Labour Contract Laws in China
Employment in China
Foreigners who travel to China for short periods for business purposes require visas but not residence or employment permits. A foreigner who is to be stationed in China for employment is required to obtain an Employment Permit and Foreigner Residence Permit.
Employment Licence, Employment Permit and Residence Permit There are no restrictions on the number of foreign personnel that may be employed by a foreign investment enterprise or foreign business in China, nor is there a time period imposed on their employment. Foreign investment enterprises are required to submit resumes of their foreign employees to the local labour bureau for assessment. The application for employment permits for foreigners may not be approved should the labour bureau decide that there is local talent with similar background and skills available to deliver comparable services.
If the application is approved, the local labour bureau will issue the Employment Licence and temporary "Z" visa notification letter to the foreign investment enterprise. The foreign personnel will submit an application to the Chinese Embassy in his country of origin for a temporary "Z" visa using the Employment Licence and temporary "Z" visa notification letter. With the issuance of the temporary "Z" visa and the foreign personnel's arrival in China, the foreign investment enterprise will need to submit an application for Employment Permit to the local labour bureau within 30 days of the foreign personnel entering China. A medical examination report is required during the submission of the Employment Permit application.
The Employment Permit is issued with a validity of one year and subject to annual renewal with a valid employment contract. Senior management staff holding appointments such as the Chief Representative, General Manager or Legal Representative/Chairman will be granted an Employment Permit with a validity of two years or more. With the issuance of the Employment Permit, the foreign investment enterprise will then have to apply to the local Exit-Entry Administrative Bureau for a Foreigner Residence Permit for the foreign personnel. The validity period of the Foreigner Residence Permit will depend on the validity period of the Employment Permit as well as the enterprise itself.
Spouses, children under the age of 18 years and parents accompanying the foreign personnel may at the same time apply for residence permits for the same period of time. The application must be supported by valid certification of family relationships.
An additional document required for foreign personnel working for a representative office is a Representative Card/Certificate from the local industry and commerce bureau.
China Labour Law
There are many regulations to specify general human resources aspects. Major of them are Labour Law, Labour Contract Law, Social Contributions regulations and Salary Payment regulations etc. The? regulations include the sections of labour contract, employee handbook, social contributions, salary payment, termination, severance payment and etc. It is a little different about social contributions and salary payment etc. in different cities of China. Under previous regulations, foreign investment enterprises were able to hire and fire staff and establish their own wages and incentive structures.
New labour laws, the most wide-ranging employment legislation ever issued in China, came into effect in January 1995. The laws are being implemented in the various cities and provinces. The labour laws cover such areas as individual and collective labour contracts, working hours, holidays, wages, occupational health and safety, the protection of women and minors, vocational training, social insurance and welfare, labour disputes, and supervision and inspection. Provisions in Chinese laws and labour contracts regulate the employer-employee relationship in a foreign investment enterprise.
Any labour contracts should be separate contracts taken out with individual workers, although many sign one contract with the labour union which acts on behalf of all the workers [Ministry of Labour Social Security MOLSS (1994) No.485]. The latter procedure regulates the enterprise's relationship with the labour union as well as with its employees.
Foreign investors should also be guided by the following labour laws and regulations:
- Rules for the Administration of Employment of Foreigners in China
- Trade Union Law of the People's Republic of China
- Regulations Concerning Minimum Wages in Enterprises
China Labour Contract Law
The new Labour Contract Law (LCL) is adopted on June 29, 2007. It comes into effect on January 1, 2008.
All entities, regardless of the number of employees they have, will be required to comply with the new law and regulations.
Written Labour Contract
The LCL requires all labour contracts to be established in writing. It will impose significant penalties on employers, which fail to comply on new contract laws. Employees reserve a right to claim double payment for months worked without a written contract for up to 12 months' payment. This rule is targeted at companies, which adopt "informal" employment relationships.
The LCL imposes severe restrictions on the use of probationary periods in employment relationships. Probationary periods are permitted, but the length is limited based on the term of the employment contract, with an absolute maximum set at six months. Furthermore, an employee is subject to one single probationary period by the same employer. Wages during the probationary period must also be at least 80% of the contractual wage.
Open Term Contract
Under Chinese law, an employee shall be discharged either at the expiration of a term contract or for a cause. To avoid the need to terminate employee for a cause, employers can choose to continuously hire employees under a series of short-term contracts. This practice is no longer possible under the LCL. The employer is permitted only to enter into a maximum of two term-contracts with the employee. If an employee continues on after the expiration of his second term-contract, the subsequent employment contract is deemed to be an "open-term contract." Under an open-term contract, the employee is employed until he chooses to terminate the contract or when he reaches retirement age. The employer can only terminate the employment contract by discharge of the employee for breach.
Non-competition agreements are restricted. Many foreign employers require most or all of their Chinese employees to enter into non-competition agreements that restrict their right to work for a competitor after termination of employment. The LCL imposes significant restrictions on the use of these agreements. The most important restriction is that non-competition agreements cannot be imposed on all employees. Only senior management and other employees with access to critical trade secrets can be required to enter into a non-competition agreement. The agreement must be limited in duration to two years. It must be limited in geographic scope to a reasonable area and the employer must pay compensation to the employee during the period that the non-competition restriction is in effect.
Written Regulations of Employment - Employee Handbook
All employers must maintain a written employee handbook setting out the basic rules and regulations of employment. This requirement applies to all companies regardless of size and number of employees. The failure to maintain an employee handbook means that an employer will effectively be unable to discharge employees for cause, since "cause" must be determined with reference to the employee handbook.
Termination of Employment
Foreign investment enterprises have the right to dismiss unqualified employees and those who violate the enterprises' rules and regulations. However, they are not permitted to dismiss employees undergoing medical treatment for injuries incurred at work, women who are pregnant and women on maternity leave or he/she has been working for the Employer continuously more than fifteen years and less than five years from retirement age. Notice must be given and compensation must be paid to employees who have been dismissed either within or after their contract period, according to the number of years they have served in the foreign investment enterprise.
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