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China: Contracts of employment

Original and updating author: Huimin (Laura) Wang, Squire Patton Boggs
Consultant editor: Cindy (Xintian) Zhang

Summary

  • All employment contracts must be in writing, with the exception of part-time work contracts. (See General)
  • A probationary period is not required but is permitted except in certain specified cases. (See Probationary periods)
  • Statute provides for three types of written contract, which are: open-ended contracts; fixed-term contracts; and specific-task contracts. (See Types of contract)
  • Written employment contracts must include certain specified information. (See Written statement of terms of employment)
  • An employment contract cannot be varied without the employee's consent. (See Variation of contract)

Note

This guide focuses on the law generally applicable to the whole of China. However, there may also be local rules applicable to certain provinces, cities and economic areas. The local laws may be supplementary to, or on some issues a substitute for, the provisions of the national laws. Notable cities where local laws exist include:

  • Beijing;
  • Shanghai;
  • Shenzhen; and
  • Guangzhou.

General

All employment contracts must be in writing, with the exception of part-time work contracts (see China: Employee rights > Part-time workers). Written employment contracts must contain certain specified terms (see Written statement of terms of employment).

A written contract must be signed within one month after an employee starts to work for an employer.

If, within one month after the employment relationship starts, an employee refuses to sign a written employment contract offered by the employer, the employer is technically required to terminate the contract with written notice (see China: Termination of employment > Notice periods) and pay the employee for the time worked, but is not obliged to make a severance payment (see China: Termination of employment > Severance payments). In practice, however, employers are able to continue the employment relationship after the first month provided that if the employer terminates the employment relationship within its first year, it makes a severance payment to the employee (see China: Termination of employment > Severance payments).

If the employer fails to sign a written employment contract within one month of the employment starting, it is obliged to pay the employee at double the normal monthly wage rate from the second month of the employment until a contract is signed or the employment has lasted a year. If, one year after the date that the employment started, a written employment contract has still not been signed, the employee is considered to be employed on an open-ended contract, even if originally employed on a fixed-term basis.

If an employment contract does not contain clear provisions as to the employee's remuneration, employment conditions or other matters, the employer and employee may renegotiate the contract. If this is unsuccessful, the pay and conditions will be set by the relevant provisions of any applicable collective agreement (see China: Industrial relations > Collective bargaining and agreements). If there is no applicable collective agreement, or the agreement does not contain relevant provisions on pay, the employee must receive equal pay (see China: Pay and benefits > Equal pay) with other employees with similar job responsibilities. If there is no applicable collective agreement, or the agreement does not contain relevant provisions on employment conditions or other matters, these will be governed by the relevant legislation.

An employment contract is invalid or partially invalid if:

  • it is concluded or amended by means of deception or coercion, or taking advantage of the vulnerable position of the other party, thereby causing that party to act against its true intentions;
  • it provides for an employer to renounce its statutory responsibilities or deny the employee his or her legal rights; or
  • it breaches the mandatory provisions of laws or administrative regulations.

If a court or arbitration body determines that part of a contract is invalid, and this does not affect the validity of the rest of the contract, the rest of the contract remains valid. If a contract is determined to be wholly invalid, and the employee has performed work for the employer, the employer must still pay the employee for this work, based on the remuneration of other employees of the employer in the same or similar jobs.

Legislation provides that a non-competition clause - whereby the employee is bound not to engage in activities similar to those carried out by the employer for a given period - may be included in the employment contracts of only senior managers, senior technical staff and other employees under a confidentiality obligation to the employer (for example, because they have access to its business secrets). A non-competition clause may apply for a maximum of two years after the employment ends, and the geographical area covered must be reasonable. The ex-employee must receive monthly compensation from the employer during the term of the competition restriction. In some provinces and municipalities, local rules provide guidance on the level of this compensation.

If a non-competition clause does not specify the compensation due during the term of the restriction, and the employee complies with the non-compete obligation, the Supreme People's Court will support the employee's claim for non-competition compensation at the rate of 30% of the employee's average monthly salary (or the minimum wage, whichever is higher) over the previous twelve months. Further, the Supreme People's Court will support an employee's claim to be released from a non-competition provision if the employer fails to pay the employee non-competition compensation for three months or more. However, the compensation rates for non-competition clauses vary at regional levels and are based on the rates awarded by local courts.

During the non-compete period, the employer can unilaterally terminate the non-compete obligation by paying the employee an additional three months non-competition compensation. However, if the employee breaches the non-competition clause, he or she must, in addition to paying a contractual penalty to the employer, continue to observe the non-compete obligation if the employer requests him or her to do so.

An employment contract can provide for the employee to pay a penalty to the employer if:

  • the employee breaches a non-competition clause; or
  • the employee breaches a confidentiality clause in relation to trade secrets and intellectual property; or
  • the employee breaches a contractual provision whereby he or she agreed to work for the employer for a certain period in exchange for the employer paying for specified training (see China: Training and development > Training agreements).

Probationary periods

A probationary period is not required but is permitted except in the cases of:

The probationary period must be specified in the employment contract and an employee must not be subject to more than one probationary period with the same employer. The statutory maximum probationary period is:

  • one month in the case of fixed-term contracts with a term of at least three months but less than one year;
  • two months in the case of fixed-term contracts with a term of at least one year but less than three years; and
  • six months in the case of open-ended contracts and fixed-term contracts with a term of three years or more.

During a probationary period, the employee's pay rate may not be lower than 80% of the lowest point on the wage scale that applies to the job, or 80% of the normal wage specified in the employment contract. In no event may the pay rate be lower than the applicable statutory minimum wage (see China: Pay and benefits > Minimum wages).

During a probationary period, the employer can dismiss the employee summarily without notice if the employee fails to satisfy the recruitment requirements, as well as for the specified serious reasons that apply to all employees (see China: Termination of employment > Summary termination). The employee can resign with three days' notice during a probationary period.

Types of contract

Contracts for part-time employment need not be in writing and are subject to a number of specific rules, notably that they must not provide for a probationary period and can be terminated at any time by either party without notice and with no entitlement to a severance payment for the employee (see China: Employee rights > Part-time workers).

All other employment contracts must be in writing. Statute provides for three types of written contract, which are:

Employees with any of these three types of contract have the same employment rights. One of the few differences between the contracts (apart from the expiry provisions) is that fixed-term contracts with a duration of less than three months, and all contracts for the duration of a certain task, cannot provide for a probationary period (see Probationary periods).

The employer and employee are generally free to decide on whether to sign an open-ended, fixed-term or specific-task contract. However, in certain circumstances, the employer is obliged to offer an employee an open-ended contract, unless the employee prefers to sign a fixed-term contract. Broadly, this applies after an employee has 10 years' continuous service with the employer, or has completed two successive fixed-term contracts with the employer (see China: Employee rights > Fixed-term workers).

Written statement of terms of employment

Written employment contracts (see Types of contract) must at least specify:

  • the employer's name and address and the name of its legal representative or main person in charge;
  • the employee's name, address and identity card number (or the number of another valid identity document);
  • the term of the contract;
  • the job description;
  • the place of work;
  • the hours of work and rest;
  • the annual leave;
  • the remuneration;
  • the social insurance provisions applicable (see China: Pay and benefits > Income tax and social security); and
  • health and safety arrangements, working conditions and protection against occupational hazards.

Statute specifies that the parties may also agree to include in the contract matters such as probation periods (see Probationary periods), training (see China: Training and development > Training agreements), confidentiality, non-competition (see General) and supplementary insurance and welfare benefits.

Variation of contract

An employment contract cannot be varied without the employee's consent. Any modifications to a written contract must be made in writing. However, if a variation to the employment contract has been agreed orally, and the employer and employee have worked under the amended contract for more than one month without any objection, the court will not support a claim that the variation is not valid because it was not made in writing, as long as the amendment does not violate legislation or state or public orders.

Sources/references

Employment contracts are governed mainly by the Labour Contract Law and its implementing Regulations.