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Consideration for Foreign Nationals Working in the People’s Republic of China – What is in an employment contract

November 4, 2019 / Marc Alexandre Seince

Working Abroad in China

2- What is in an employment contract

Author: Normand Gauthier

2019-07

Working in China as a foreign national is a great experience for many. However, when employment issues arise, it can quickly become a nightmare. Over the years, I have noticed that the misunderstandings and questions are recurring. Thus, I created this series “Working Abroad in China” which explores and discusses some key matters foreign employees should know. The last article explored the basics. In this second article, the content of an employment contract will be discussed.

Mandatory

Below is the mandatory information that must be included in an employment contract under Chinese jurisdiction:[1]

  1. Employer’s name, domicile, legal representative or major person-in-charge
  2. Employee’s name, domicile, identity card number, or other valid identity certificate number (passport in the case of foreign nationals)
  3. Job description and work locations
  4. Work hours, break time and vacations
  5. Renumeration
  6. Social security
  7. Employment Protection, work conditions and protections against & prevention of occupational harm
  8. Others

Optional

Training, probation, confidentiality and non-competition clauses are not mandatory but may also be included in the contract. Training is uncommon for foreign nationals in China and will not be further elaborated in this article.

Most employment contracts have a probation period clause during which it is easier to terminate the contract. The length allowed for probation varies with the length of the contracts, the longest possible being six months for a contract of three years or more. During probation, the wage can be lower than post-probation. Nevertheless, it cannot be lower than minimum wage and 80% of the post-probation wage or the wage for the same position. It is important to note that there can only be one probation per employee, even when changing position. Below is the maximum probation length according to the employment contract:

Duration of Employment Contract Probation length
Less than 3 months Project-based employment contract No probation
3 months to less than 1 year 1 month
1 year to less than 3 years 2 months
3 years or more Unfixed employment contract 6 months

Confidentiality is also a relatively common clause and usually a requirement to have a non-competition clause. More specifically, the non-competition:

…shall be limited to the senior managers, senior technicians, and the other employees who have the obligation to keeps secrets, or employers. The scope, geographical range and time period for the non-compete shall be stipulated by the employer and the employee…[2]

The non-compete term can be set at most two years and in exchange for not competing, the employer has a duty to compensate the employee. If no amount is stipulated, then 30% of average monthly wage in the past twelve months is assumed and cannot be lower than minimum wage of the city where the labor contract is performed. However the agreed amount may vary per location. For example, in Shanghai it is between 20% and 50%. In cases where the employer does not compensate the employee. The individual can, after three months, request the removal of the non-competition. The time during which the employee performed the non-compete must still be compensated. Similarly, if the removal of the non-compete is requested by the employer, the amount of three months of compensation shall be requested by the employee.

Non-compete are very important clauses since foreign nationals often have limited employment opportunities in China and thus restricting their scope of work has a considerable impact on their employment opportunities. Employees must read and negotiate this clause carefully as to find their precise scope and receive proper compensation. As a reminder, if an employee is violating his non-compete, the employer can request the employee through labor arbitration to stop the infringement and to pay penalty for breaches or damages.

Employee paying the employer

Compensating the employer, in one way or another, is a popular clause in contracts with foreign nationals. In many cases, it can hardly be enforced but used as a deterrent to those who are unfamiliar with the labor law of China. There are only two cases in the Labor Contract Law where the employee shall pay a penalty for breaches of contract: breaching a training or non-competition agreement.[3] Liabilities for damages, which is different from a breach, remains possible for causes such as not respecting a confidentiality agreement and dual employment. A penalty for a breach stipulates costs in the contract, whilst liabilities for damages require the damage to be substantive and the employer should prove it.

Besides these exceptions, according to national law does not recognize penalty for breach of labor contract, whether agreed between the two parties or not. Thus, the nefarious clause stipulating a breach for not completing an employment contract is invalid. A properly drafted clause would be additive rather than subtractive such as receiving an annual bonus.

There are only two cases in the Labor Contract Law where the employee shall pay a penalty for breaches of contract: breaching a training or non-competition agreement.

Other clauses

There are other clauses a foreign national may consider adding in his employment contract to protect himself.

Any form of additional compensation must be clearly stipulated. If there is a bonus or commission, how much is it? How is it calculated? Is there a 13th month wage? It should be in the contract. It must be assumed that anything beyond statutory requirements that is not clearly stipulated in writing is an option rather than an obligation.

How to handle the departure is equally important. The employer will often include handover clauses, and the employee should also add clauses protecting himself when departing. For instance, adding liabilities for the employer in case of uncooperative behavior with the Work Permit cancellation (and giving back the Work Permit Cancellation Notice). Foreign employees being linked to an employer are vulnerable when changing employer and petty employers may abuse this vulnerability. It is a good protection to state that if the employer does not cooperate for the Work Permit cancellation, he will be liable for loss of wage, flight, hotel, attorney’s fees, etc.

That concludes the second article of this series. In short, foreign nationals should be careful what they sign, in terms of both the obligations they accept and of the protections they should have. Believing sweet words thinking the employer can be trusted is a recipe for disaster; everything must be in writing.

This article is a vulgarization of laws and regulations and does not constitute legal advice. The author is not responsible for any loss caused by using any information provided in this article. For more information please contact Normand@Laodongfa.com.For all intent and purpose, the term China in this article refers to the People’s Republic of China.


[1] Labor Contract Law of the PRC (2012 Amendment), Article 17

[2] Labor Contract Law of the PRC (2012 Amendment), Article 24

[3] Senior Executives may have other obligations and duties under the Company Law of the PRC, this article does not explore this topic.