On 18 September 2008, the State Council promulgated implementing
regulations ("Implementing Regulations") for the PRC
Labour Contract Law, which has been in effect since 1 January 2008.
These regulations address the following key aspects:
Consolidation of Employment Period
An employee's service with a previous employer counts
towards the employment period with a new employer if the job
transfer is based on a reason "not attributable" to the
employee. Examples of such reasons include a transfer due to
business reorganization or group restructuring.
The effect of such service recognition provision is that it
could lead to higher financial implications for employers since
higher severance payment will accrue as the calculation is based on
the period of employment. On the other hand, prior employment does
not count if the employee already received a severance payment.
Signing a Labour Contract
The PRC Labour Contract Law requires an employer and employee to
sign a labour contract after the end of the first month and before
the end of the first year of employment. If they do not, the
employer must pay twice the employee's normal salary. The
Implementing Regulations clarify that an employer will not be
liable if failure to sign is the employee's fault and it has
notified the employee in writing. An employer can also dismiss an
employee who refuses to sign a contract within the first year of
employment if it has notified that employee in writing. Such
employees are only entitled to their regular salary.
The PRC Labour Contract Law introduced the concept of deemed
open-term employment. The Implementing Regulations allow the
contents of an open-term contract to be implied where the employee
and employer have not agreed on them.
The Implementing Regulations provide that an employee may
unilaterally terminate a limited-term labour contract if an
employer is in breach under Article 38 of the PRC Labour Contract
Law, so no liquidated damages will be due from the employee. On the
other hand, an employer may seek liquidated damages from an
employee if an employer's unilateral termination of the
contract is due to the employee's own fault.
The Implementing Regulations clarify that the right of
termination applies not only to open-term labour contracts, but
also to fixed-term contracts and contracts that expire upon
completion of a specified task. Given that they also allow an
employee to terminate by giving the employer 30 days' notice,
the parties may not agree to a longer notice period.
Although the Implementing Regulations provide useful elaboration
of several areas covered by the PRC Labour Contract Law, concerned
parties will continue to look for clarification of remaining open
issues, such as the definition of "temporary",
"auxiliary" or "substitute" jobs placed through
labour dispatch agencies and the meaning of "major
matters" that trigger an employer's obligation to consult
with an employee.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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