China, Contracts, Labor / Employment

China Employment Contracts: Keep 'Em Current Or Suffer Big Penalties

If you are employing anyone in China without an up-to-date written contract in Chinese, you are at risk for a substantial penalty.

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China-based employers are required to have written employment contracts with all full-time employees that include the following mandatory provisions:

  • Basic information about the employer and the employee;
  • The duration of the contract;
  • A description of the work the employee will be performing;
  • The place of work;
  • The working hours;
  • Rest and leave time;
  • Wages;
  • Social insurance;
  • Applicable labor protections and labor conditions and protection against occupational hazards; and
  • “Other matters required by relevant laws and regulations.”

If an employer goes more than a month without a valid written employment contract with an employee, the employer will be required to pay that employee double the employee’s monthly wage. If a second one-month period  passes without a valid written employment contract (even if the employee refuses to enter into a written contract), the employer must pay applicable economic compensation upon termination of that employee.

If an employer goes more than a year without a written employment contract with an employee, the employee lacking the written employment contract will be deemed to have entered into an open-term labor contract the employer, which essentially means there is no definitive end date to the labor relationship. If this happens, it becomes nearly impossible to terminate an employee without having to pay multiple years of wages.

It is important to note that the above rules apply to foreign employees working in China and that some Chinese labor arbitration commissions and courts do not recognize anything other than Chinese language agreements as a valid written employment contract.

Now consider this incredibly common situation. An employer and an employee execute a fixed-term written employment agreement. After that contract expires, the employer and the employee do not renew the contract, but the employee continues working for the employer. Will the employer be penalized for not having a written labor contract with the employee?

None of the national rules provide clear guidance on this issue and so (like so many China employment law issues) the answer will depend on the employer’s location.

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The Beijing Labor Bureau is of the clear opinion that if an employee keeps working after a written contract has expired, there is no valid written contract and the employer must pay double the employee’s monthly wage for all work performed after the initial written agreement expired. So if you are employing anyone in Beijing under anything other than a still-valid written employment contract, you can (and probably will) get hit with a double-wage penalty for continuing to employ someone after his or her labor contract has expired.

And if I have not scared you enough already, let me note that in addition to the double wage penalty payable to the employee, the relevant authorities usually also fine (sometimes quite substantially) the employer for failing to execute a new written labor contract with their employee.

Though most cities are less clear than Beijing regarding double wages, my law firm’s China lawyers are aware of a number of companies outside Beijing that either have paid a double-wage penalty or settled with an employee as though that was a real possibility. If you are employing anyone in China without an up-to-date written contract in Chinese, you are at risk for a substantial penalty.

Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at [email protected].

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