employment contracts should strike a balance between reasonably protecting employer interests, while still adhering to China’s extensive employee protections. Ambiguous contract terms or conflicting versions in Chinese versus English frequently lead to disputes. It is critical to ensure the English and Chinese language versions of your employment contracts match precisely.

It is also essential to keep employment contracts current for all staff. Using outdated contracts that fail to account for changes in national or local laws can expose you to significant liability in disputes. As China’s employment regulations evolve, renewal contracts should be updated accordingly to stay fully compliant.

Your China employment contracts should be compliant and appropriate for your specific location and situation. Trying to rely on generic templates or outdated agreements won’t cut it given China’s complex and shifting regulatory landscape.

2. Legally Compliant Employee Handbooks

In addition to binding employment contracts, a properly localized employee handbook provides important supplemental company rules, workplace policies and procedures that can help shape a productive, legally compliant organizational culture. Common employee handbook pitfalls include:

Failing to provide Chinese language versions of the handbook or secure written acknowledgement receipt forms from Chinese staff
Using outdated handbook materials that conflict with or ignore current national and local laws
Inconsistent or arbitrary application of handbook policies that leave room for employee disputes
Insufficient written documentation of disciplinary actions taken based on handbook policy violations

To be effective, localized employee handbooks should cover key areas like:

Detailed work hours and scheduling policies, including clear overtime approval procedures
Code of conduct and anti-harassment rules tailored to China
Performance improvement and management processes aligned with local practices
Trade secret, confidential data, and intellectual property protections per China law
Social media usage, data security and technology guidelines adapted to local norms
Grounds for termination and for other punishments

You should update your China employee handbooks at least annually, to account for changes in employment laws and your evolving business needs. A comprehensive and up-to-date handbook signals professionalism, helps prevent misunderstandings about policies and rules, and legally substantiates proper enforcement of company standards and termination decisions.

3. Confidentiality Agreements and Non-Compete Contracts

Chinese employment law allows certain senior level employees to be bound by non-compete agreements, which restrict their ability to work for a competing company or start a competing business for a defined period after their employment ends. However, there are important legal requirements around non-competes such as:

A maximum term of no more than two years after employment separation
Geographic scope of the non-compete must be reasonable for the industry and position
The employer must provide monthly compensation to the employee during the restricted period after termination

In addition to non-competes, employers should also consider written confidentiality agreements from employees that may handle trade secrets or other proprietary intellectual property. These agreements/provisions should specify clearly what types of confidential data disclosure are prohibited and define how employees must handle such information.

Your China company’s non-compete and confidentiality agreements should be crafted to reasonably protect the employer’s legitimate business interests while still heeding China’s legal restrictions surrounding employee rights. In enforcing non-competes, paying close attention to meeting compensation obligations is critical – employers often falter in this area which can invalidate the non-compete.

4. Navigating Employee Probation Periods

Setting defined probation periods for new hires can be an important management tool to assess employee skill fit and to align performance expectations before regular employment. However, termination rights are still limited for Chinese probationary employees. Our China employment lawyers often hear the following misconceptions regarding China employee probation:

Employees can be easily dismissed without cause before the probation period ends
Employers can freely extend the probation period duration at their discretion
Probation means fewer employee rights and protections

Terminating probationary employees in China requires documented performance issues and written warnings, even during the probation period and employers should not assume greater flexibility to arbitrarily dismiss probationary hires. Clearly communicating expectations and objectively documenting any performance issues is vital to avoid disputes.

It is also essential to carefully track and comply with probation period end dates specified in employment contracts. Attempting to terminate a contract immediately after the probation period expires can often trigger challenges from the employee, as some courts have rejected cases based on technical expiration timing. Navigating probation periods properly requires understanding China’s strict employment contracts system.

5. China’s Complex Overtime Pay Requirements

Overtime compensation rules under Chinese employment law frequently catch foreign employers off guard. The following are true for overtime in China:

Managerial and senior level staff are typically not exempt from overtime pay
Offering future “comp time” offsets may not waive overtime compensation requirements
Employers are responsible for monitoring and documenting overtime hours, not just employees
Getting an employee’s verbal consent to overtime is often insufficient to avoid pay obligations

In addition, using alternate work hour arrangements like flexible or comprehensive schedules requires advance government approval based on the job type and position. This approval process is often more stringent than expected.

You should exercise caution in managing overtime hours and compensation to avoid violations. Even inadvertent non-compliance can create serious financial and legal liability. Consistently monitoring and keeping precise payroll records is essential.

6. Leave Policies: Annual, Sick, Maternity and More

Managing employee leave is another area where foreign employers must adhere to China’s requirements. Employers should be aware of the following:

Employers must provide the mandated number of paid annual leave days based on employee’s tenure
Rules around annual leave carryover and forfeiture apply – get employee written confirmation if leave is forfeited
Sick leave duration depends on length of service, illness cause and local regulations
Continue paying social insurance benefits for staff on approved sick leave
Offer pregnancy and maternity leave plus related benefits as legally required
Use extreme caution before disciplining or firing pregnant or nursing staff – seek counsel to avoid liability

Strictly complying with all leave requirements, restrictions, and processes is vital. Never treat an employee’s leave status as license for disciplinary action or termination.

7. Social Insurance: Understanding Compliance Obligations

A major recurring compliance pitfall is around mandatory social insurance. Employers must provide pensions, medical, unemployment, maternity and other required insurance and benefits. This obligation starts from the employee’s hire date and applies to full-time and part-time staff.

Some common social insurance failures include:

Not properly registering employees in the systems
Contributing at the wrong salary level, or not updating income as required
Unlawfully exempting foreign or Hong Kong/Macau/Taiwan workers
Improperly excluding certain part-time workers from programs
Failing to keep paying social insurance premiums during employee sick leave

Non-compliance creates extensive liability beyond just administrative fines. Aggrieved employees can (and often do) pursue civil litigation for damages.

8. Avoiding Missteps with Expat and Foreign Staff

China law generally gives foreign workers the same employment rights as local Chinese staff. Expatriate assignments require extra care to avoid missteps like the following:

The unlawful unilateral termination of foreigners without proper documentation of cause — this often requires structuring a mutual separation agreement
Problematic discrepancies between offer letters and final China employment contracts
Including illegal or unenforceable terms in expat agreements around grounds for termination, non-competes, etc.
Neglecting to execute a China-specific expatriate employment agreement

The best practice is having bilingual compliant employment contracts in place that have been vetted by employment law counsel knowledgeable regarding China expat arrangements. It is also wise to localize your HR policies for expatriate staff, so they integrate smoothly with company policies for your domestic Chinese team. Staying legally compliant and documenting performance issues is vital to avoiding disputes and disruption.

9. Employee Terminations: Don’t Skirt Procedural Requirements

China’s stringent labor laws make terminating employees difficult. Even you have well-documented cause for discipline or dismissal, procedural mistakes can render the termination illegally conducted per Chinese regulators and courts.

Methodical analysis is required to execute terminations properly. The below are some of the common questions our China employment lawyers ask when reviewing the likelihood of our client prevailing in a wrongful termination lawsuit:

Are your company’s rules, codes of conduct and performance policies current, enforceable, and acknowledged by employees? Outdated or arbitrary policies weaken just cause arguments.
Does your company’s written documentation clearly establish the basis for the dismissal and show adherence to standards? Sparse evidence invites challenges.
Was the full termination process followed, including consultation with the labor union if applicable? Shortcuts often derail cases.
Do notice period, severance terms and language in notices or agreements adhere to regulations? Technicalities matter.

In many instances, structuring a mutual separation by settlement agreement provides more flexibility and safety for employers than unilateral termination. Rushing terminations without the right foundation frequently backfires. Do it yourself settlement agreements are a recipe for disaster, nearly every time.

10. Conduct Regular Audits and Update Employee Contracts

China’s regulatory environment evolves constantly, so falling behind on compliance is a frequent risk:

Employment contracts lapse and are not renewed on schedule as required
Policies and handbooks conflict with new national or local laws
Lack of acknowledgement forms weakens enforcement capabilities
Poor substantiation of disciplinary actions, terminations, and related processes

Conducting periodic audits of your China HR practices is essential to catch potential issues early. All of your employment documents should be reviewed and refreshed regularly as laws and business conditions change.

11. How to Handle a China Employment Dispute

Employment disputes in China are typically resolved in one of the following ways: consultation, mediation, arbitration, or litigation. As compared to other methods, consultation usually makes the most sense because if the parties are able to reach a settlement, it saves them time and money.

Alternatively, the parties may choose mediation, either through an internal mediation committee within the company, or through an external mediation organization. After the parties execute a written mediation agreement and that is signed by the mediator and the mediation organization, the agreement is binding upon the parties. If either party fails to perform under the mediation agreement, the other party may bring a claim for labor arbitration.

The parties may choose arbitration instead of mediation. The usual statute of limitations for initiating arbitration for an employment law dispute is one year and it begins to run as soon as the party knows or should have known the injury has occurred. Before the arbitration proceeding begins, the arbitrators will usually attempt to mediate. If the parties refuse to mediate, or fail to reach agreement after mediation, the tribunal proceeds with arbitration. The law requires the arbitral award be made within 45 days after acceptance of the application to arbitrate. For complicated cases, an extension of up to 15 days may be granted.

Generally, each party has 15 days after receipt of the arbitral decision to file a lawsuit. For the following “special” cases, however, the arbitral award becomes effective immediately after it is issued and remains so until it is invalidated by the court: (1) claims for payment of the employee’s work compensation, work-related injury expenses or economic compensation, provided that the disputed amount is no more than 12 times the local minimum monthly wage; (2) claims concerning the implementation of national labor standards on work time, rest time, vacation or social insurance.

The employer’s right to pursue litigation is more restricted: within 30 days of receiving the arbitral decision, the employer may submit a request with the applicable intermediate court to invalidate the arbitral award only when it can prove one of the following has occurred: (1) there is an error in application of the law or regulation, (2) the arbitration committee lacks jurisdiction, (3) there is a violation of due process, (4) the evidence on which the decision is based on is false, (5) the prevailing party concealed evidence sufficient to impede a fair ruling, and (6) the arbitrator(s) committed wrongdoing, including demanding or accepting bribes, committing graft or intentionally making a decision contrary to the facts and laws.

Finally, the parties may also choose to litigate but it is usually the last resort because for a labor law dispute (sometimes it can get tricky whether a dispute can be categorized as a labor law dispute), the parties must first go through labor arbitration even before they can take the issue to court.

Conclusion

As China’s employment law landscape continues to grow more intricate and fast-evolving, foreign businesses must remain agile, informed, and proactive. Maintaining ongoing legal compliance requires expertise and constant vigilance. Pitfalls can be avoided by utilizing customized employment contracts, embracing localized policies, maintaining rigorous documentation, and regular audits. Seeking experienced bicultural counsel is prudent when in doubt on important decisions. With the right HR foundations in place, foreign employers can build productive, profitable teams and operations in China.