News

Labor Contract Law of the People’s Republic of China Effective – January 1, 2008

1 January 2008 – Beijing, China – Promulgated by the Standing Committee of the People’s Republic of China on 29 June 2007, the Labor Contract Law of the People’s Republic of China became effective on 1 January of this year. The impact of this Law will be widespread and its effects have been felt by workers, in both a positive and negative way. 

According to Article · of the Law, all employers will have one month after January 1 to ensure that they are in compliance with the provisions of the Law, or will be subject to liability. Below, we summarize some of the major provisions and changes:

Written Labor Contracts

All full-time employees must have a written labor contract with their employer; if an employer fails to conclude a written agreement within one month of commencing the employment relationship, it will have to pay the employee twice their regular wages for the period in which it fails to conclude a written contract and for those employers who fail to conclude a written agreement for fixed-term employment agreement within one year of the employment start date, the contract will be deemed to be of an indefinite term.

Probation Period

Probation periods are clearly laid out as follows:

3 months to 1-year fixed-term: 1-month probation
1-year to 3-year fixed-term: 2-months probation
3-years-plus fixed-term or indefinite: 6 months probation

Part-time Employees

‘Part-time employees’ are defined as employees who work for a period of not more than 4 hours per day, or more than 24 hours in a week for the same employer. Employment relationships are relatively more flexible, with no requirement for a written labor contract and no requirement for notice on termination by either employer or employee. 

Non-competes

Employers are permitted to include non-compete provisions in employment contracts for senior managers, technical personnel, or other employees who are obligated to keep confidential the employer’s trade secrets. Impliedly, terms must be reasonable, and there is a requirement for payment during the non-compete period, with violation subject to liquidated damage provisions set out in the contract. 

Severance pay

Employers terminating employment relationships with employees must now budget for more certain severance pay requirements under the new law. For each year of service, the employer must pay the employee one month’s wages, up to a maximum of 12 years (months). 

As can be seen, there are significant changes which have been effected under the new law. Given the timeframe between promulgation and effectiveness, along with the additional one month after January 1, those employers who are non-compliant with the law can be certain that enforcement will be standardized and severe. If you have any questions about the law or are unsure whether your company or China subsidiary has met the requirements under the new law, we would welcome you to contact our professionals in this area for a free consultation.