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02. Employment Contracts

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02. Employment Contracts

Minimum requirements

An employer shall execute a written employment contract with full-time employees and the contracts shall include statutory items including, but not limited to, the name and identification of two parties, contract term, job content, working hours, remuneration, social insurance, and workplace protection.

Under the Labour Contract Law, a written employment contract is necessary to establish a full-time employment relationship. However, a part-time employee, who works no more than 24 cumulative hours per week and four hours, on average, per day, is subject to different requirements and may be employed under an oral contract.

The law gives a one-month grace period to employers that commences upon the employee’s first day of work. The employer must execute a written employment contract with the employee within this grace period, otherwise it will owe double wages to the employee for each month of employment after this grace period without a written contract, and such period shall not be longer than 11 or 12 months. The double-wage penalty also applies to the employer if the fixed-term employment contract is not renewed once it expires, but the employee continues to work for the employer. If an employer fails to execute a written employment contract with a full-time employee for over a year, the employer and the employee shall be deemed to have executed an open-ended employment contract.

The Labour Contract Law requires an employment contract to include the following items:

  • name, domicile and legal representative or person in charge of the employer;
  • name, domicile and ID card number or number of another valid identification document of the employee;
  • contract term;
  • job content and place of work;
  • working hours, rest and leave;
  • labour remuneration;
  • social insurance;
  • workplace protection, workplace conditions and protective measures against occupational hazards; and
  • other matters required by laws and administrative regulations.

In addition, an employer and an employee may, in their sole discretion, agree on matters such as probation, training, confidentiality, supplementary insurance, welfare, other incentives and other matters in the employment contract.

Usually, the contents of an employment contract can only be modified in writing after both parties have reached a consensus through mutual negotiation. However, a verbal modification of an employment contract may also be valid if the modification has actually been performed for longer than one month and does not violate any law, administrative regulation, state policy, public order or good morals, and the employee does not raise an objection within one month after the modification.

Fixed-term/Open-ended Contracts

An employer can enter into a fixed-term contract with an employee, but the employer will be obligated to execute an open-ended contract upon the employee’s request after the completion of two fixed terms or employee’s ten years of service.

Employment contracts in China can have three different types of terms: fixed, open-ended or terms that expire upon completion of an assignment. Under the Labour Contract Law, if an employer opts to enter into a fixed-term contract with an employee, after the completion of two fixed terms or employee’s ten years of service, that employer will be obligated to execute an open-ended contract upon the employee’s request. Since open-ended contracts are inherently difficult to terminate, employers may want to use fixed-term contracts for new hires. This would give the employer a chance to evaluate its new employees. If the employee’s performance is deemed unsatisfactory, a fixed-term contract provides the employer with the option of discontinuing the employment relationship at the end of the term.

Trial Period

The length of trial period is stipulated by law and depends on the term of employment contact.

In China, the employee trial period is also known as the probationary period. A probationary period is commonly included in employment contracts. However, Chinese labour law contains restrictions on the length of the probationary period. Probationary periods must conform to the following parameters:

  • where the term of an employment contract is three months or more, but less than one year, the probationary period may not exceed one month;
  • where the term of an employment contract is one year or more, but less than three years, the probationary period may not exceed two months; and
  • where the term of an employment contract is three years or more, or where the term is open-ended, the probationary period may not exceed six months.

The employer may agree on a probationary period with the same employee only once. Probationary periods are not permitted for employment contracts that expire upon completion of an assignment or those with terms shorter than three months.

Notice Period

An employer shall give written notice 30 days in advance or provide one month’s salary in lieu of notice to terminate an employment contract in certain circumstances.

In China, an employee may unilaterally terminate his or her employment contract by giving a written notice 30 days in advance or 3 days in advance during probationary period. On the other hand, an employer may unilaterally terminate an employment contract by giving a written notice 30 days in advance or providing one month’s salary in lieu of notice in the following three circumstances:

  • the employee, after exhausting the legally prescribed period of medical treatment for an illness or non-work-related injury, can perform neither his or her original work nor other work arranged for him or her by the employer;
  • the employee is incompetent to carry out his or her work and remains so after receiving training or an adjustment of his or her work;
  • a major change in the objective circumstances relied upon at the time of conclusion of the employment contract that renders the contract non-performable and, after consultations, the employer and the employee are unable to reach an agreement on amending the employment contract.

In addition, if the employer intends to reduce its workforce by 20 persons or more or by a number that is less than 20 but accounts for 10% or more of the total number of its employees, the employer must explain the situation to the trade union or all employees 30 days in advance,  provide relevant information regarding the employer’s production and operation status and make a formal report to the local labour authorities.

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