Concluding employment contracts in China

By Zoe Zhu, Boss & Young

The Employment Contract Law, which is of fundamental importance to China’s labour law regime, doesn’t distinguish non-local employees from local employees. Theoretically, non-local employees should be availed of the same protection, under the Employment Contract Law and other employment-related laws and regulations, as local employees.

Zoe Zhu
Boss & Young

However, the local practice in Shanghai is the opposite. Even if non-local employees can be availed of protection under the Employment Contract Law, it’s difficult for non-local senior management to be reinstated by the employer upon an unfair dismissal. This article analyzes this dilemma and gives some tips for non-local senior management who are concluding their employment contracts.

A foreign employee cannot enjoy the protection of relevant labour laws and regulations except for such basic labour rights as minimum salary, labour health and safety, and working hours, in accordance with article 2 of the Opinions of Shanghai High People’s Court of Several Issues in the Trial of Labour Dispute Cases. The opinions are not a formal source of law or regulation formulated through the legitimate procedures by a competent authority in accordance with the Legislation Law. However, it has been widely applied to labour disputes between foreigners and their employers by the courts and labour arbitration committees in Shanghai.

After the Employment Contract Law became effective, on 1 January 2008, there were discussions about whether or not the opinions should still be applied, given that this provision was in direct conflict with the Employment Contract Law. Based on the principle of a higher-level law superseding a lower-level law, this provision should have been null and void. But the Shanghai High People’s Court published a Guidance for Hearing Labour Disputes in 2013, which includes the same provision and even extends the applicable scope to Hong Kong, Macau and Taiwan employees, as well as Chinese employees who are permanent residents of other countries.

As a result, when a non-local employee is negotiating an employment contract with his or her potential employer, it’s necessary to include a clause into the employment contract that he or she can enjoy protection under the employment-related laws and regulations in China. Once such a provision is placed in the employment contract, the statutory rights under relevant laws and regulations will become contractual rights that must be protected.

If the employment contract is illegally terminated, there are two types of claims an employee may file – one is compensation for unfair dismissal, and the other is to reinstate the employment relationship with salary paid during the labour arbitration and litigation. The amount of compensation for unfair dismissal is very limited under the PRC employment law, and a senior employee would normally claim for reinstatement of the employment relationship with salary paid during the labour arbitration and litigation when he or she is dismissed unfairly.

However, as a non-local employee, even if he or she can enjoy protection under employment laws and regulations, the employee has a slim chance of winning a case claiming for reinstatement. First of all, the work permit would have expired during the labour arbitration and litigation or, even worse, have been cancelled by the employer right after it unfairly dismisses the employee. Without a valid work permit, the employment cannot be reinstated. Moreover, without a valid work permit, the visa of an employee should be cancelled accordingly as well. As a result, if the non-local employee doesn’t possess a valid visa, he or she might even be deported, not to mention having no recourse to reinstating the employment relationship.

To avoid putting yourself into such an awkward position, the wise move is to agree upon a satisfactory contractual compensation for unfair dismissal with the future employer in the employment contract. Once the employee has a contractual compensation, an employer will think twice before they decide to dismiss him or her unfairly. And even if the employer does dismiss the employee unfairly, the employee could still manage to walk away with decent compensation.

Zoe Zhu is a partner at Boss & Young in Shanghai


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