Employment Contract issues

Dan Harris at China Law Blog posted an email from Steve Dickenson; the post is called “China Employment Contracts. Ten Things To Consider.” [Side-point: I think that "Hero Protagonist" in my "AmPharm" case study consulted Steve about his situation and received great advice...which confirmed for me many of the things I was telling him to do]

Steve’s email is a list of 10 suggestions he gave his client, quoted below. To save on space, I edited down the wordage to what is relevant to my additions and opinions, but I feel the original should be seen.

[...from the intro paragraph]
The Chinese system is a contract employment system. This means all employees must be engaged pursuant to a written employment contract and during the term of that contract, it is very difficult to terminate an employee. An employee can only be terminated for cause and cause must be clearly proved. This means the employer must maintain a detailed set of rules and regulations and must maintain careful discipline records to be able to establish grounds for dismissal. This whole situation makes the employment relationship and the employment documents much more adversarial than is customary in the U.S.
[...]
1. Term of employment. As noted above, each employee must be hired pursuant to the terms of a written contract.
[...]
2. Salary. [...] One issue here is that in many parts of China, it is customary to pay the salary on a 13 month basis, with the final month paid just prior to the Chinese New Year. This is completely optional, but it is important to state clearly whether or not you will be using this approach. Many employees just expect this “New Year’s Bonus” and a failure to pay it (if expected) can cause many problems.

3. Bonus. If you plan to have a bonus system for your employees, we should set this out.

4. Vacation.
[...]
5. Other benefits. If you plan to provide benefits beyond the statutory minimum (set out in the rules and regulations provided), we will need to specify that. [...]
For example, China requires employees pay a portion of the employment taxes/fees. Some employers pay that portion for the employee as an additional benefit.
[...]
9. Training. Will you be providing training for your employees? If yes, we should also develop a training agreement. Please advise.

10. Sign Off Agreement. Note that we have added a “Sign Off Agreement.” With this agreement, the employee acknowledges having received the rules and regulations and agrees to abide by those rules. It is important to get your employees to sign this so they cannot later claim not to have received it, which claim is frequently made at labor arbitration in China.

I think this list is important. I would just add the following comments:

1. About the labor contract, my understanding is that only Chinese language contract is valid. Many companies give a Chinese AND foreign language contract to employees, especially foreign employees. I this is good for foreign employee, so that they can understand the contract. However, employees should be careful to independently check that the terms of the translation are the same. I have seen several companies (including my previous company that I worked for, and including the company which the AmPharm case study is based on) specify different terms in the Chinese and English contracts. I believe some HR people may think that gives them some protection if there is a labor dispute with a foreign, locally hired employee. I’m pretty sure the opposite is true. If the terms on the English and Chinese contracts don’t match…and there is further mismatch between the pay-slip and the Chinese contract, your company is just asking for a rigorous audit from the labor bureau.

2. On Salary and bonuses, the 13th month salary is often considered part, if not all, of the bonus. Many companies provide 14 and 15 month bonuses, adjusted by the performance reviews. Stan is right though…this is expected to be given out just AFTER Chinese New Years, and if there are no bonuses, there will be labor problems.

3. Benefits are usually mandated for each investment zone and can vary greatly. Note…Not according to each city…to each investment zone. In Suzhou, there are vastly different benefits mandated in Singapore Industrial Park (where a large “401K” type of allowance is required) and the New Technology Park. Companies must consider the mandated benefits requirement before they invest in an area.

4. About training…if none is provided, don’t expect to hold onto mid-level managers. In areas where there is a lot of competition for good employees, training contracts are usefull for preventing your newly trained employees from leaving to higher-paying jobs, thus wasting the company’s training investment.

One last thing,

An employee can only be terminated for cause and cause must be clearly proved. This means the employer must maintain a detailed set of rules and regulations and must maintain careful discipline records to be able to establish grounds for dismissal

In other words, the company should use a good Performance Management System, and enforce the system on a daily basis.

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