Navigating the complexities of employment law is crucial for companies operating in China. A well-drafted employment agreement is the cornerstone of a compliant and stable employment relationship, clearly defining the rights and obligations of both the employer and the employee. These contracts must adhere strictly to the provisions of the People's Republic of China (PRC) Labor Contract Law and other relevant regulations, which are designed to protect employee rights while providing a framework for business operations.
Ensuring your employment agreements are fully compliant with Chinese law is essential to avoid potential disputes, penalties, and legal challenges. Understanding the different types of contracts, mandatory clauses, and specific regulations around areas like probation, confidentiality, and termination is key to building a successful workforce in the country.
Types of Employment Agreements
Chinese law primarily recognizes three types of employment contracts: fixed-term, indefinite-term, and project-based. The most common types are fixed-term and indefinite-term contracts.
- Fixed-Term Contract: This contract has a specific start and end date. It is commonly used for initial employment periods or for roles with a defined duration.
- Indefinite-Term Contract: This contract does not have a fixed end date and continues until a statutory condition for termination occurs. An employee is generally entitled to an indefinite-term contract after two consecutive fixed-term contracts or after working for the same employer for 10 consecutive years.
- Project-Based Contract: This contract is for the completion of a specific task or project. The contract terminates automatically upon the completion of the project.
| Contract Type | Duration | Common Use Cases |
|---|---|---|
| Fixed-Term | Specific start and end date | Initial employment, temporary roles, project work |
| Indefinite-Term | No fixed end date | Long-term employment after qualifying conditions |
| Project-Based | Until specific project is completed | Project-specific roles |
Essential Clauses in Employment Contracts
Chinese law mandates the inclusion of several key clauses in every employment contract to ensure clarity and protect both parties. Omitting these can render the contract invalid or lead to disputes.
Mandatory clauses typically include:
- Employer's name, address, and legal representative or principal.
- Employee's name, address, and resident identity card number or other valid identification number.
- Term of the employment contract.
- Job duties and work location.
- Working hours, rest, and leave.
- Labor remuneration (wages).
- Social insurance contributions.
- Labor protection, working conditions, and occupational hazard protection.
- Other matters that laws and regulations require to be included.
Additionally, parties may agree on other clauses, such as probation periods, training, confidentiality, and non-compete obligations, provided they comply with legal requirements.
Probationary Period Regulations
Probationary periods are permitted in China but are subject to strict legal limits based on the duration of the employment contract. The purpose is to allow both the employer and employee to assess suitability.
- For contracts with a term of less than three months, no probationary period is allowed.
- For contracts with a term of three months or more but less than one year, the probationary period cannot exceed one month.
- For contracts with a term of one year or more but less than three years, the probationary period cannot exceed two months.
- For contracts with a term of three years or more or indefinite-term contracts, the probationary period cannot exceed six months.
An employer can only include one probationary period in a single employment contract. Wages during the probationary period must not be lower than the lowest wage for the same position in the employer's company or 80% of the wage agreed upon in the labor contract, whichever is higher, and must not be lower than the local minimum wage standard.
Confidentiality and Non-Compete Clauses
Confidentiality and non-compete clauses are enforceable in China but require careful drafting and adherence to specific legal conditions.
- Confidentiality: Employers can require employees to keep business secrets confidential. This obligation can extend beyond the termination of employment.
- Non-Compete: Non-compete clauses restrict an employee from working for a competitor or starting a competing business after leaving the company. These clauses are generally only enforceable against senior management, senior technicians, and other employees with confidentiality obligations.
For a non-compete clause to be enforceable, the employer must provide the employee with economic compensation during the non-compete period after the termination or expiration of the contract. The amount of compensation is often subject to local regulations or mutual agreement, but it must be paid monthly. The maximum duration of a non-compete restriction is two years after the termination or expiration of the employment contract. If the employer fails to pay the agreed-upon compensation for three consecutive months without justification, the employee may request the termination of the non-compete agreement.
Contract Modification and Termination Requirements
Modifying or terminating an employment contract in China must follow specific legal procedures and conditions.
- Modification: Any modification to the employment contract requires mutual agreement between the employer and the employee and must be made in writing. Unilateral changes by either party are generally not permitted unless specifically allowed by law (e.g., changes due to force majeure or significant objective circumstances).
- Termination: Employment contracts can be terminated under various circumstances, including:
- Mutual Agreement: Both parties agree to terminate the contract.
- Expiration: Fixed-term contracts expire at the end of their term.
- Unilateral Termination by Employer: Permitted under specific conditions, such as the employee's serious violation of rules, gross negligence, inability to perform duties after training/adjustment, or significant changes in circumstances making the contract impossible to perform. Economic layoff situations also have specific legal requirements.
- Unilateral Termination by Employee: Employees can terminate the contract with 30 days' written notice (or 3 days during probation). They can also terminate immediately under certain conditions, such as the employer failing to pay wages, failing to provide labor protection, or violating laws/regulations.
In many termination scenarios, particularly unilateral termination by the employer without employee fault, the employer is required to pay economic compensation to the employee based on their length of service. The calculation is typically one month's average wage for each full year of service, with specific rules for partial years and maximum compensation limits in some cases. Strict adherence to notice periods and compensation requirements is critical for lawful termination.
