Employment Rules

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HR issues are already among the most pressing faced by managers in China (see here on the talent squeeze and war for talent and retention), but the FT reports even tougher times ahead due to employment contract law and increasing unionization pressures.

The article, written by lawyers at Baker & McKenzie provides the following summary of key provisions of the draft employment law, that was completed in December 2006:

    • ”Fixed-term contracts. Most companies use fixed-term contracts because of the difficulty of terminating employees in China. The December draft limits their use to two terms before an open-term contract must be signed. In addition, employers have to pay severance to employees if fixed-term contracts expire.”

    • ”Training bonds. Many companies try to prevent early resignation by employees they have spent time and money training by requiring minimum periods of service and repayment of all or part of training costs in the event of early resignation. The December draft requires that, for this type of agreement to be enforceable, there must be a minimum training time of one month and it must be full-time, off-the-job training. Thus, employers cannot impose training bonds on distant learning courses or internal training.”

    • ”Company rules/Codes of Conduct. Company rules and codes of conduct are important instruments in maintaining discipline in the office and compliance with policies. Under the December draft, unions or employee representatives must be consulted prior to implementation. It is unclear what exact procedures must be followed in order for this consultation requirement is satisfied.”

    • ”Mass lay-offs. Current law does not provide a clear legal basis for mass lay-offs except in extreme circumstances. The December draft allows mass lay-offs but makes these subject to consultations with the union or employee representatives. They will also depend on social selection criteria – for example giving greater protection to employees who are the sole breadwinner in a family. These procedural requirements are triggered if 20 or more employees or 10 per cent or more of the workforce is to be terminated.”

It also points out that, although the provisions do increase the burden on employers in relation to employee rights, there are somewhat toned down compared to the original proposals that were tabled in March and seem to have taken into account some of the feedback that was presented by the business community.

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