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Understanding labour contracts in China

Find here Daxue Talks episode 67. In this interview, Nicolas Coster helps us in understanding labour contracts in China and what are some things to lookout for, as employers and employees (discover workplace safety law during COVID-19) .

Full transcript below

As an employer, what do you need to be careful of when you sign a labour contract?

Okay so the first things you need to be careful is you have only 30 days to sign a labour contract from the starting of the job. So, of course it’s better to sign the contract before your employee starts the job, but if you don’t do it, you have only 30 days to do it. If you miss this delay, this term, then you will have to pay double pay, double salaries for the employee up to 12 months after the 30 days.

Are there other elements you need to be careful of regarding labour contracts?

Yes, Chinese labour law is very protective of the Chinese employees and the foreign employees. So, you have to be very careful about the terms you use. You have many, many small rules you have to comply with for the labour contract. For example, for the Chinese trial period, such kind of things, you have very specific delay to be followed, and each city, each province in China could have their own interpretation of the contract law. So, you really need to check the national rules and the local rules to make sure you’re in compliance with both of them.

As an employee what do you need to be careful of when you sign a labour contract with an employer?

Labour contract is a law, so when you sign the labour contract it’s better for you to ask for advice. For example, most foreigners are not aware about the limitation of compensation when you get dismissed. In China you have the right to get one month of compensation for each year you are working for. But there is a legal cap of three times the average income of the cities. For example, in Shanghai if you earn more than 25,000 RMB per year, and one day your company decides to dismiss you for good or bad reason, even if you earn 100,000 RMB of salary per month, at the end your compensation will be 25,000 RMB per year of working and if the dismissal is illegal it will be times two. At the end you will get 50,000 RMB per year for the dismissal and your income is 100,000 RMB per year. So the legal cap of the compensation by Chinese law can be very painful for foreigners working in China because there are a lot of spending, for example for the international school, and at the end they will get very few money compared to what they got in their package.

What are the possibilities regarding non-compete terms in a labour contract? After the labour contract has ended, what is required of the employer and employee regarding non-compete terms?

Okay so this is very simple. Chinese law is very similar to the foreign law like French law or UK law or US law. That means each one to have a non-compete terms in your contract, you have to define the scope of the non-competition. It has to be very precise. You need to get geographic scope and a business scope and of course you need to give compensation to the employees. Some Chinese city like Shanghai, from the practice says that you cannot have a non-compete clause under 20% of the salary of the employee. So, you have to check the local rules to be sure that the compensation you will give is enough according to the law and the local regulation.

How many days off or holidays are employees entitled to in China?

Sorry I don’t have the number right now.

Is there a minimum number of holidays?

No there is 5 days minimum but I don’t want to go this way, because frankly speaking I have to check it carefully.

Okay, what are the regulations around short-term contracts?

Okay, for short term contracts according to Chinese law you can only propose two fixed term contracts and for the third one, normally it should be a non-fixed term contract. So, it’s possible to have a fixed term contract but only two times with the same condition. And after for the third one we can still file a third one fixed term contract, but the employee should accept it. If he accepts to sign a third one or fourth one or fifth one, it should be a fixed term contract. But after the seventh term, after the seventh fixed term contract, if the employee asks for a non-fixed term contract, the company will have to give a non-fixed term contract, this is compulsory.

What is the length of the probation period?

The length of the probation period depends on how long is the contract. Normally it should be between one month or three months maximum. For a six-term contract it’s 3 months maximum. It’s possible with the agreement of the employee, but for under one-year contract, it should be one-month maximum trial period.

Any questions? We will find an expert to answer them. Drop your questions in the comments or send us an email – dx@daxueconsulting.com.