China: China´s Legal Challenges For Optimized HR Management

Last Updated: 5 May 2009

Article by Dr. Iris Duchetsmann and Cynthia Zheng

Owing to different employee protection laws which came into effect in 2008, HR managers in the People's Republic of China face new challenges. These new laws are to have a lasting impact on personnel work. Not only are the labor contracts required to be in line with the legal provisions, but also a dedicated contract management within the HR department is required.

Equal Opportunities Recruitment

The Employment Promotion Law safeguards employees' equality. Discrimination, especially on the grounds of ethnic background, race, gender or religion, is prohibited. There are restrictions, particularly for the recruitment, but also during the further time of employment. For instance, it is illegal to reject an applicant simply because she is a woman or to discriminate against female employees who choose to get married or have children.

The law also protects ethnic minorities, people with disabilities, people who carry contagious diseases and farm workers.

Assessment of Old-Contracts

Beginning 1/1/2008, labor contracts between Chinese employers and their staff have to meet the standards of the labor contract law and its implementation regulations. These laws cover not only contracts with Chinese employees, but also local contracts with foreign employees.

It is important to conclude the labor contracts in a written form. Although the law provides a one month time limit, it is recommended to conclude the contract immediately, in order to avoid any subsequent disputes. If the employer fails to conclude a written contract within a month, the law stipulates a double salary entitlement as sanction for the employer; such lasts as long as the agreement is not concluded for a maximum period of one year from the beginning of employment. After one year, the labor contract is deemed to be open ended.

Surveillance of Fixed-Term Contracts

Fixed term labor contracts have to be paid special attention to. In certain cases it is compulsory to conclude an open ended contract. In particular, it is important to be careful while extending an already existing employment relationship. If the period of an employee's labor contract was restricted twice after the 1/1/2008, the employee is entitled to get a non fixed term contract. The company can not refuse the extension if the employee requests such. Therefore, already when granting the first renewal, the employer has to decide whether he is willing to risk an unlimited employment relationship.

If the company misses the end of a fixed term contract and does not provide a new written or permanent labor contract despite such entitlement, the employee can demand double payment of salary. Possibly the local regulation will bring further requirements, such as a duty of information before the expiration of a fixed term contract.

Use of Probation

With each employee there may only be one probation period. The allowed duration depends on the agreed term of the employment contract and it amounts to a maximum of six months. In general, the salary cannot be less than 80 percent of the agreed later salary. During the probation period it is recommended to control the employee and see whether he is suitable for the job requirements. If not, this leads to a special reason for termination during the probation period, but meets high requirements when being claimed later on.

Termination of work contracts

The unilateral termination of an employee is only possible upon existence of reasons stipulated by law. Therefore, misbehavior or mistakes of the employee and the respective measures taken need to be documented accurately. Before termination information and involvement requirements towards employees, unions and public authorities have to be obeyed.

When the employer initiates the termination of an employment contract, in general the employee is entitled to a severance payment. Not only dismissals, but also termination agreements suggested by the employer and the expiration of fixed-term contracts lead to a compensation entitlement, basically amounting to one monthly salary for each year of employment but being subject to various caps.

Conclusion

Although the legislation of the last year increased the protection of employees and provide for significant sanctions in case of infringements by the employer, with a professional HR organization and training of employees in charge of personnel issues as well as a profound contract management the risk can be minimized.

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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