New Labor Contract Law BUSI 3001 SBLC Week 11, Fall 2015 Charles Mo & Company November 16, 2015

Background – New Labor Contract Law Issued on June 29, 2007, effective January 1, 2008 Purpose: Improve basic worker rights amid widespread complaints of withheld wages, unpaid overtime, and worker abuses Applicable to all domestic and foreign companies Established standards for Labor contract Probationary period Severance Mass layoff Non compete clause Penalty for violation

continued Before this law - workers were poorly treated. Majority did not receive contracts, wages were withheld, employer demanded excessive overtime, and dismissed workers anytime without compensation Even if the contract was signed, the contract terms were usually short and vague. Therefore they were difficult to enforce. Some factories withheld wages from the workers regularly until the company made a profit First draft of labor contract law presented in December, 2005 to the Standing Committee of NPC Made public for input from March 20, 2006 to April 20, 2006 The draft sparked heated controversy and debated throughout China 190,000 responses were received. European Chamber and Amcham Shanghai submitted their comments

Law of PRC Labor Contract General Provision Conclusion (signing) of Employment Contracts Performance and amendment of Employment Contracts Termination of Employment Contracts Special Provisions Monitoring Inspection Legal Liability Supplementary Provisions

General Provision Principles Defines the rights and duties of the employer and employee Applicable to all organizations inside China incorporated or non incorporated

Employment Contracts 劳动合同的订立 Article 7- employer/employee relation begins when the employee has started to work. Article 9 - employer is not allowed to withhold employee’s ID card or other ID document Employer is not allowed to demand the employee for a security guarantee or ask the employees any form of monetary deposit as a condition for the job. Article 10- Written employment contract must be signed within one month from the start date. Article types of employment contract Fixed Term Open ended term Term to expire upon completion of a project.

Fixed Term Labor Contract There is an ending date of the contract Date of expiration is agreed between the employer and employee

Article 14-Open Ended Term Contract Agreed between employer and employee, anytime can sign open ended term contract Unless employee choose to fixed term labor contract, otherwise open ended term contract must be signed if: Employee worked for 10 consecutive or more years Even if an employee’s contract term stated less than the actual work period especially for a state enterprise that has restructured the entity resulting a new contract of less years in service. For those employees, the total year of tenure counts. Thus, those employees with 10 consecutive or more years of employment and is less than 10 years away from legal retirement qualify under this rule. An employee renewing the labor contract following 2 consecutive fixed term employment contracts If no written contract is provided and the employee worked for a year, the contract is treated or deemed as open ended

Employment contract with a term to expire Employment contract ends when the project is completed

Article 17 – essential information required for the employment K 1.Name, domicile, of legal representative or main person in charge of the employer. 2. Name, domicile, resident ID card or other ID paper for worker 3. Term of the employment contract 4. Job description and place of work 5. Working hours and vacation 6. Compensation 7. Social welfare insurance 8. Labor protection and working conditions 9. Other requirement by laws 10. May include probation, training, confidentiality of trade secrets (non compete clause)

Article 18 If a dispute arises from disagreement in the rate of compensation or working conditions because they are not explicitly specified in the employment contract, the Employer and the worker may renegotiate a new term.

Probation Period (A 19) Employment termProbation allowed 3 months = Term < 12 months1 month< Probation 1 year < Term < 3 years2 months< Probation Term = or > 3 years or Open Ended 6 months< Probation 1 probation only Term to expire upon project completion or less than 3 months, No probation

Probation Wage must be higher than (A20) Lowest wage level of the same job 80% of the agreed upon wage in contract Minimum wage in that locale (province, township)

Employer provided training (A22) Liquidated damage agreed in the contract can be recovered from the employee: If employee leaves before the agreed service term Damage may not exceed the actual cost of training Damage is allocated to the extent of unfilled service time

Non Compete Clause (A23) Employer must pay the worker to keep confidentiality after the contract has expired. If the worker (employee) breaches the non compete clause, the worker must pay liquidated damage. A24 Non disclosure/non compete is only applicable to senior management, senior technicians, and personnel who have knowledge of trade secrets Non compete term cannot exceed two years.

Article 24 The personnel subject to competition restrictions shall be limited to the Employer’s senior management, senior technicians and other personnel who have knowledge of trade secrets of the employer.

A25 Other than training and non disclosure clause, no other monetary damage may be assessed to the employee on liquidated damage

A26 Invalid Contract Employer: Deception Coercion Taking advantage of the other party’s difficulty Contrary to the party’s real (true) intent Failed to fulfill his responsibility or deny worker’s right Violated administrative law

A27 Partial invalidity of the employment contract does not nullify the remaining provisions of the contract

Article 35 An Employer and a worker may amend the provisions of their employment contract after the contract is signed if they both agree upon discussion.

Employee to terminate contract A37 Worker may terminate employment by a written notice 30 days in advance During probation, a 3 day advance verbal notice is adequate for terminating employment contract

A38 Verbal Notice by Employee to Terminate a labor contract Employer: Failed to provide safety Failed to pay wages Failed to pay social welfare Failed to comply with law Committed deception or used coercion

A39 Employer can terminate an employee Employee: During probation, not qualified for the job Materially violated company policies and procedures Material negligence, graft, causing financial losses to the employer Worked for another employer Material misrepresentation at the time of signing the contract Involved in a Felony (different from civil violation)

A 40 Terminate with 30 day notice or one month wage After the period the medical care prescribed by the hospital due to illness or non work related injury, the employee cannot fulfill the job duty of his original position, or the job responsibility of another position assigned by the HR Department The employee cannot fulfill the job duty after training or change of duty. Circumstances at the time of signed contract have changed rendering the employment contract not executable and no agreement between the parties can be reached

A41 Reduction in Force/Layoff Reduction of 20 employees or 10% of workforce Explain to labor union or all employees 30 days in advance Notify the plan to Labor Bureau Pursuant to bankruptcy law Severe production issue Change in enterprise structure, production technique, still needs to reduce employees Other circumstances changed rendering contract not executable Priority to retain the employee Employees with longer term fixed contract Employees with open end term contract Employee is the only wage earner and needs to support older parents Layoff under bankruptcy. If rehiring starts within 6 months. Those laid off should be rehired first

A 42 Employees cannot be terminated under these conditions even though allowed under A40 or A41 Engaged in occupational disease related line of duty or being diagnosed for occupational related disease. Confirmed harmed by an occupational disease Still within the prescribed medical care period due to an illness or injury Female employee pregnant, during delivery, or nursing time 15 year tenure and within 5 years of legal retirement age Other laws prohibited circumstances

A43 Employer unilateral dismissal of employee Notify labor union in advance the reasons If employer violates the law, union can demand the employer to rectify the termination Employer must respond to labor union in writing

A44 Labor contract terminates upon Contract expires Employee starts to draw basic government pension Employee died or declared dead or missing by the court Employer bankrupt Employer is dissolved, revoked business license, ordered to be closed by government Other administrative law order to end the contract

A46 Severance Pay for terminating contract A38 Failure to pay and provide safe working conditions A40 Employee sick, incompetent, change in circumstance A41 Bankruptcy, reduction in production Consensus Termination A44 if offered the same contract or better, no agreement is reached, contract expires A44 employer license revoked, bankrupt, ordered to cease business

A47 Severance Pay One month per year Less than 6 months 0.5 year, more than 6 months, 1 year Highly paid employee, 3 times the average of company employee and no more than 12 years of work

A 50 Administration of Termination File On the date of termination Employer must issue a proof of termination or ending of the employment contract Within 15 days Arrange the social welfare transfer and employee personnel file transfer Agreed time frame Duty transfer Severance pay For two years Keep the termination file

A74 Monitoring and Inspection State Council’s Labor Administration is responsible for inspection Labor administration at the county level oversees the implementation of employment contract

Article 91 If a new Employer hires a worker whose employment contract with the old Employer has not been terminated or ended, the worker caused the original Employer to suffer a financial loss, the new employer will be liable for any damages.