Shanghai Municipality, Labour Contract Regulations

Article 3: A labour contract is an agreement between a worker and an Employer to establish a labour relationship and to specify the rights and obligations of both parties.

Article 4: Labour contracts shall be concluded in writing unless otherwise specifically provided for herein.

Article 5: Conclusion and modification of labour contracts shall abide by the principles of equality, voluntariness and consensus through consultation and comply with the provisions of laws, regulations and the relevant rules.

A labour contract shall be legally binding once it is concluded in accordance with the law, and the parties must perform the obligations stipulated therein.

Article 6: Labour unions shall provide workers with guidance and assistance in respect of labour contracts and supervise the performance of labour contracts by Employers. If an Employer infringes upon the lawful rights and interests of a worker, the labour union shall deal with the Employer on behalf of the worker and protect, in accordance with the law, the lawful rights and interests of the worker in his entry into and performance of the labour contract.

Article 7: The administrative department for labour and social security has the duties of guidance, supervision and inspection with regard to the implementation of the labour contract system.

PART TWO: CONCLUSION OF LABOUR CONTRACTS

Article 8: Before a worker concludes a labour contract, the worker has the right to be informed, and the Employer shall truthfully inform the worker, of the relevant rules and procedures of the Employer, the labour conditions and the labour remunerations.

When an Employer recruits a worker, the Employer has the right to be informed, and the worker shall truthfully inform the Employer, of the worker's health, knowledge, skills and work experience.

Article 9: The text of a labour contract may be provided by the Employer, or it may be drafted jointly by the Employer and the worker. The text of a labour contract provided by the Employer shall adhere to the principle of fairness and shall not harm the lawful rights and interests of the worker.

A labour contract shall be written in Chinese and may at the same time be written in a foreign language. Where the parties have agreed otherwise, their agreement shall prevail. If the contents of the Chinese and the foreign language versions of a labour contract are inconsistent, the Chinese version of the labour contract shall prevail. A labour contract shall be written in two counterparts, and each party shall hold one counterpart.

Article 10: A labour contract shall contain the following clauses:

(1) term of the labour contract;

(2) job description;

(3) labour protection and working conditions;

(4) labour remuneration;

(5) labour discipline;

(6) conditions for termination of the labour contract; and

(7) liability for breach of the labour contract.

In addition to the mandatory clauses specified above, the parties may include in the labour contract other contents agreed upon between them through negotiation.

Article 11: Terms of labour contracts are divided into fixed terms, open terms and terms determined on the job basis. The term of a labour contract shall be determined by the Employer and the worker through negotiation.

Article 12: A labour contract shall be effective as of the date of signature by the parties. Where the parties have agreement with regard to the date and conditions of effectiveness, their agreement shall prevail.

Article 13: The parties to a labour contract may agree upon a probation period. In a labour contract with a term of less than six months, no probation period shall be provided for; if the term is over six months but less than one year, the probation period shall not exceed one month; if the term is over one year but less than three years, the probation period shall not exceed three months; and if the term is over three years, the probation period shall not exceed six months.

If the parties to the labour contract have agreed only on a probation period and such probation period is not established, that period shall be the term of the labour contract.

Article 14: The parties to a labour contract may agree upon a service term for a worker who will be recruited, used, trained or provided with other special treatment at the expense of the Employer.

Article 15: The parties to a labour contract may agree upon a confidentiality clause in the labour contract or enter into a separate confidentiality agreement. When the trade secret enters into the public domain, the contents agreed upon in the confidentiality clause or confidentiality agreement shall automatically become void.

Where the worker has an obligation to maintain the confidentiality of the trade secrets of the Employer, the parties to the labour contract may agree upon an advance notice period in the labour contract or the confidentiality agreement for the worker to request termination of the labour contract, provided that this advance notice period does not exceed six months. During this period, the Employer may carry out anti-disclosure measures accordingly.

Article 16: Where the worker has an obligation to maintain the confidentiality of the trade secrets of the Employer, the parties to the labour contract may agree upon a no-competition clause in the labour contract or the confidentiality agreement, and may agree to grant economic compensation to the worker upon termination or rescission of the labour contract. The scope of restriction of competition shall be limited to, within a certain period following the departure of the worker from the Employer, that the worker may not himself engage or for any third party in the business that competes with the former Employer. The period of restriction of competition shall be agreed upon by the parties to the labour contract. Its maximum length shall not exceed three years unless otherwise stipulated by laws and administrative regulations.

If the parties to the labour contract have agreed upon restriction of competition, they shall not further agree upon an advance notice period for rescission of the labour contract.

Agreement on restriction of competition may not violate provisions of laws or regulations.

Article 17: If a labour contract provides for liquidated damages for breach of contract by the worker, such damages shall apply only to:

(1) breach of the agreement on the service term; or

(2) breach of the agreement to maintain the confidentiality of trade secrets.

The amount of liquidated damages for breach of contract shall be agreed upon on the principles of fairness and reasonableness.

Article 18: The standards for labour conditions and labour remuneration agreed upon in the labour contract may not be lower than those stipulated in the collective contract. If they are lower than those stipulated in the collective contract, the provisions of the collective contract shall apply.

Collective contracts shall be concluded in accordance with the relevant laws and regulations.

Article 19: A labour contract may be renewed upon expiration of its term if the parties reach a consensus through consultation. No probation period shall be agreed upon in a renewed labour contract.

Article 20: A labour contract shall be invalid if:

(1) it violates laws or administrative regulations; or

(2) it is concluded through such means as fraud or threat.

An invalid labour contract shall not be legally binding as of its conclusion. If a part of the labour contract has been determined to be invalid, the other parts of it shall remain valid to the extent that the invalid part does not have an impact on the effectiveness of such other parts.

The invalidity of a labour contract shall be determined by a labour dispute arbitration commission or a people's court.

Article 21: If an Employer forms a labour contract relationship with a worker, it shall complete the labour employment registration with an agency designated by the administrative department for labour and social security.

PART THREE: PERFORMANCE AND MODIFICATION OF LABOUR CONTRACTS

Article 22: The parties to a labour contract shall perform the labour contract according to the commencement and ending times agreed upon therein.

If the commencement and ending times agreed upon in the labour contract are inconsistent with the commencement and ending times of actual performance, determination shall be made on the basis of the commencement and ending times of actual performance.

Article 23: Modification of a labour contract shall require the consensus of the parties through consultation, and shall be in writing. If the parties fail to agree, the labour contract shall continue to be performed unless otherwise stipulated by laws and regulations.

Article 24: In the case of a merger or division regarding the Employer, the Employer in existence after the merger or division shall continue to perform the labour contract. Where the parties reach a consensus through consultation, the labour contract may be modified or rescinded. If the parties have agreed otherwise, their agreement shall prevail.

Article 25: If the Employer that concludes the labour contract is not the work unit that actually uses the worker, the Employer may agree with the work unit that actually uses the worker that the obligations to the worker or any part thereof shall be assumed by the work unit that actually uses the worker. If the work unit that actually uses the worker fails to assume the obligations to the worker as agreed, the Employer shall assume such obligations.

Article 26: During the term of a labour contract, performance of the labour contract shall be suspended if:

(1) the worker is conscripted or is to perform other mandatory obligations required by the State;

(2) the worker is temporarily unable to perform his obligations under the labour contract, but the condition for and possibility of resumption of performance still exists; or

(3) there exist such other circumstances as prescribed by laws and regulations or agreed upon in the labour contract.

Once the circumstance requiring the suspension of the labour contract ceases to exist, performance of the labour contract shall continue unless otherwise stipulated by laws and regulations.

Article 27: Where a written labour contract shall be concluded but has not been concluded, but the worker has performed the labour obligations as required by the Employer, a labour contract relationship between the parties is established and the labour remuneration and labour conditions for the worker shall be determined according to the following provisions:

(1) if the labour remuneration and labour conditions are superior to the corresponding particulars contained in the rules and procedures of the Employer, the provisions of the collective contract or the statutory labour standards, they shall be determined according to the parts actually performed; or

(2) if the labour remuneration and labour conditions are inferior to the corresponding particulars contained in the rules and procedures of the Employer, the provisions of the collective contract or the statutory labour standards, they shall be determined on a principle that favours the worker.

Article 28: If a part of the contents in a labour contract does not conform to the statutory labour standards, the Employer shall assume its obligations in accordance with the statutory labour standards and shall revise the part of the labour contract that does not conform to the statutory labour standards in accordance with the law.

PART FOUR: RESCISSION AND TERMINATION OF LABOUR CONTRACTS

Article 29: A labour contract may be rescinded upon the agreement of the parties thereto.

Article 30: If a worker wishes to terminate the labour contract, he shall give a written notice to the Employer 30 days in advance.

Article 31: A worker may give a notice to the Employer to terminate the labour contract at any time if:

(1) he is in the probation period;

(2) the Employer resorts to violence, threat or illegal restriction of personal freedom to force him to work; or

(3) the Employer fails to pay the labour remuneration or provide the labour conditions as agreed in the labour contract.

Article 32: Under any of the following circumstances, an Employer may rescind a labour contract subject to a written notice to the worker himself 30 days in advance:

(1) where the worker has suffered from illness or non-work-related injury and is not able to perform the original job nor the other work assigned to him by the Employer upon the conclusion of medical treatment;

(2) the worker is incompetent in the job and remains so after receiving training or being transferred to another post; or

(3) where a major change in the objective circumstances under which the labour contract was being drawn up has rendered such contract incapable of being carried out, and the parties have failed to reach an agreement on the amendment of such contract after negotiations.

If the Employer that rescinds the labour contract fails to give a notice to the worker 30 days in advance as required, the Employer shall bear the obligations to the worker that are agreed upon in the labour contract within 30 days of the date of notice.

Article 33: The Employer may rescind the labour contract at any time if the worker:

(1) has been proven to be unqualified for the employment during the probation period;

(2) has seriously violated the labour discipline or the rules or procedures of the Employer;

(3) has been seriously derelict in duties or has practised graft, causing grave harm to the interests of the Employer;

(4) whose criminal liability has been pursued in accordance with the law; or

(5) is in such other circumstances as prescribed by laws or regulations.

Article 34: The Employer may not rescind the labour contract pursuant to Articles 32 or 35 hereof under any of the following circumstances:

(1) where the worker has suffered from an occupational disease or work-related injury, and has been confirmed to have lost or partially lost capacity to work;

(2) where the worker is undergoing the required period of medical treatment for an illness or injury;

(3) where a female worker is pregnant, in confinement or nursing; or

(4) other circumstances stipulated by laws or regulations.

Article 35: When an Employer truly needs to lay off its workers according to the law, it shall explain the situation to the labour union or all workers and listen to their opinions. The labour layoff plan of the Employer shall be decided on the basis that the Employer consults with the labour union or workers' representatives for taking remedial measures, and shall be reported to the administrative department for labour and social security.

The Employer shall notify the labour union and the worker himself 30 days before the implementation of the labour layoff plan.

If the Employer recruits workers within six months after a labour layoff pursuant to this Article, it shall recruit the laid-off workers on a preferential basis.

Article 36: When an Employer unilaterally rescinds a labour contract, it shall notify the labour union in advance of the reason for the rescission. If the labour union considers that the Employer has violated laws and regulations and the relevant contract, and requests the Employer to reconsider its handling of the matter, the Employer shall study the opinion of the trade union and notify the labour union in writing of the result of the handling.

Article 37: A labour contract shall terminate under any of the following circumstances:

(1) where its term has expired;

(2) where the conditions agreed between the parties for terminating the labour contract occur;

(3) where the Employer is bankrupt, dissolved or shut down; or

(4) where the worker has retired, resigned or died.

If the parties to the labour contract have actually stopped performing the labour contract for three months, the labour contract may be terminated.

If the worker suffers from an occupational disease or work-related injury and is confirmed to have partially lost capacity to work, and the Employer has paid disability employment allowances in accordance with regulations, the labour contract may be terminated.

Article 38: If the worker suffers from an occupational disease or work-related injury and is confirmed to have lost all or most of his capacity to work, the Employer may not terminate the labour contract. However, where the parties to the labour contract reach a consensus through consultation and the Employer pays the disability employment allowances in accordance with regulations, the labour contract may be terminated.

Article 39: Notwithstanding the expiration of the term of the labour contract or occurrence of the conditions agreed by the parties for terminating the labour contract, if the worker is in any of the following circumstances and, at the same time, not included in any of the circumstances specified in Item (2), (3) or (4) of Article 33, the term of the labour contract shall extend until the following circumstances cease to exist:

(1) where the worker is undergoing the required period of medical treatment for an illness or injury;

(2) where a female worker is pregnant, in confinement or nursing; or

(3) other circumstances stipulated by laws or regulations.

Article 40: If a labour contract is to be concluded but has not been concluded, the worker may terminate the labour relationship at any time.

If a labour contract is to be concluded but has not been concluded, the Employer shall notify the worker 30 days in advance when it requests to terminate the labour relationship. However, if the worker is in any of the circumstances specified in Article 39, the labour relationship shall extend until such circumstance ceases to exist.

Article 41: If a labour contract is rescinded or terminated, the Employer shall issue an effective supporting document for the rescission or termination of the labour contract relationship.

The worker may, on the strength of the effective supporting document, directly carry out unemployment registration procedures.

Article 42: The Employer shall provide the worker with economic compensation according to the worker's employment years with the Employer, i.e. each full year shall be compensated with an amount equivalent to the wage income of the worker for one month if:

(1) the Employer requests to rescind the labour contract with the worker pursuant to Article 29 hereof;

(2) the worker rescinds the labour contract pursuant to Item (2) or (3) of Article 31 hereof;

(3) the Employer rescinds the labour contract pursuant to Item (2) of the first paragraph of Article 32 hereof;

(4) the Employer rescinds the labour contract pursuant to Item (1) or (3) of the first paragraph of Article 32 hereof;

(5) the Employer rescinds the labour contract pursuant to Article 35 hereof; or

(6) the Employer terminates the labour contract pursuant to Item (3) of Article 37 hereof.

If any of the circumstances stipulated in Items (1), (2) and (3) hereof occurs, the total compensation shall generally not exceed the wage income of the worker for 12 months. However, if the parties agree upon a higher amount, such agreement shall prevail.

Article 43: If the conditions for termination agreed upon in the labour contract are identical to the conditions for rescission provided herein, the Employer shall provide the worker with economic compensation in accordance with the corresponding standards for compensation for rescission of contract stipulated herein.

Article 44: If an Employer rescinds a labour contract pursuant to Item (1) of the first paragraph of Article 32, it shall pay to the worker a medical subsidy of an amount not less than the wage income of the worker for six months in addition to granting the economic compensation in accordance with provisions.

Article 45: For the purposes of Articles 42 and 44 hereof, the wage income of the worker shall be the average wage income of the worker in the 12 months immediately before the rescission or termination of the labour contract. If the average wage income of the worker is lower than the minimum wage standard for employees in this municipality, it shall be calculated on the basis of the minimum wage standard for employees in this municipality.

For the purposes of the employment years with the Employer referred to in Article 42 hereof, a period over six months but less than a full year shall be counted as a full year.

PART FIVE: SPECIAL PROVISIONS FOR PART TIME LABOUR CONTRACTS

Article 46: A part time labour contract is an agreement between a worker and an Employer to establish a labour relationship on the basis of using hour as the unit of working time.

If a worker establishes a part time labour contract relationship with one or more Employer(s), the daily, weekly or monthly working time of the worker with each Employer shall be less than 50% of the statutory working time.

The aggregate number of working hours of a worker for multiple Employers shall not exceed the statutory maximum working hours.

Article 47: A part time labour contract can be concluded in writing and can also be concluded in other formats. If a party to the labour contract requests to use the written format, the written format shall be used.

Article 48: If the parties to a part time labour contract have not agreed on the term of employment, either party may terminate the labour relationship by notice to the other party at any time.

Article 49: The parties to a part time labour contract may agree upon the contents of the contract such as working time, job description, labour remuneration and form of payment, and the maintenance of confidentiality for trade secrets of the Employer.

Article 50: Labour remuneration to a part time worker shall be calculated on an hourly basis.

Labour remuneration shall include hourly wage income and the social insurance premiums payable as stipulated by laws and regulations.

Article 51: If an Employer employs part time workers and causes the workers to suffer any work-related injury or occupational disease in the course of work, it shall bear the corresponding liability.

Article 52: The minimum wage standard for part time workers shall be announced by the Shanghai Municipal Bureau of Labour and Social Security after it has been reported to the municipal people's government for approval. The minimum wage standard shall be determined with consideration of factors such as job stability and welfare benefits of the part time job.

The procedures for payment of social insurance premiums for part time employment shall be formulated separately by the municipal people's government.

Article 53: The provisions of Part Two, Part Three and Part Four hereof other than Articles 8, 20 and 21 are not applicable to part time labour contracts.

PART SIX: LEGAL LIABILITY

Article 54: If a labour contract is invalid or partially invalid for reasons on the part of one party to the labour contract, thereby causing harm to the other party, the party shall be liable for damages.

Article 55: If a party to a labour contract is in breach of the labour contract, it shall be held liable accordingly. If the breach has caused economic loss to the other party, it shall be liable for damages.

If both parties to the labour contract are in breach of the labour contract, they shall each bear the corresponding liability.

Article 56: If an Employer fails to conclude a labour contract in writing with a worker in accordance with the provisions hereof, the administrative department for labour and social security shall order rectification within a specified time limit and may also impose a fine between Rmb 500 and Rmb 1,000 per person1 .

Article 57: If an Employer uses a worker without completing the employment registration procedures pursuant to the provisions hereof, the administrative department for labour and social security shall order it to complete the procedures within a specified time limit. If the Employer fails to do so within the time limit, a fine of Rmb 500 shall be imposed per person1 .

Article 58: If a labour dispute arises between the parties to a labour contract, it shall be handled in accordance with the provisions on labour dispute settlement.

Article 59: If a party to a labour contract is dissatisfied with a specific administrative act of the administrative department for labour and social security, it may request an administrative review or institute administrative proceedings pursuant to the PRC, Administrative Review Law or the PRC, Administrative Litigation Law.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 60: If the laws or administrative regulations have special provisions regarding the subjects to which conclusion of labour contracts applies, such provisions shall govern.

Article 61: With regard to labour contracts already in performance before the implementation hereof, if the local regulations or the rules of the municipal people's government had specific provisions on the obligations of the parties to the labour contracts at that time, the parties to the labour contracts shall continue to comply with such provisions after the implementation hereof. If the local regulations or the rules of the municipal people's government had no such specific provisions at that time, the provisions hereof shall govern.

Upon the implementation hereof, the provisions of the Shanghai Municipality, Administration of Labour and Personnel Affairs of Foreign Investment Enterprises Regulations regarding labour contracts shall no longer apply to newly concluded labour contracts between foreign investment enterprises and workers.

Article 62: These Regulations shall be implemented as of 1 May 2002.

Translator's note:

1. According to our understanding, the term "per person" used here refers to any worker that has been affected.