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The Draft Labour Contract Law – Practical

Implications

Presented by Pattie Walsh and Lihui Zhou

10 January 2007

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Why has this been Introduced?

• Labour Law in effect from 1.1.1995

• Significant changes in society

• SOES less dominant in the labour market

• Move from rural to urban roles

• Differences in different regions

• The aim is greater protection for Employees

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Why has this been introduced? (cont.)

• Increase in trade union power?

• More cohesive approach to labour regulation

• Incited lots of views and opinions

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Background and Current Status

• The State Council submitted a draft to NPC for a first

reading in December 2005

• NPC circulated a further draft on 20 March 2006 for

public consultation

• Internal amendments – “July version”

• Second Reading – 25 to 29 December 2006

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What is an Employer?

• Employers are the legal “persons” lawfully incorporated

within PRC who independently bear civil liabilities

• Workers will not include (this is subject to on-going

amendment):

• Legal representatives and senior managerial personnel

• Soldiers and armed police

• Full-time students

• Household workers

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What is the Guiding Principle?

“The employers and workers must conclude the

labour contract in accordance with the principles of

legitimacy, fairness, equality, voluntariness, good

faith and unanimity through consultation and must

perform the labour contract in accordance with the

principle of legitimacy and good faith”

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The Employer’s Rules

Rules which relate to immediate interests of

employees (pay, hours, benefits, discipline, etc)

should be discussed with the employee

representatives or with all staff and then agreed

through mutual negotiation

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Disclosure of Information

• Employer to disclose

• Job requirements, working conditions, work place,

occupational hazards, remuneration and other issues

related to the labour contracts “which the workers want

to know”

• Consider non-disclosure agreements at the

recruitment stage?

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Disclosure of Information (cont.)

• Employee to disclose

• Age, physical health, working experience, knowledge

and skill, current employment status

• Consider making the fact the employer has relied on

these representations very clear in the contract itself

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Form of the Labour Contract

• Must be in writing

• 3 categories:

• Fixed term

• Non-fixed term

• “Job basis” i.e. accomplishment of certain work will

trigger the termination

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What Happens if An Employer does not Conclude a written Agreement

• Once a labour relationship is established a written

contract should be signed within one month

• In the absence of a written contract the standards

provided in the collective contract of the employer or

industry applies or if no collective agreement on the

basis of equal pay for equal work

• If no written contract is signed employer must pay

double salary

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Encouragement to Sign Non-Fixed Term Agreements

• If an employer seeks to renew a contract it should

sign a non-fixed term if:

• The employee has worked for 10 years continuously

• The contract is renewed after 2 renewals of fixed-

terms

• Failure to sign non-fixed term results in double

severance payment

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What if the Parties Feel Differently About Whether a Labour Relationship Exists?

• Unless these is clear evidence to the contrary the

worker’s understanding will prevail

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What if the employer accepts there is a labour relationship but the parties disagree on the terms!

• If the event of different understandings on the terms

of the labour contract a “general understanding”

prevails. Where there are 2 or more interpretations

possible the one in favour of the worker will be

adopted

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What must go into the Labour Contract?

• Name address and legal representative of the

employer

• Name and ID number of the worker

• Terms for terminating the labour contract

• Job requirements and work place

• Working hours, rest and vacation

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What about Probationary Periods?

Contract: Less than 1 year - Maximum 1 month

1-3 years - Maximum 2 months

3 years (and - Maximum 6 months

non-fixed term)

• Salary during probation no less than 80% of the

minimum of the same job or the salary in the contract

• No termination unless the employer can show the

employee does not meet recruitment requirements

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Training Expenses

• Employers can agree that workers shall pay

damages if they beach conditions linked to the

provision of training i.e. a service period

• Total damages shall not exceed the total training

expenses (pro-rata for the un-performed part of the

service period)

• This applies to off-the-job-professional, technical, or

vocational training of more than a month

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Non-Competition

• For those who are subject to obligations in the labour

contract

• Period of non-competition no longer than 2 years

• The protection is limited to senior management,

senior technicians and others who know the trade

secrets of the employer

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Terminations

• Through consultation with agreement

• A worker does not satisfy employment standards during

probationary period

• There is a serious violation of the rules and regulations

of the employer

• Deception occurs causing losses to the employer

• Other labour relations with another employer are

established by the worker

• Worker is subject to a criminal liability

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Terminations (cont.)

Following 30 days’ Notice or payment of a month’s

salary:

• After treatment of non-work related injuries the worker

cannot do his/her job and no agreement on modifying

the contract can be reached

• The worker is not competent for the job assigned even

after being trained or given other jobs

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Redundancy

• Restructure under bankruptcy law

• The business operation is undergoing serious

difficulty

• Relocation for pollution prevention

• Other major changes in the objective conditions

according to which the labour contract was

concluded

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Terminations (cont.)

• Redundancy of 20 or more people or more than 10%

of the total staff the employer must inform the trade

union or employees 30 days in advance, listen to

views, and report the redundancy to the labour

authorities

• “Last in First Out” Principle for selecting employees

• Protection for those on longer fixed-term, permanent

contracts, where family member has no job, the

elderly and those under 18

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Terminations (cont.)

No Terminations for the following individuals:

• Those who have lost capability to work due to

occupational disease or job injury

• Those in the period of treatment for diseases or injury

• Workers who are pregnant on maternity leave or in

the breast-feeding period

• Worker’s representatives

• Others determined by law or regulations

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Trade Union Role

• Employer must notify the union before dissolving a

labour contract and the union has the right to raise

opinions

• If there are legal violations the trade union can

demand correction

• The employer must study the opinions of the trade

union and notify the decision in writing

• The trade union shall support and assist a worker who

applies for arbitration or goes to court

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Employee’s termination obligations

Generally 30 days’ notice is required

but various exceptions including:

• The absence of a written labour contract

• It is agreed to increase the notice period following the

provision of off-the-job professional study or vocational

training with fees paid by the employers (a maximum

of 6 months’ notice may be agreed)

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Fixed-Term Contract

• These are still acceptable but

• Economic compensation must be paid if the labour

contract is not renewed

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Practical Tips for Employers

• Audit existing employment and HR management

• Plan new arrangements in accordance with the new

law

• Prepare documentation

• amend existing rules, procedures and contracts and

draft of new ones

• Report to management and notify employees of the

changes

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Q & A

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