New Labor Contract Law
BUSI 3001 SBLC
Week 10(11), Spring 2012
Charles Mo & Company
April 16, 2012
Background – New Labor Contract Law
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Issued on June 29, 2007, effective January 1, 2008
Purpose:
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Improve basic worker rights amid widespread complaints of
withheld wages
Address unpaid overtime
Prevent worker abuses
Applicable to all domestic and foreign companies
Established standards for
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Labor contract
Probationary period
Severance
Mass layoff
Non compete clause
Penalty for violation
continued
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Before this law - workers were poorly treated. Majority did not receive
contracts, wages were withheld, employer demanded excessive
overtime, and dismissed workers anytime without compensation
Even if the contract was signed, the contract terms were usually short
and vague. Therefore they were difficult to enforce.
Some factories withheld wages from the workers regularly until the
company made a profit
First draft of labor contract law presented in December, 2005 to the
Standing Committee of NPC
Made public for input from March 20, 2006 to April 20, 2006
The draft sparked heated controversy and debated throughout China
190,000 responses were received.
European Chamber and Amcham Shanghai submitted their
comments
Law of PRC Labor Contract
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General Provision
Conclusion (signing) of Employment Contracts
Performance and amendment of Employment
Contracts
Termination of Employment Contracts
Special Provisions
Monitoring Inspection
Legal Liability
Supplementary Provisions
General Provision
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Principles
 Defines the rights and duties of the employer
and employee
 Applicable to all organizations inside China
incorporated or non incorporated
Employment Contracts 劳动合同的订立
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Article 7- employer/employee relation begins when the
employer has started an assignment for the worker.
Article 9 - employer may not withhold employee ID
card/other ID document
Employer can not demand a security deposit, money, or a
guarantor for the job
Article 10- Written employment contract must be signed
within one month from the start date.
Article 12- 3 types of employment contract
 Fixed Term
 Open ended term
 Term to expire upon completion of a project.
Fixed Term Labor Contract
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There is an ending date of the contract
Date of expiration is agreed between the employer
and employee
Article 14-Open Ended Term Contract
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Agreed between employer and employee, anytime can sign open
ended term contract
Unless employee choose to fixed term labor contract, otherwise open
ended term contract must be signed if:
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Employee worked for 10 consecutive or more years
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Even if an employee’s contract term stated less than the actual
work period especially for a state enterprise that has restructured
the entity resulting a new contract of less years in service. For
those employees, the total year of tenure counts. Thus, those
employees with 10 consecutive or more years of employment and
is less than 10 years away from legal retirement qualify under this
rule.
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An employee renewing the labor contract following 2 consecutive
fixed term employment contracts
If no written contract is provided and the employee worked for a year,
the contract is treated or deemed as open ended
Employment contract with a term to expire
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Employment contract ends when the project is
completed
Article 17 – essential information required for the employment K
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1.Name, domicile, of legal representative or main person in charge
of the employer.
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2. Name, domicile, resident ID card or other ID paper for worker
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3. Term of the employment contract
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4. Job description and place of work
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5. Working hours and vacation
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6. Compensation
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7. Social welfare insurance
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8. Labor protection and working conditions
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9. Other requirement by laws
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10. May include probation, training, confidentiality of trade secrets
(non compete clause)
Article 18
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If a dispute arises from disagreement in the rate of
compensation or working conditions because they
are not explicitly specified in the employment
contract, the Employer and the worker may
renegotiate a new term.
Probation Period (A 19)
Employment term
Probation allowed
3 months = Term < 12 months
1 month< Probation
1 year < Term < 3 years
2 months< Probation
Term = or > 3 years or Open
Ended
6 months< Probation
1 probation only
Term to expire upon project
completion or less than 3
months,
No probation
Probation Wage must be higher than (A20)
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Lowest wage level of the same job
80% of the agreed upon wage in contract
Minimum wage in that locale (province, township)
Employer provided training (A22)
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Liquidated damage agreed in the contract can be
recovered from the employee:
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If employee leaves before the agreed service term
Damage may not exceed the actual cost of training
Damage is allocated to the extent of unfilled service
time
Non Compete Clause (A23)
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Employer must pay the worker to keep
confidentiality after the contract has expired.
If the worker (employee) breaches the non
compete clause, the worker must pay liquidated
damage.
A24 Non disclosure/non compete is only
applicable to senior management, senior
technicians, and personnel who have knowledge
of trade secrets
Non compete term cannot exceed two years.
Article 24
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The personnel subject to competition restrictions
shall be limited to the Employer’s senior
management, senior technicians and other
personnel who have knowledge of trade secrets of
the employer.
A25
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Other than training and non disclosure clause, no
other monetary damage may be assessed to the
employee on liquidated damage
A26 Invalid Contract
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Employer:
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Deception
Coercion
Taking advantage of the other party’s difficulty
Contrary to the party’s real (true) intent
Failed to fulfill his responsibility or deny worker’s right
Violated administrative law
A27 Partial invalidity of the employment contract
does not nullify the remaining provisions of the
contract
Article 35
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An Employer and a worker may amend the
provisions of their employment contract after the
contract is signed if they both agree upon
discussion.
Employee to terminate contract
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A37 Worker may terminate employment by a
written notice 30 days in advance
During probation, a 3 day advance verbal notice is
adequate for terminating employment contract
A38 Verbal Notice by Employee to Terminate a labor
contract
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Employer:
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Failed to provide safety
Failed to pay wages
Failed to pay social welfare
Failed to comply with law
Committed deception or used coercion
A39 Employer can terminate an employee
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Employee:
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During probation, not qualified for the job
Materially violated company policies and procedures
Material negligence, graft, causing financial losses to the
employer
Worked for another employer
Material misrepresentation at the time of signing the contract
Involved in a Felony (different from civil violation)
A 40 Terminate with 30 day notice or one month wage
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After the period the medical care prescribed by the hospital
due to illness or non work related injury, the employee cannot
fulfill the job duty of his original position, or the job
responsibility of another position assigned by the HR
Department
The employee cannot fulfill the job duty after training or
change of duty.
Circumstances at the time of signed contract have changed
rendering the employment contract not executable and no
agreement between the parties can be reached
A41 Reduction in Force/Layoff
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Reduction of 20 employees or 10% of workforce
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Explain to labor union or all employees 30 days in advance
Notify the plan to Labor Bureau
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Priority to retain the employee
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Pursuant to bankruptcy law
Severe production issue
Change in enterprise structure, production technique, still needs to reduce
employees
Other circumstances changed rendering contract not executable
Employees with longer term fixed contract
Employees with open end term contract
Employee is the only wage earner and needs to support older
parents
Layoff under bankruptcy.
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If rehiring starts within 6 months. Those laid off should be
rehired first
A 42 Employees cannot be terminated under these conditions
even though allowed under A40 or A41
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Engaged in occupational disease related line of duty or
being diagnosed for occupational related disease.
Confirmed harmed by an occupational disease
Still within the prescribed medical care period due to an
illness or injury
Female employee pregnant, during delivery, or nursing
time
15 year tenure and within 5 years of legal retirement age
Other laws prohibited circumstances
A44 Labor contract terminates upon
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Contract expires
Employee starts to draw basic government
pension
Employee died or declared dead or missing by the
court
Employer bankrupt
Employer is dissolved, revoked business license,
ordered to be closed by government
Other administrative law order to end the contract
A46 Severance Pay for terminating contract
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A38 Failure to pay and provide safe working
conditions
A40 Employee sick, incompetent, change in
circumstance
A41 Bankruptcy, reduction in production
Consensus Termination
A44 if offered the same contract or better, no
agreement is reached, contract expires
A44 employer license revoked, bankrupt, ordered
to cease business
A47 Severance Pay
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One month per year
Less than 6 months 0.5 year, more than 6 months,
1 year
Highly paid employee, 3 times the average of
company employee and no more than 12 years of
work
A 50 Administration of Termination File
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On the date of termination
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Within 15 days
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Arrange the social welfare transfer and employee
personnel file transfer
Agreed time frame
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Employer must issue a proof of termination or ending
of the employment contract
Duty transfer
Severance pay
For two years
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Keep the termination file
A74 Monitoring and Inspection
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State Council’s Labor Administration is
responsible for inspection
Labor administration at the county level oversees
the implementation of employment contract
Article 91
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If a new Employer hires a worker whose
employment contract with the old Employer has
not been terminated or ended, the worker caused
the original Employer to suffer a financial loss, the
new employer will be liable for any damages.