| I. EMPLOYMENT LAW LEGISLATION | | | | Not all employees can nor should be bound by |
| 1. What legislation governs employment law in | | | | non-competition obligations. The Labour Contract |
| China? | | | | Law limits employees who may be bound by |
| Employment law in China is governed by a | | | | non-compete obligations to: |
| relatively comprehensive set of laws, more | | | | - senior management; |
| recently supplemented in late 2007 to strengthen | | | | - senior technical personnel; and |
| workers' rights. | | | | - those employees who have access to business |
| Major laws include: | | | | secrets of the employer. |
| - Labour Law of the People's Republic of China | | | | It is required that the employee and employer |
| (1994) ("Labour Law") | | | | conclude a written agreement, either separately |
| - Labour Contract Law of the People's Republic of | | | | or in the labour contract, with regards to term, |
| China (2007) ("Labour Contract Law") | | | | scope, territory, compensation during the |
| - Labour Arbitration and Dispute Resolution Law of | | | | non-compete period and liquidated damages for |
| the People's Republic of China (2007) ("Labour | | | | employee breach. |
| Arbitration Law") (effective May 1, 2008) | | | | The maximum term for the non-compete is 2 |
| - Trade Union Law of the People's Republic of | | | | years. |
| China (1994) | | | | 2. What are the typical compensation |
| These laws and then supplemented by a myriad | | | | requirements for non-competes? |
| of national and local laws, regulations, measures | | | | Although it is required that compensation be paid |
| and circulars. | | | | on a monthly basis to the employee during the |
| 2. Are there different laws which govern | | | | non-compete period, the law does not state a |
| foreign-invested employers and domestic Chinese | | | | standard amount. In practice, it is common to pay |
| employers? | | | | at least 50% of the employee's wages. |
| The Regulations on Labour Management in Foreign | | | | 3. Are liquidated damages permissible for breach |
| Investment Enterprises (1994) governs | | | | of non-compete obligations? |
| employment by Sino-foreign equity and | | | | Yes. |
| cooperative joint ventures, along with Sino-foreign | | | | V. TERMINATION AND 'LAYOFFS' |
| joint stock companies. The Regulations very much | | | | 1. Under what circumstances can an employee be |
| mirror that of the Labour Law. Additionally, as any | | | | terminated without notice? |
| inconsistency with the Labour Law will be resolved | | | | An employer may terminate an employee without |
| according to the higher-level law, little reference is | | | | requirement for notice in the following situations: |
| made to these Regulations. | | | | - during the probation period, if the employee is |
| II. LABOUR AGREEMENTS | | | | determined to be unfit for the position; |
| 1. What are the different types of employment | | | | - employee materially breaches employer's rules |
| contacts? | | | | and regulations; |
| Employment in China, like most other jurisdictions, | | | | - employee engages in serious dereliction of duty, |
| is divided into full-time and part-time. According to | | | | graft or corruption causing substantial damages to |
| the Labour Contract Law, part-time employment | | | | the employer's interests; |
| is defined as a labour relationship in which the | | | | - employee has established an employment |
| employee works, on average, no more than 4 | | | | relationship with another employer and that |
| hours per day and no more than the aggregate | | | | relationship affects the completion of his tasks |
| of 24 hours per week. | | | | and he refuses to appropriately remedy the |
| Employment relationships which exceed the hours | | | | situation after employer notification; |
| in this definition are termed full-time employment, | | | | - employee used fraud in concluding the labour |
| which is further divided into 3 types: | | | | contract; or |
| 1) fixed term: expiry date agreed upon at outset; | | | | - employee is subject to criminal investigation. |
| 2) open-ended / non-fixed term: no expiry date | | | | 2. Under what circumstances must an employee |
| stipulated; or | | | | be given notice of termination? |
| 3) project-based / completion of defined task: | | | | An employer must give 30 days' prior written |
| contract to expire on completion of pre-defined | | | | notice or payment in lieu thereof, if it terminates |
| project or task. | | | | the labour contract under the following situations: |
| 2. What are the requirements of a labour | | | | - the employee is unable to perform his original |
| contract? | | | | duties or re-assigned duties, after returning from |
| According to the Labour Law and the Labour | | | | medical leave or non-work-related injury; |
| Contract Law, other than part-time employment, | | | | - the employee is incompetent and remains |
| all labour contracts must be in writing and contain | | | | incompetent after training or adjustment of |
| the following terms: | | | | position; or |
| - name, address and legal representative of the | | | | - the occurrence of a major change of objective |
| employer; | | | | circumstances which were relied upon when |
| - name, address and identification number of the | | | | signing the labour contract, and the employee and |
| employee; | | | | employer are unable to agreed on modified terms |
| - term of labour contract; | | | | of the labour contract. |
| - job description and work site; | | | | 3. Under what circumstances may an employee |
| - working hours, rest and vacation; | | | | terminate the labour contract without notice? |
| - labour remuneration; | | | | An employee may unilaterally terminate the |
| - social insurance; | | | | employment contract without requirement for |
| - labour conditions, working conditions and | | | | notice in the following instances: |
| occupational hazard prevention; and | | | | - employer fails to provide labour protections and |
| - other matters stipulated by laws and regulations. | | | | working conditions in accordance with the labour |
| If the labour contract contains a probationary | | | | contract; |
| period only (sometimes called "a probationary | | | | - employer fails to pay remuneration in full and on |
| period contract"), then the probation term set out | | | | time; |
| therein is deemed to be the term of the labour | | | | - employer fails to pay social security payments in |
| contract and the probationary period is invalidated. | | | | accordance with the law; |
| 3. What are the penalties associated with not | | | | - employer's rules and regulations violate laws and |
| signing a written employment agreement? | | | | regulations, harming the employee's rights and |
| A labour relationship commences on the date on | | | | interests; |
| which the employee commences work for the | | | | - employer uses fraud, coercion or the |
| employer, and by law, it is required that a written | | | | employee's unfavorable position to conclude the |
| labour contract be concluded within one month of | | | | contract; or |
| this time. | | | | - other situations set out in laws and regulations. |
| If a labour contract is not concluded within the | | | | 4. In what instances is compensation required and |
| one month of commencement, the employer will | | | | how much? |
| be liable to the employee for double labour | | | | Severance compensation is due in a number of |
| remuneration, of up to 1 year. After 1 year with | | | | situations, which are summarized below: |
| no written labour contract, fixed-term labour | | | | - termination by employee under situations which |
| contracts are deemed to be open-ended. | | | | result in his right to terminate the contract |
| 4. What is the maximum probationary period | | | | immediately (Item 3, discussed previously); |
| allowable by law? | | | | - termination by employer under situations which |
| Maximum probation periods allowed by law are as | | | | require 30 days' prior written notice (Item 2, |
| follows: | | | | discussed previously); |
| - less than 3 months: no probation period; | | | | - the employee is terminated due to restructuring |
| - 3 months to 1 year: 1 month; | | | | or difficulties in business operations; |
| - 1 year to 3 years: 2 months; and | | | | - the labour contract is terminated after being |
| - 3 years or more or open-ended: 6 months. | | | | proposed by employer and there is mutual |
| 5. If I am in the process of establishing a | | | | agreement on termination; |
| company in China, however, need to hire | | | | - a fixed-term labour contract expires (except |
| employees in the interim, what can I do? | | | | where employee refuses to renew the contract |
| Technically, as your China company cannot yet | | | | on terms equal to or better than previously |
| contract, it cannot hire employees until it meets all | | | | concluded); |
| the formal registration requirements. However, as | | | | - termination of labour contract due to revocation |
| business requirements dictate that you will need | | | | of employer's business license; and |
| staff immediately or soon after you get started | | | | - termination of labour contract due to |
| in China, many foreign companies contract with a | | | | bankruptcy. |
| labour services provider such as CIIC or FESCO | | | | Employers must pay severance in the amount of |
| to hire the employees and then second them to | | | | one month's salary for each year of service, with |
| their start-up operations. They then, either | | | | half a month's salary for each partial year. |
| transfer their employment contracts when | | | | If the employee earns more than 3 times the |
| established or continue to maintain the labour | | | | average monthly wage of the locality, then the |
| services relationship. | | | | compensation will be capped at 3 times the |
| III. WAGES, BENEFITS AND SOCIAL SECURITY | | | | average monthly wage, up to a maximum of 12 |
| 1. What are the components of wages or | | | | months. |
| salaries? | | | | 5. Can employees be 'laid off'? |
| According to the Provisional Regulations for the | | | | Under the following circumstances, labour |
| Payment of Wages (1994), wages or salary are | | | | contracts may be terminated due to business |
| composed of: | | | | difficulties: |
| - wages based on time; | | | | - restructuring due to the Enterprise Bankruptcy |
| - wages based on piece-work; | | | | Law; |
| - bonuses; | | | | - serious difficulties in production or operations; |
| - subsidies; | | | | - a staff reduction is necessary due to changes in |
| - allowances; | | | | production, technical innovation or adjustment of |
| - overtime payments; and | | | | management operation style; or |
| - wages paid under special circumstances. | | | | - other major changes in economic circumstances |
| According to the Minimum Wages Provisions | | | | relied upon at the time of conclusion of the labour |
| (2004) and based on the minimum wage | | | | contract, rendering them non-performable. |
| standards promulgated locally, employers may not | | | | For large-scale layoffs (20 or more employees, or |
| pay their employees less than the current | | | | in smaller organizations where employee layoffs |
| minimum wage standard. | | | | are less than 20 employees but this accounts for |
| 2. What are the standard working hours and | | | | 10% or more of the total employees), the |
| when am I required to pay overtime? | | | | employer must first explain the circumstances to |
| The standard working hours in China are 8 hours | | | | the trade union or all employees (where there is |
| per day, 5 days per week, for a maximum | | | | no trade union) 30 days in advance, and may |
| working period of 40 hours, with 2 rest days | | | | reduce the workforce only after consideration of |
| (typically Saturday and Sunday). Any additional | | | | the opinions of the trade union or employees and |
| requirements by the employer must be | | | | reporting the restructuring plan to the labour |
| compensated according to the standard set out | | | | administration. |
| below: | | | | VI. LABOUR ARBITRATION AND DISPUTE |
| - Working days: 150% standard wages; | | | | RESOLUTION |
| - Rest days: 200% standard wages; and | | | | 1. How are labour disputes resolved in China? |
| - Holidays: 300% standard wages. | | | | Like most jurisdictions, mediation is the preferred |
| 3. What are the national public holidays? | | | | method of dispute resolution, however, this is a |
| National public holidays (as of 2008) are set out | | | | voluntary process. The Labour Arbitration Law |
| below: | | | | provides that mediated settlement agreements |
| - New Year's Day (January 1): 1 day; | | | | for salaries, medical fees for job-related injuries, |
| - Spring Festival (lunar new year, typically January | | | | severance and penalties may be entered into |
| or February): 3 days; | | | | court for enforcement. |
| - Women's Day (March 8): half day for women; | | | | Labour dispute claims, according to the Labour |
| - Qingming Festival (April 5): 1 day; | | | | Law and the Labour Arbitration Law, must first |
| - May Day (May 1): 1 day; | | | | be submitted to the local labour arbitration |
| - Dragon Boat Festival (5th day of 5th lunar | | | | committee located in the jurisdiction of the |
| month): 1 day; | | | | employer. The labour arbitration committee must |
| - Mid-autumn Festival (15th day of the 8th lunar | | | | then render its award within 45 days after the |
| month): 1 day; and | | | | dispute has been accepted. |
| - National Day (October 1 - 3): 3 days. | | | | Arbitration decisions are final for employers in the |
| 4. What are the social security payments required | | | | following instances: salaries, medical fees for |
| by law? | | | | job-related injuries, severance, and penalties, |
| Employers are obligated to provide the following | | | | where the disputed amount does not exceed an |
| benefits and social security payments to | | | | amount equal to 12 months' local minimum wage. |
| employees: | | | | Employees and employers (with the exception of |
| - Basic old age insurance; | | | | those instances set out previously) may within 15 |
| - Unemployment insurance; | | | | days of the arbitration award submit the dispute |
| - Medical insurance; | | | | to the people's court for hearing. |
| - Maternity insurance; and | | | | 2. What is the statute of limitations for bringing a |
| - Work-related injury insurance; | | | | labour dispute claim? |
| The employee and employer jointly contribute to | | | | The limitation period is 1 year after the employee |
| the first 3 types of insurances, while the | | | | knew or should have known that their rights have |
| employer alone contributes to the latter 2, with | | | | been infringed, however, if the dispute occurs |
| rates varying based on location of employment. | | | | under an existing labour contract, the limitation |
| IV. NON-COMPETE AND CONFIDENTIALITY | | | | period does not start until the labour contract has |
| 1. Can all employees be subjected to | | | | expired or has been terminated. |
| non-compete obligations? | | | | |