1. China Employment Law FAQs
Our China Employment lawyers have compiled the below list of frequently asked questions we get from clients and potential clients. Our plan is to update these questions as new questions come in (feel free to ask your own in the comments section) and as China’s laws change, as they invariably do.
Can I legally hire part-time employees in China? I am specifically thinking about hiring engineers, designers, and consultants. What are some of the key things I should consider to be sure the employment contracts I use are legal?
Answer: You can hire people part-time, but just as is true for full-time employees, you should have a written employment contract with your part-time employees as well. Just because China’s employment laws do not provide part-time employees with the full legal protections afforded full-time employees does not mean you should not be using a full-fledged employment contract. Using such a contract will help protect your business and it should include, among other things, provisions on salary, working hours, employment term, paid leave, employee benefits, and termination. It should also cover trade secret and employee confidentiality. Please note that to legally have employees in China, you need a Chinese legal entity as the employer, and it is dangerous not to do this. See Doing Business in China Without a WFOE: Will the Defendant Please Rise. In addition to the “usuals” mentioned above, it is also important that your employment contracts be written to comply with the various local laws and rules that have become so prevalent in China. What is a good employment contract for Shanghai is different from what would be a good employment contract for Beijing or Shenzhen. See China Employment Contracts: Localization is Key.
Are there any caveats regarding “non-competition clauses” for WOFEs with employees in their Chinese offices?
Answer: Yes, many. China employee non-compete agreements are complicated and foreign companies constantly get burned by them. For example, if an employer agrees to a non-compete for, say two years (this is the maximum non-compete period you can impose under Chinese law), you must pay your ex-employees for two years after they leave. You must make this payment for the non-compete and this is true even if you no longer care about the employee competing with you. In our experience, about half the time foreign employers are better off not using a post-employment non-compete. The trick is figuring out which half your company falls in.
We are looking to dispatch some of our African/American/European/Australian/Japanese employees to our subsidiary in China for a fixed period. What type of employment contract should we use?
Answer: It depends on the length of the fixed period. If it will be for a short term — say less than 90 days at a time — you can probably keep them as employees of your Swiss entity. Otherwise, you probably will need to make them employees of the Chinese subsidiary and treat them like China-based employees at that point. This answer can vary based on your country, the duration of the term, the number of terms, the time between terms, where these employees will be in China, and even the industry in which you operate. This area of China employment law/China tax law is half law, half intuition.
Must an employee from Africa/America/Europe/Australia/Japan that is paid by their African/American/European/Australian/Japanese employer declare and pay Chinese social charges and taxes in addition to what they pay in America/Europe/Australia/Japan?
Answer: Yes, if that person legally should be a China-based employee. And it can be expensive and even dangerous to have “employees” working in China without a company in China. This is that situation and if a company gets caught having an employee without a company in China, it will need to pay all back taxes and benefits, plus interest, plus a large penalty. Jail time is also possible for this. And here’s the kicker: China has gotten good at catching companies that do this by monitoring bank accounts and payments incoming from outside China. It then offers the “employee” both immunity and cash for revealing everything about YOUR COMPANY. Chinese employees know this, and many convince their foreign “employers” to pay them off the grid so they will always have leverage against their foreign company employer they can use if ever terminated. Just in case we have not been clear enough, having an employee or independent contractor in China without having a legal entity (a WFOE or Joint Venture or whatever) is one of the riskiest things you can do. See Doing Business in China Without a WFOE: Will the Defendant Please Rise.
What can I do about an employee who is damaging our company’s reputation?
Answer: A lot depends on what the employee is doing to damage your company’s reputation and what you have already done to address the employee’s misconduct. Have you documented everything this employee has done and its impacts? It would be good if you have. What you can do also depends on what your employment contract and your company’s rules and regulations say. If you have everything in good order, you probably can discipline or maybe even terminate the employee. If you do not have everything in good order, it probably will make sense for you to get everything in good order and then look at your options with this employee. The last thing you want to do is discipline or terminate this employee when you are not in a good position to do so, as that will likely lead to lawsuits, attorneys’ fees, damages, and penalties, and it might even lead to you never being able to do anything about this employee.
I am an online English teacher and I have an LLC. There are many schools in China that request my services online to teach English. Is there anything special I should have in my contract with these schools?
Answer: Without knowing in what country you have an LLC, this is a difficult question to answer. A foreign company contract with a Chinese company will differ from an employment contract, which will be between an individual and a company. We generally prefer contracts with Chinese companies be in Chinese and in English, with Chinese as the official language. This makes it more likely your Chinese counterparty will abide by the contract, and it increases your likelihood of being able to enforce the contract if it does not. Your contract should fit your situation and meet your needs and provide you with the maximum protection possible. See also Drafting China Contracts That Work.
I have a registered recruitment agency in my home country, and I would like to know what I can do to protect the legal rights of the people I place in China. Sometimes their employers breach the contracts or change the contract conditions.
Answer: In addition to making sure those you place in China have good contracts with their China employers, your recruitment company should also have a good contract with the Chinese companies with which it is making its placements. See Drafting China Contracts That Work.
What legal issues arise from hiring dispatch workers in China?
Answer: There are many legal requirements regarding dispatched workers. For example, when you fill your dispatch positions, you first need to make sure the workers you plan to use can be hired as dispatched workers because if they cannot you may be deemed to have hired them directly as your employees. If an employer hires someone in China as a dispatched worker to circumvent China’s employment law, the Chinese authorities will deem the dispatch arrangement illegal.
What should we do to protect our IP from our Chinese employees and contractors?
Answer: China has laws on this, but they are not particularly clear nor well understood by China courts. You therefore should enter contracts with your employees that make clear your company will own the IP. These contracts should also set out your company’s requirements and expectations regarding protecting your company’s IP. China’s courts understand and enforce well-crafted China-specific contracts. I feel compelled to mention that there is virtually no such thing as independent contractors in China and believing otherwise is dangerous. See Doing Business in China Without a WFOE: Will the Defendant Please Rise.
Will my employee’s non-compete clause be effective even if the employee has not received any compensation for the non-compete clause?
Answer: Do you mean the employee never received any non-compete compensation after termination of employment? Whether a non-compete will be deemed effective will depend on additional facts, such as what exactly the parties agreed regarding the employee’s obligations, the duration of non-payment by the employer, as well as what the local laws say. Chian employers usually must continuously pay their employees for a post-employment non-compete agreement for it to remain in force. In addition, an employee may unilaterally terminate the non-compete agreement/provision if the employer fails to make its required non-compete compensation payments for three months or longer, so long as the employee performed his or her non-compete obligations up to that point.
If a non-compete clause has been included in the employment contract, but the employee does not receive any compensation payment, can the employer trigger the clause effectively?
Answer: A lot depends on what the non-compete and the employment contract say. See also my answer to the question above.
Are there mandatory insurance rules to follow for the employer and the employee?
Answer: Yes. Each locale has different mandatory benefits which include mandatory social insurance. The common types of social insurance include maternity, unemployment, work-related injury, pension and medical insurances. China has stepped up its efforts to make sure all foreign companies pay all that they owe in social insurance, so you want to be sure you are doing this correctly.
Can I avoid the employer status by contracting the employees’ service on a temporary basis? Would a recurring temporary contract work?
Answer: China puts people in jail and fines them a lot of money for treating someone as an independent contractor and for using temporary contracts to avoid China employee and/or tax requirements. China is very effective at rooting out these violations, so you should avoid these things unless you get an experienced China employment lawyer to confirm that you can retain someone as a temporary employee. Recurring temporary contract work is a red flag for Chinese authorities.
We’ve taken the first step to reduce our employee hours/salary for 90 days. Not without negotiation with each. The employee seems to rule. We may have to go again. How much can we count on FESCO for good information?
Answer: Just to be clear to everyone, FESCO is a well-known Chinese third-party hiring agency. They also provide HR-related services. Our employment lawyers constantly work with FESCO (and with various other third-party hiring agencies) and overall, they tend to be good, but this varies by region and even by city. Many at FESCO with whom we interact speak English well, but we sometimes need to “bridge the gap” between our clients and FESCO due to language barriers. Despite this, you should not trust FESCO or any other third-party hiring agency because their goal is to do what is favorable for them and that will often be harmful for you. I am not surprised that you would say employees seem to rule in China because the government does favor them, but most of the time when employers have problems with their employees in China it is because they failed to lay the proper groundwork in their employment contracts or in their employer’s rules and regulations.
We use FESCO to handle payroll and contracts. However, we have found FESCO to be expensive, slow, and in many cases negligent. Aside from doing this ourselves, are there other options?
Answer: It is a little hard to comment on your situation without gathering up additional facts. In our experience, FESCO is generally good overall (though often slow and always expensive), but this varies by location. If FESCO is not responding to you in a timely manner, you should request to speak to a higher-level manager, and you should also start looking at other HR service providers. Your options will also depend on your contract with FESCO. You should never rely on FESCO for legal advice because they are not China lawyers, employment or otherwise, and they are out to protect themselves, not your company.
Should employees in China be required to sign an acknowledgment form for our Employee Handbook and company policies?
Answer: You should require your employees in China to sign an acknowledgment form (in Chinese) for your employee handbook and your company policies, and potentially various other employment documents as well.
What are your best practice suggestions for employers to deal with anti-discrimination and anti-harassment in China?
Answer: There is no one-size-fits-all. At minimum, your company policies on anti-discrimination and anti-harassment should conform to all applicable Chinese national and local laws, and also reflect your company’s culture and core values. Foreign companies usually get in trouble with their employees and with the Chinese government when all they do is translate their non-China-centric company policies into Chinese without modifying them to work for China.
What happens if an employer does not start the employee contract renewal process within the six months before the employee contract expires? Is there any risk for the employer? Is there any difference if the employment contract has been signed with a foreigner?
Answer: An employer usually does not need to start the contract renewal process so far (six months) in advance, though it usually does not hurt to start early. An employer just needs to start the contract renewal process a little more than a month before the contract is set to expire, unless there is a clause in the contract requiring the employer start the renewal process earlier. Specific requirements do vary by location in China and it is important you know what the requirements are for where you and your employee are located. An employer that continues to employ an employee under an expired contract can be subject to all sorts of problems, including a double wage penalty. There is not much difference if the employment contract is with a foreigner, except generally, foreign employees are not legally entitled to an open-term contract.
Are China employers required to inform their employees regarding employment contract renewals and, if so, how long before the current contract expires must that employer notification be?
Answer: Like so many China employment law matters, the rules on employment renewals vary by locale. Most places require employers give notice of renewal/non-renewal at least one month before the current employment contract expires. Regardless of what local law mandates, our China employment lawyers typically recommend employers start the renewal (or non-renewal) process early because it is easier to deal with this issue before the expiration of the current employment term.
Can I engage independent contractors instead of employees in China?
Answer: Generally speaking, China does not allow for independent contractors. This means any individual must be engaged pursuant to an employment contract, and your Chinese company must fulfill all employer obligations stemming from such employment, including paying the employee a salary and making social insurance and other mandatory employee benefit contributions. If you do not have a legal entity in China, you cannot directly hire anyone there and the independent contractor approach will not work. See Doing Business in China Without a WFOE: Will the Defendant Please Rise. There are some complicated workarounds for this.
Can a foreign company send its employees to China to perform some short-term work for its customers in China without getting any special visa?
Answer: It depends on what you mean by “special visa.” It also depends on how long they will work in China and on what they will do there. This is not something you want to get wrong because the Chinese authorities are always looking for foreigners in China without the proper visa because finding those employees is quite lucrative for the government.
We have an employee who started out great but now is terrible. She is on an open-term contract. Are we allowed to terminate her?
Answer: Just because an employee is on an open-term contract does not mean she is untouchable. You can usually unilaterally terminate an employee (open-term or otherwise) without having to pay severance if you can show the employee committed a serious wrongdoing in violation of your rules and regulations. However, terminating an open-term employee is trickier than terminating a fixed-term employee. Your options will largely depend on your employment contract with this employee and on your employer rules and regulations. Generally, if there is a no legally permissible basis for a unilateral termination, you will need to try to get it structured as a mutual termination (which requires a severance payment of at least the statutory severance amount) and she, as an open-term employee, will have a great deal more leverage in terms of severance negotiation.
2. China Employment Contract FAQS
I have an English version of the employee agreements our parent company uses around the world. Can I put that into Chinese and send it to our China employees to sign?
Answer: Not a good idea. When it comes to China employee agreements, localization is key and a an employment agreement that has not been drafted for China and for your locale in China will both lack necessary provisions for China and contain provisions that are completely unenforceable under Chinese. A China-centric contract will also send a strong signal to your China employees and to China’s labor authorities and arbitrators/courts that you understand how China’s employment laws work and you are making the effort to comply with those laws. Using China-centric employment contracts greatly decreases the odds of having China employment law problems and greatly increases the odds of prevailing in any China employment law dispute.
The labor authorities in my locale provided me with an employment contract template. Is it okay for us to just use that?
Answer: Not a good idea. These templates are intended more as a guideline than anything else. They are often outdated and often fail to keep up with national (and even local) law changes. Most importantly, they do not account for your specific situation and goals or for the situation of your employees. The labor authorities’ goal is to protect employees and the employment contract templates we have seen virtually always fail to sufficiently protect the employer.
Our China employment contracts are just in Chinese. That’s okay, right?
Answer: Not really. Legally, this makes sense because your China employment contracts must be in Chinese. But virtually all foreign companies in China should also have all their employment contracts in English so anyone in the company who might be making an employment decision can know the pathway they must follow. We always draft our Chinese employment contracts in both Chinese and in English (or sometimes in some other foreign language).
How easy it is to terminate an already signed China employment contract?
Answer: It is generally difficult to terminate an employee during their contract term and, contrary to popular belief, this includes employees on probation. Under Chinese law, a probation period is part of the contract term and once you bring someone on as your employee in China it is difficult to terminate them.
Will an open-term employment contract make it so we cannot terminate an employee until his or her statutory retirement age?
Answer: Open-term employees have greater protections against termination than employees on fixed-term employment contracts, but they can be terminated. An open-term employee can be unilaterally terminated without severance if the employer can prove the employee engaged in serious wrongdoing that violated the employer’s rules and regulations. But it does often make economic sense to try to work out a mutual termination even with your most troublesome employees. Despite the issues that arise from open-term contracts, they are sometimes required to get good employees.
Does an offer letter constitute an employment contract?
Answer: An offer letter is not an employment contract and our China employment lawyers have never seen an offer letter that includes everything necessary for a good China employment contract. We regularly take our clients’ offer letters and incorporate the relevant terms from those letters into full-fledged and enforceable China employment contracts, but doing so always requires we substantial deletions, changes, and additions.
We have been using this same employment contract template for years and no employees have complained about it. Why then do I need to have you review it?
Answer: The mere fact that no employees have complained about your employment contracts does not mean they do not need to be improved. In fact, the fact that they have never complained about your employment contracts likely means they do not protect you as much as they should. China’s national and local employment laws and enforcement policies are constantly changing, and you want your employment contracts to reflect those changes. See China Employment Law: Local and Not So Simple. Your own situation may have changed and you want your employment contracts to reflect that as well. We often review employment contracts that made sense for a company that had 20 employees in one city doing one thing and now make no sense for the same company with 200 employees doing ten different things in three different cities. You do not want your company to get ahead of its employment contracts.
3. CHINA EMPLOYER RULES AND REGULATIONS FAQS
I have several separate company policies that deal with different topics such as overtime, employee leaves and discipline. Should they be in one document ?
Answer. Yes. You need a comprehensive employer rules and regulations document that includes all your employer policies/rules. First, this is what Chinese authorities like to see. Second, the fewer documents you have, the easier it will be for your management to enforce your company polices and for your employees to learn about and follow them. Third, by including all the policies in the same document, it will be easier to search out and eliminate any potential inconsistencies. Fourth, this makes it easier for you to keep everything updated. Lastly, having all employer policies and rules in one document and then getting each of your employees to sign a receipt proving they received it will give you added protection.
Do I need a different set of employer rules and regulations for each of my offices in China?
Answer: Yes. China’s employment laws are localized and employment rules/practices differ by city and sometimes even by district within the same city. The differences between your various rules and regulations will depend on where your offices and your employees are based. For example, if you have an office in Beijing and an office in Shanghai, you will likely have very different rules and regulations for these two cities. On the other hand, if all your offices are in Guangdong Province, you likely will have quite similar employer rules and regulations among your offices.
I have been operating in China for a long time and I’ve never had a set of rules and regulations. Is it too late to start doing it now?
Answer: No. Having a well-drafted set of employer rules and regulations will not solve past problems, but it will help prevent future problems.
The rules and regulations seem negative in tone. Will my employees accept them?
Answer: Your rules and regulations need to be reasonable to be enforceable in China. But so long as they are reasonable and enforceable, and you implement them according to Chinese law, your employees must abide by them. One thing you as an employer must do is get an acknowledgement of receipt signed by your employees proving they received a copy of your rules and regulations. Their signing that acknowledgment means they have agreed to your rules and regulations. A big part of the standard China employer rules and regulations relates to employee discipline and terminations, but a well-drafted set of these rules and regulations should also provide detailed explanations regarding employee rights and benefits, which will give your employees clarity and protections. Well-written employer rules and regulations are good for both employers and employees and virtually all your employees will recognize this and virtually all will be willing to sign off on them.
Can I use a template set of rules and regulations from the Internet?
Answer: Only if you do not care about preventing employee problems and costly employee litigation. Your rules and regulations should match your specific situation, your industry, your locale, and most importantly, your specific issues, goals, and concerns. Every employer client for whom we have drafted rules and regulations has had their own unique programs/policies/rules and the job of our China employment lawyers is to help them determine whether what they want is workable and legal for their specific situation and locale.
Our employer audits typically begin with our employment lawyers reviewing all HR-related documents, but they often graduate to our going to the employer’s facility to interview key personnel and other employees on site. No matter what we do though, the goal is always the same: figure out what the employer needs to do to minimize employee legal issues and reduce the likelihood of lawsuits and government fines. We do this by crafting a course of action to remedy any issues/problems/concerns we find during our review. Such a course of action nearly always involves our revising existing employment documents and drafting new ones.
4. CHINA EMPLOYER AUDIT FAQS
Why do we need an employer audit when no employee has ever filed a claim against us?
Answer: Because an employer audit is by far the best way for you to know your potential regulatory/lawsuit risks/exposure and the adequacy of your HR program. If problems are revealed during this process that need to be fixed immediately, you can get on it quickly. But if you don’t have an employer audit, the chances are high you will not become aware of a problem until it is too late.
Can we limit the document review to just employment contracts?
Answer: If your goal is to reduce your employer risks, we recommend a comprehensive review of all your employment-related documents, not just your employment contracts. If your employment documents consist of just employment contracts, I can tell you right now that you need more. See e.g., China Employer Rules and Regulations: A Must Have No Matter Your Size.
We currently have an employee dispute. Can we have an audit conducted in parallel with that?
Answer: This is all the more reason to have one. Your existing employee problems do not necessarily mean you are not complying with China employment laws, but it probably means there are important things in your HR program that need fixing. For example, it is common for employees to bring claims seeking something they were promised in the employer rules and regulations but not provided. In this sort of situation, we start by asking if the employer knew it had promised the benefit on which it is being sued and if it ever wanted to promise the benefit on which it is being sued and if it wants to keep promising the benefit on which it is being sued. Much of the time, the employer did not even know because its rules and regulations are in Chinese drafted by their first Chinese employee many years ago and are in only Chinese. Virtually always, the employer wants to remove or at least modify the promise. Having a China employment lawyer look at all of your employee documents and considering how to revise them in light of an existing employee claim is always a good idea.
What exactly do you do in an employer audit and what is the turnaround time?
Answer: The first thing we do is request all of the employer’s written employment documents used for their China office(s). At the same time, we ask the employer to advise us regarding any pending or imminent employee problems of which they are aware. Our China employment lawyers then review all the documents we receive from the employer, and we virtually always ask for more documents because the employment documents we receive will usually mention other documents we did not receive. Much of the time the other documents do not even exist, either because the employer did not know they were referenced in their existing employment documents or because they forgot to get around to having them drafted. This needs remedying. We then draft a memorandum providing assessing our client’s HR situation, along with document-by-document comments, and proposals on next steps. The more quickly we are provided with the documents we request, the more quickly we can complete our review, but generally it takes us 2-4 weeks.
We are a small company. Do we really need an employer audit?
Answer: The size of your company does not determine your compliance and litigation risks. Though the odds of you facing an employee claim when you have ten employees will be less than if you have 10,000 employees, the smaller your company, the greater the impact of any one employee claim. Think of an employer audit as a sort of wellness check for your HR program. Any company with employees benefits from that.