Key Points to Consider When Drafting Employment Contracts in China
- China Legal Focus
- Apr 12, 2024
- 4 min read
As China‘s economy continues to grow and evolve, the legal landscape surrounding employment relationships has become increasingly complex. Ensuring compliance with labor laws and regulations is crucial for both employers and employees to protect their respective rights and interests. One of the fundamental aspects of this compliance is the drafting of comprehensive and legally sound employment contracts.
In China, there are several key points to consider when drafting employment contracts:
1. Mandatory Clauses in Employment Contracts
According to Article 17 of the Labor Contract Law, an employment contract should include nine mandatory clauses:
(1) the name, address, and legal representative or principal person in charge of the employer;
(2) the employee's name, address, and resident identification number or other valid identification document number;
(3) the term of the employment contract;
(4) the job description and workplace;
(5) working hours and rest and leave entitlements;
(6) labor remuneration;
(7) social insurance;
(8) labor protection, working conditions, and occupational hazard protection; and
(9) other matters required by law and regulations to be included in the employment contract. While these nine clauses are essential, the absence of any of them does not necessarily invalidate the employment contract. However, the employer may be liable for damages caused to the employee if the contract does not include the mandatory clauses (Article 81).
2. Legally Stipulating Probation Periods
Employers can agree on a probation period when initially signing an employment contract with an employee. The probation period should not exceed one month for contracts lasting between three months and one year, two months for contracts lasting between one and three years, and six months for fixed-term contracts of three years or more or open-ended contracts. Probation periods cannot be agreed upon multiple times with the same employee (Article 19) or for employment contracts lasting less than three months or task-based contracts (Article 39).
If only a probation period is stipulated without specifying the employment term, the probation period is invalid, and the period is treated as the employment term (Article 39). Employers violating the probation period regulations shall be ordered to rectify the situation and compensate the employee based on their probation period salary for any excess period beyond the legal limit (Article 83).
3. Clearly Defining Conditions for Hiring After the Probation Period
Employers should clearly define the conditions for hiring an employee after the probation period. Vague or abstract descriptions may make it difficult for the employer to prove that the employee did not meet the hiring criteria during the probation period, potentially leading to legal risks. Employers should quantify the hiring conditions as much as possible and publicize them to demonstrate that probationary employees are aware of the criteria. It is advisable for employers to obtain written acknowledgment from new hires confirming their understanding of the hiring conditions to mitigate potential disputes.
4. Exercising Caution When Stipulating Liquidated Damages
Apart from training service periods (Article 22) and non-competition agreements (Article 23), the Labor Contract Law prohibits employers from stipulating liquidated damages to be paid by employees (Article 25). Employers should exercise caution when including liquidated damages clauses in employment contracts and ensure compliance with the relevant legal provisions.
5. Clearly Defining Compensation for Damages Caused by Employees
According to the Interim Provisions on Wage Payment (Article 16), employers can deduct compensation for economic losses caused by employees from their wages, subject to the terms of the employment contract. However, the monthly deduction should not exceed 20% of the employee's monthly wage, and the remaining wage should not be lower than the local minimum wage standard.
6. Legally Stipulating Non-Competition Obligations
According to Article 24 of the Labor Contract Law, non-competition obligations can be imposed on senior management personnel, senior technical personnel, and other employees subject to confidentiality obligations. The scope, geographic area, and duration of the non-competition obligation should be agreed upon by the employer and employee and should not violate laws and regulations.
Employers should exercise caution when determining the scope of employees subject to non-competition obligations to avoid unnecessary economic burdens. Additionally, the amount, payment method, and timing of non-competition compensation should be clearly stipulated; otherwise, the non-competition agreement may be deemed ineffective.
7. Avoiding Illegal Clauses
Employers cannot include clauses stipulating fines, requiring employees to provide guarantees or collateral, or allowing the confiscation of employee identification documents (Articles 84 and 25).
8. Clearly Specifying Employee Notification and Delivery Methods
Employment contracts should clearly specify the employee's contact address and require the employee to acknowledge that they can receive documents sent to that address. Employers should also stipulate various delivery methods, such as email and physical address, to facilitate effective communication and management, especially in cases of employee disciplinary actions or absences.
By considering these key points, employers in China can draft comprehensive and legally compliant employment contracts, mitigating potential risks and disputes.
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