From hiring to firing

Employers are prohibited from discriminating against potential candidates for employment based on ethnicity, race, gender, age, physical disabilities, religious beliefs, being a communicable disease carrier or being a migrant worker. The anti-discrimination provisions are contained in the PRC Labour Law (中华人民共和国劳动法) and in various regulations such as the PRC Law on the Promotion of Employment (中华人民共和国就业促进法). Basic requirements to be met by foreign employees.

Under the Administration of Foreigners Working in China Provisions (外国人在中国就业管理规定) issued in 1996, foreign employees must meet the following basic requirements:

1. Be at least 18 years of age and in good health;

2. Have the necessary professional skills and work experience required for the post;

3. Have no criminal record;

4. Have a confirmed position; and

5. Have a valid passport or equivalent international travel document.

Existing restrictions

An employer should ensure that a prospective employee does not have any restrictions that may prevent him or her from entering into the employment contract.

Employment contract

Under the PRC Employment Contract Law, employers are required to have individual written employment contracts with each employee, subject to a limited exemption. If no employment contract is signed within one month of the commencement of an employee's work, the employee is entitled to double his or her wages for the period between the beginning of the second month of his or her term of employment, and when the contract is signed or the end of the first year of the employment (whichever occurs first). If no employment contract is signed within one year of the commencement of an employee's work, the parties are deemed to have signed an open-term contract.

Immigration: Foreign employees need to obtain an employment visa prior to entering China, except under special circumstances, and obtain work and resident permits upon arrival in China. Without a valid work permit, foreigners' employment in China will be deemed to be illegal.

Managing

Wages

Wages refers to the remuneration for labour that an employer pays directly to employees in the form of currency in accordance with state regulations and the employment contract. This generally includes wages calculated on a time basis or on a piece-rate basis, bonuses, subsidies and allowances.

Under the Minimum Wage Provisions (最低工资规定), labour authorities at the provincial level are required to determine and adjust the minimum wage standard for their jurisdictions. Employers are not allowed to pay wages that are less than the stipulated standard. In line with the Chinese government's goal of increasing income levels, most provincial level labour authorities, such as Jiangsu, Zhejiang, Guangdong and Shanghai, increased their respective minimum wage standards by more than 10% in 2010.

Additionally, the Ministry of Human Resources and Social Security and the All China Federation of Trade Unions have recently picked up efforts to renew their 'Rainbow Plan' initiative, which was put on hold during the financial crisis. The goal of the Rainbow Plan is to get employers to put in place collective contracts. Since the restart of the initiative, there is a particular emphasis on collective contracts covering wage and wage -related issues.

Paid annual leave

In accordance with the Regulations on Paid Annual Leave of Staff and Workers (职工带薪年休假条例), employees who have worked for one full year or more are entitled to paid annual leave. The duration of leave for each employee is determined by reference to his or her accumulated years of work (with all employers, not just the current employer). An employee having worked for one year or more but less than 10 years is entitled to five days' annual paid leave; an employee having worked for 10 years or more but less than 20 years is entitled to 10 days' annual paid leave; and an employee having worked for 20 years or more is entitled to 15 days' annual paid leave. Statutory holidays and weekends are not included in the annual leave calculation. Generally, annual leave should be taken during the current calendar year and not be carried over to the next calendar year. In practice, many employers grant more paid annual leave to their employees than the statutory entitlement.

Social insurance

In order to achieve the goal of improving the social security system as proposed in the 12th Five-Year Program on National Economic and Social Development, China's top legislature adopted a law addressing certain social insurance issues on October 28 2010. The draft law was reviewed by lawmakers four times in almost three years and will take effect on July 1 2011.

The PRC Social Insurance Law (中华人民共和国社会保险法) restates the mandatory obligation of employers to contribute to the five different types of insurance covered under the social security system, namely pension, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance.

The law overcomes many of the obstacles under the old regulations, which had the effect of restricting the movement of the country's increasing migrant population. It allows employees to transfer their pension accounts from one residence to another and indicates that a new medical payment system should be established to allow medical insurance in one location to be repaid in another location.

The law also gives equal national treatment to foreigners working in China by stating that such employees should also contribute to social insurance, although it is unclear at present whether this is a mandatory requirement.

Company rules

Under the PRC Employment Contract Law, company rules, such as the employee handbook, must go through the following procedures to be formulated or amended to be legally binding:

1. Discussing with all employees or an employee representative congress;

2. Consulting with union or employee representatives; and

3. Making the final version public.

Work safety and health

A patchwork of laws and regulations holds employers responsible for the health of their employees at work and requires employers to establish a system to protect health and safety. Effective measures should be taken by employers to control workplace hazards and prevent occupational diseases.

Union and Collective Bargaining

In recent years, the Chinese government and the All China Federation of Trade Unions have been pushing unionisation and collective bargaining.

The PRC Labour Union Law(中华人民共和国工会法) will reportedly be amended in the second half of 2011. The amendments are expected to provide more details in relation to collective bargaining at the industry level and democratic management within employers. Additionally, the draft Payment of Wages Regulation (工资支付条例), which is under review now at the national level, reportedly indicates that if an employer unjustifiably refuses an employees' request for collective bargaining in relation to wages, and fails to correct such violation within the period stipulated by the authorities, the employer may be liable to a fine of up to Rmb 200,000.

Firing

Termination for cause

There is no “at-will” employment in China and termination of employees must be for cause.

Under the PRC Employment Contract Law, an employer may terminate an employment contract without notice if the employee:

1. is proven during the probation period not to satisfy the conditions for employment;

2. materially breaches the employer's rules and regulations;

3. commits serious dereliction of duty or practices graft, causing substantial damage to the employer;

4. has additionally established an employment relationship with another employer which materially affects the completion of his or her tasks with the original employer, or he or she refuses to rectify the matter after the same is brought to his or her attention by the employer;

5. uses such means as deception or coercion, or takes advantage of the employer's difficulties, to cause the employer to conclude an employment contract, or to make an amendment thereto, that is contrary to the employer's true intent; or

6. has his or her criminal liability pursued in accordance with the law.

An employer may terminate an employment contract by giving an employee 30 days' prior written notice, or one month's wage in lieu thereof, if:

1. after the set period of medical care for an illness or non-work-related injury, the employee can neither engage in his or her original work nor in other work arranged for him or her by the employer;

2. the employee is incompetent and remains incompetent after training or adjustment of his or her position; or

3. a major change in the objective circumstances relied upon at the time of conclusion of the employment contract renders it unperformable and, after consultations, the employer and the employee are unable to reach agreement on amending the employment contract.

Mutual termination

In addition to termination for cause, the PRC Employment Contract Law states that an employer and an employee may terminate their employment contract by mutual agreement.

Under the Interpretation on Several Issues Concerning the Application of the Law to Trials of Employment Disputes (3) (关于审理劳动争议案件适用法律若干问题的解释（三）) released by the Supreme Court on September 14 2010, if an agreement entered into between an employee and his or her employer pertaining to termination procedures, payment of wages, overtime pay, severance or other compensation, does not violate the mandatory provisions of laws and regulations and no fraud, coercion or the taking advantage of others' difficulties exists, the agreement will be determined valid.

Termination payments

Under the PRC Employment Contract Law, the employer is required to pay an employee severance pay in the following circumstances:

1. The employment contract is terminated by the employee for any of the reasons stipulated under the Labour Contract Law where the employee is allowed to terminate the employment contract without notice due to a fundamental breach of the employment contract by the employer;

2. The employment contract is terminated after such termination was proposed to the employee by the employer and the parties reached agreement thereon after consultation;

3. The employment contract is terminated by the employer in certain circumstances stipulated under the Labour Contract Law where the employer is allowed to do so upon giving 30 days notice;

4. The employment contract is a fixed term contract whose term expires, unless the employee does not agree to renew the contract even though the conditions offered by the employer are the same or better than those stipulated in the current contract;

5. The employment contract ends because the employer becomes bankrupt, has its business licence revoked, is ordered to close or is closed down or the employer decides on early liquidation.

An employee shall be paid severance pay based on the number of years an employee has worked with the employer at the rate of one month's wage for each full year worked. Any period of not less than six months but less than one year shall be counted as one year. The severance pay payable to an employee for any period of less than six months shall be one-half of his or her monthly wage.

If the monthly wage of an employee is greater than three times the average monthly wage of employees in the employer's area as published by the authorities where the employer is located, the rate for the severance pay paid him or her shall be three times the average monthly wage of employees and is limited to 12 months.

Confidential information/post-termination restrictive covenants

Confidential information is often protected by way of confidentiality/non-disclosure agreements or confidentiality clauses in employment contracts. Under the PRC Employment Contract Law, non-compete agreements can only be imposed on senior management, senior technicians and other employees that have a confidentiality obligation. The scope, territory and term of non-compete agreements need to be agreed between the employer and employee, but in any event, the post-termination non-competition term cannot exceed two years. Additionally, the employer is required to pay reasonable compensation to employees on a monthly basis during the post-termination non-compete period. Reasonable compensation is not defined in the law at the national level and local legislation needs to be consulted in each locality to determine what constitutes reasonable compensation in a particular situation.

Pattie Walsh, Kevin Jones, Carol Zhu and Sarah Gao, DLA Piper, Hong Kong and Shanghai