China employers must have written labor contracts with each of their full-time employees. Not having a written labor contract exposes employers to penalties, administrative fines, and the risk of being deemed to have entered an open-term labor contract with the employees lacking the contract. Most companies now understand this, but many do not realize that just a contract is not enough; every employer should have a set of rules and regulations as well.
The rules and regulations (规章制度) (sometimes referred to as an employee manual) are a long and complex document that sets out the terms governing the employment relationship. One of the primary reasons employers need this document is because it provides the the grounds for terminating an employee.
China’s employment law system is very different from the system in the Unite States and much of the rest of the world. In the U.S., employers can terminate employees pretty much at any time and pretty much for any reason. This is called employment at will. China is not an at-will employment jurisdiction. China employees must be engaged pursuant to a written labor contract and during the term of that contract, it is very difficult to terminate them. If an employer wants to terminate an employee before their employment term has ended, it can do so only for cause, and cause must be clearly proven.
Your rules and regulations document should be detailed. If your employee does something terrible and harms your business, you will likely find yourself without a basis for disciplining or terminating the employee unless your rules and regulations make clear that the employee’s actions were prohibited. One of our China lawyers loves to tell about a China case involving an employee who sued after being fired for stealing hundreds of thousands of dollars from his employer. The judge noted that the employee was a terrible person, but ruled that his employer could not fire him because there was nothing in the employer’s rules and regulations against stealing. Not kidding!
In some cities, employers do not need to list every single punishable act in the rules and regulations to be able to discipline an employee. Shanghai, for instance, is of the view that the principle of good faith governs during the employment relationship, so even though a certain act is not specified in the company rules and regulations as a punishable act, the employer may discipline or even fire an employee who fails to act in good faith. But since many municipalities are not of a similar view and because even in Shanghai you can minimize your risks by being explicit, our China employment lawyers nearly always put just about everything in the rules and regulations we draft for our clients.
On the flip-side, just because you put something in your rules and regulations does not make it legal. If a provision in there is against the law and you relied on it in terminating your employee, your decision will be deemed to be unlawful termination. You should review your rules and regulations every 6-12 months to ensure it remains in compliance with all applicable laws. My law firm reviews our clients’ rules and regulations as a matter of course in every China employer audit we do.
Lastly, be sure to have your rules and regulations in Chinese or it will likely be deemed unenforceable. We also like to see all employees sign something indicating they received a copy of it.
Bottom line: If you have China employees, you need a set of rules and regulations.
