04/02/2008 08:17:05 AM EST
Dickinson and Harris on China's New Labor Law
On January 1, 2008, China's new labor law goes into effect and those who have employees in China must take various steps to get into compliance and avoid being sued. This Expert Commentary discusses who is subject to the new law and exactly what the necessary compliance entails.
The authors write: The new labor law (for a translation of a draft after the third reading of the new law, see http://www.chinalawblog.com/PRC Workers Law.pdf) is going to apply to all employers, no matter how few employees (even one!) a foreign company might have. It requires all labor contracts be in writing, and it imposes significant penalties on employers for failure to comply. (Article 10). Employees can claim double salary for months worked without a contract for up to 12 months’ salary. (Article 82). This rule is absolutely going to be applied to "informal" employment relationships common to so many foreign businesses doing business in China. Thus, one can expect a whole slew of lawsuits to be filed on January 1, 2009 by employees seeking double damages for the 12 months they just completed without a contract.
The new law will also require that all employers maintain a written employee handbook setting out the basic rules and regulations of employment. (Article 4). Without an employee handbook, an employer will effectively be unable to discharge employees for cause, since “cause” must be determined with reference to the employee handbook. (Article 39). So if a foreign company with employees in China has not yet created an employee handbook for those employees, it should do so immediately.
The new law also greatly limits the use of term contracts and probationary periods, previously popular ways to skirt China's existing labor law regime. Under Chinese law, an employee can be discharged either at the expiration of a term contract or for cause. To avoid the need to terminate for cause, employers in China have typically engaged employees under a series of short-term contracts. This practice is no longer possible under the new labor law. The employer is permitted to enter into a maximum of two term contracts with the employee. (Article 14).