Member Article

The Labour Law of the People’s Republic of China (“Labour Law”) is applicable to all employment relationships between individuals and enterprises in China. However, local governments of provinces, autonomous regions and municipalities may, and most of them do, issue detailed measures and rules for the implementation of the Labour Law. Such detailed measures are promulgated based on the Labour Law, with changes and specific details made in light of the local conditions. Thus, when dealing with China labour or employment matters, reference should always be made to the local regulations (in addition to the Labour Law), particularly as regards social insurance benefits and welfare benefits. The Labour Law requires the establishment of an employment or labour contract (“Contract”) between the employer and employee for the purposes of recording an employer-employee relationship. The Contract is required to be made in writing and must necessarily be based on the principles of equality, voluntariness and mutual consent. If the Contract is not concluded based on such principles or is otherwise in violation of any PRC laws, administrative rules or regulations, the Contract may be treated as invalid in its entirety, or as regards the affected parts only, depending on the seriousness and nature of the violations. Any dispute over the validity of the Contract or otherwise should in the first instance be referred to the relevant labour dispute arbitration committee (being part of the labour tribunal) for determination, and if the employer or employee concerned does not find the arbitration outcome acceptable, either side may refer the matter to the relevant People’s Court for a judgement to be made. The Contract should deal with the following: 1. term or duration of the Contract; 2. job description or the scope of work to be performed; 3. labour/employment protection and working conditions; 4. labour/employment remuneration; 5. labour/employment disciplines; 6. conditions for termination of the Contract; and 7. responsibilities for breach of the Contract. The parties are free to agree on other matters for inclusion in the Contract. It is in fact common to agree on a probationary period, the employee’s duty to observe confidentiality or non-disclosure obligations, non-competition covenants, etc. The Contract may be terminated at any time by mutual agreement between the employer and employee. Severance is generally payable to the employee on termination of the Contract, save in the case of a summary dismissal or where termination is due to the employee’s resignation. Where severance is payable, it is calculated with reference to the: • number of years of service rendered; and • average monthly income based on the employee’s income for the 12-month period immediately preceding the date of termination (and “income” includes base salary, bonus, subsidy, allowance, commission, etc., paid to the employee). The severance amount payable equals the average monthly income multiplied by the number of years of service. In most localities, an incomplete year of service is treated as a full year for purposes of calculating the severance.