As Chinese businesses expand into central and eastern Europe (CEE), they will encounter unfamiliar legal systems and business environments. One of the major challenges they will face will be to work effectively within the labour law regimes of the various CEE jurisdictions, which can differ significantly from PRC labour laws and regulations. Failure to do so is a costly mistake, causing unnecessary friction between management and employees. It is therefore essential for Chinese investors to have a sound understanding of relevant labour law. Each of the countries in the region has its own labour regulations, but as most of them have joined the European Union, employment law concepts are often similar.
Similarly, immigration regulations can have a big effect on the ability of Chinese businesses to bring their senior management personnel into the CEE.
Employers can freely decide whom they wish to hire, provided that the criteria applied are not discriminatory (e.g. age, sex, nationality, race, religion). Employment contracts are more normally used but civil law agreements are sometimes entered into. The latter offer less protection to the contractors (e.g. no paid vacations). Civil law agreements are sometimes regarded by state authorities as a circumvention of labour law guarantees. As a consequence, courts can sometimes rule that employment contracts should replace civil law agreements.
An employment relationship must be established in writing. The employer must be represented by its directors or a duly authorised person. Domestic laws in each country specify the minimum conditions that must be agreed by the parties in order to establish an employment relationship (for example, type of work, salary and term of the contract).
The main contracts in the CEE countries are: permanent contracts, fixed-term contracts and probationary contracts. In some jurisdictions there are legal limits on the maximum terms of fixed term employment in order to stop fixed-term contracts being used for what are, in effect, long-term positions. The maximum term of fixed-term contracts varies from two years in the Czech Republic and Romania to five years in Hungary, while in Poland there is no statutory maximum. The maximum term for probationary contracts varies from 30 days in Romania to six months in Bulgaria. A fixed-term contract can generally only be renewed once, while a probationary employment contract can generally be concluded only once.
Restrictive covenants are permissible in most CEE countries. Post-contract competition bans can only be introduced where there is payment of compensation, which varies from 25% of the relevant employee’s average salary in Poland to 100% in the Czech Republic. In certain jurisdictions the maximum terms of the post-contract competition ban are also provided for, the longest term being a period of three years in Hungary.
Termination of employment
Employment contracts can be terminated by either party. In general, termination can be by notice, with immediate effect, or by entering into an agreement. However, certain restrictions apply if an employer is the initiating party so that it can only terminate employment for a valid reason. In some jurisdictions, such as Bulgaria and the Czech Republic, reasons for termination are expressly set out in the law. Immediate termination can usually only be applied in the case of gross misconduct.
The length of the notice period will differ according to the jurisdiction, the type of employment contract and the employee’s seniority. For permanent contracts, the typical maximum notice period is three months. Some employees (e.g. pregnant women and those on maternity leave) are protected against termination but not always against redundancy. Statutory severance pay, in general, is paid only in redundancy situations and usually depends on the employee’s seniority. The typical maximum is the average of three of the relevant employee’s monthly salaries. However, severance pay may also be due in other circumstances, such as retirement.
Specific regulations will apply to fixed-term contracts and probationary contracts which are generally easier to terminate. For example, in Poland a fixed-term contract can be terminated with two weeks’ notice without justification.
Immigration regulations are specific to each CEE country. However, as a rule, Chinese nationals cannot perform work without first obtaining a work permit and a work visa and/or a residence permit. Generally, it is the employer that must apply for the work permit, while visa and residence permit applications are filed by employees.
It is usually easier to obtain a permit in the case of highly qualified specialists. In most other cases the employer should first offer a position on the local market. Certain jurisdictions provide for limitations on the number of foreign employees that can be employed by the employer (e.g. Bulgaria). The minimum waiting period for obtaining a work permit is approximately one month (e.g. Hungary and Poland). The maximum term of a work permit varies depending on the jurisdiction and/or the type of work performed.
In general, once a work permit is issued, a Chinese national can apply in China for a work visa for the relevant country. Employees cannot perform work using tourist visas. Work permits are usually a sufficient basis to apply for a work visa and a residence permit. The minimum waiting period for obtaining a residence permit is one month (e.g. Hungary). The residence permit is issued for the same term as the work permit and can be renewed. In general residence permits and work visas are only applicable in the country for which they are issued. They are not generally transportable across EU states.
CEE labour laws have evolved since the days of central planning. EU accession has also had a significant impact in legislation. However, the devil lies in the detail. Many countries in the region have unusual provisions which can trap the unwary. Domestic courts are widely recognized as employee friendly. Therefore, careful analysis of employment legislation should be undertaken when evaluating whether to invest in a country and, subsequently, on a continuing basis.
Iain Batty is a partner at CMS Cameron McKenna in Poland and head of the firm’s international commercial, regulatory and disputes practice. He may be contacted on +48 22 5205505 or by email at email@example.com
Katarzyna Dulewicz is a partner at CMS Cameron McKenna in Poland and head of the firm’s employment law practice in central and eastern Europe. She may be contacted on +48 22 5205519 or by email at firstname.lastname@example.org