Implementation Regulations For the Labor Contract Law of the People's Republic of China - A Summary

I. Introductionemployee agree to use such regulations, then the
On January 1, 2008, the Labor Contract Law ofpolicies in that region will be applicable. (Obviously,
the People's Republic of China (LCL) becamethe inclusion of the latter option of utilizing the
effective, resulting in widespread changes in laborpolicies more favorable to the employee point to
policy for all companies and other affectedthe legislative preference for utilizing such
organizations. As is the case with legislating infavorable standards.)e. Wages During Probation
China, many details were left for resolution inPeriod (Art. 15)
implementing regulations, which, in this case, theThe LCL stipulates that wages during the
Implementation Regulations for the Laborprobation period may not be less than the: i)
Contract Law of the People's Republic of Chinaminimum wage for the same position with the
(Implementation Regulations) were issued forsame employer; ii) 80% of the post-probation
comment in May, and then promulgated andwages; and iii) minimum wage in the area in which
effective (in modified form) on September 18,the employer is located.
2008.The Regulations clarify that wages during the
probation period may not be less than 80% of
In the LCL, Employers were defined asthe minimum wage for the same position with the
"enterprises, individual economic organizations,same employer, in addition to repeating the same
non-enterprise private entities and other entities".requirements set out in Items ii) and iii) above.f.
The Regulations further clarify "partnerships suchTraining: Calculation of Training Expenses (Art. 16,
as accounting firms and law firms, and17)
foundations", and branches and offices ofSpecial training expenses are defined in the
companies which have obtained a business licenseRegulations as "training expenses, travel expenses
or registration certificate, as part of the definitionduring the training period, and other direct
of Employers.expenses of the training, as evidenced by
II. Conclusion of Labor Contractsa. Failure toreceipts".
Conclude Written Labor Contract:i. Onus onIf the original labor contract expires prior to the
Employer: Written Contract or Termination (Art.supplemental training agreement's required term
5)of service, then the labor contract will be
If a labor contract is not concluded within oneextended accordingly.
month of commencement of the employmentIII. Termination and Expiration of Labor
relationship, then within this time, the employerContractsa. Employee Termination of Labor
must both: i) serve written notice of thisContract (Art. 18)
requirement, and ii) terminate the employment in[No changes from LCL.]b. Employer Termination of
writing should the employee fail to sign theLabor Contract (Art. 19)
relevant labor contract after written notice by[No changes from LCL.]c. Calculation of One
employer.Month's Wages in Lieu of Notice (Art. 20)
That is, the onus is placed on employer to:i)If an employer opts to pay one month's wages in
generally comply with the LCL;ii) serve writtenlieu of notice upon its termination, the wage will be
notice to employee of requirement to complydetermined based on the wage paid in the
with the LCL's requirement for written laborpreceding month.d. Expiration of Labor Contract
contracts; andiii) if employee fails to comply, thenon Reaching Legal Retirement Age (Art. 21)
terminate the labor relationship in writing;subjectThe Regulations state that labor contracts expire
to further liabilities on its part (discussed below).upon employee reaching legal retirement age.
If the employer terminates the employee inRead in conjunction with the requirement for
accordance with this term, it will not be liable forwritten labor contracts and the associated
severance payment.ii. Double Wage Liability: Oneliabilities, employers must be mindful of
Month to One Year (Art. 6)retirement-age employees, and must re-sign labor
If an employer fails to conclude a written contractcontracts with those who have reached
1 month after commencement of employment,retirement age.e. Termination Notice: Contents
then it will be liable to employee for double the(Art. 24)
wages due between the period of 1 month to theThe Regulations stipulate that the termination
day subsequent to the date on which annotice should contain the following: term of
employment contract is signed.employment contract, date of termination or
If the employee refuses to sign an employmentexpiration, position held, and employee's years of
contract within this timeframe (more than oneservice.f. Mutual Exclusivity: Penalty or Severance
month but less than one year), the employer isCompensation (Art. 25)
entitled to terminate, subject to the additionalIf employer terminates the employment in
requirement for severance.iii. Deemed Open-endedviolation of the LCL and pays compensation to
Labor Contract: More than One Year (Art. 7)the employee according to Article 87 (LCL) (two
If an employer fails to sign a written employmenttimes severance pay due to the employee), then
contract with an employee within one year ofthey will not be required to pay severance
commencement, it shall be deemed to havecompensation to the employee.g. Liquidated
concluded an open-ended labor contract with theDamages: Expansion of Applicability (Art. 26)
employee. The relevant starting date (of theUnder Article 25 of the LCL, liquidated damages
open-ended labor contract) will be the day afterare relegated to situations involving breach of
the term of one year after commencement oflabor/service contract after special training is
employment, and the employer shall still beprovided to the employee, and situations in which
required to sign a labor contract with thethere is a breach of confidentiality and
employee.b. 10-Year Deemed Open-ended Labornon-competition obligations.
Contracts: Calculation of Timei. Prior toArticle 26 of the Regulations state that liquidated
Implementation of LCL (Art. 9, 10)damages will be payable in the following situations
Generally, the LCL prescribes that if an employeewhere labor contracts which contains term of
works for an employer for an uninterrupted termservice must be terminated by the employer
of ten years, then the employer, upon proposalbecause:
by employee, must agree to conclude an1. the employee materially breaches the
open-ended labor contract.Employer's rules and regulations;
In this regard, the Regulations clarify that the time2. the employee commits serious dereliction of
for calculation of such ten-year periodduty or practices graft, causing substantial
commences before the effective date of thedamage to the Employer;
LCL, on the date of commencement of3. the employee has established a labor
employment.relationship with another Employer which materially
The Regulations additionally, in an effort toaffects the completion of his tasks with the
prevent, inter-company transfers designed tooriginal Employer, or he refuses to rectify the
avoid this rule, includes time worked for thematter after the same is brought to his attention
original employer, where the employee is notby the Employer;
transferred due to reasons attributable to him4. the labor contract is established or modified
her.ii. Proposal for Open-ended Labor Contractsagainst the true intention of the Employer as a
(Art. 11)result of deception, coercion or exploitation of the
Presumably in an effort to prevent abuses byfavorable position of employee; or
employers when an employee requests a new5. the employee is charged criminally in
open-ended contract under the: i) consecutiveaccordance with the law.h. Calculation of
ten-year rule, ii) SOE restructuring when anSeverance (Art. 27)
employee has worked for the employer for tenThe Regulations provide that the basis for
years and is ten years or less from retirementcalculation of the monthly wage will be total
age; or iii) conclusion of two fixed-term laborcompensation, including standard wages, bonuses,
contracts, the Regulations provide that theallowances and subsidies over the twelve months
contract negotiations in such instances must be onimmediately preceding termination. (If the
the basis of "lawfulness, fairness, equality, freeemployee has worked less than twelve months,
will, negotiated consensus and good faith".c.the total compensation during the actual time
Termination Clauses Outside LCL Void (Art. 13)worked will be used to determine severance.)
The Regulations state that the employer andFurther, if the wage paid was less than the
employee may not stipulate termination eventsapplicable minimum wage, then the month's salary
outside of those provided in Article 44 of the LCL.must be in compliance with this amount.
Given that Article 44 contains a very wideEmployers must now carefully calculate severance
'basket clause' including 'as provided by laws orpayable, by taking into account all aspects of
other regulations', this clause is rather ambiguous.monetary compensation.
Unless such a clause is meant to be extraneous,IV. Liabilitiesa. Failure to Maintain Register of
we can infer that the legislative intent was toEmployees (Art. 33)
ensure strict compliance with the LCL and LaborEmployers which fail to maintain a register of
Law and other supporting regulations, so that anyemployees may be ordered by labor
termination clauses outside of their scope will beadministration authorities to establish or update
void or unenforceable.d. Minimum Wage: Place ofsuch a register within a set period of time. If the
Registration and Performance (Art. 14)employer fails to do so, they may be fined
If labor regulations and policies (minimum wage,between RMB 2,000 to RMB 20,000.b. Double
labor protection, working conditions, protectionWages (Art. 34)
from occupational hazards, etc.) differ from placeEmployers which fail to pay double wages (for
of registration and performance, then the place offailure to conclude a written labor contract with
performance shall govern the contract.employees) may be ordered by the labor
If, however, the place of registration is moreadministration to do so.c. Placement Companies
favorable to the employee, and the employer and(Art.