Minutes from the HR/Legal Forum "Making labour law less like
hard work"
9.00 am, Thursday 12 September 2013, Weber Shandwick, Beijing
Chair:
Panel:
Apologies:
Tracy Driscoll
Susie Bates; Chris Lin; Joyce Wei
Sammy Fang
1. Introduction
1.1 The topic of the meeting was chosen because so much HR work revolves around
legal issues and so it is useful for professionals in these two fields to discuss them
together.
2. Presentations by the panel
2.1 Part 1: Legal documents in the employment relationship
2.1.2. There are four hiring categories: permanent local staff; permanent
expatriate staff; contractors (usually retirees); and interns. Generally they
must all sign confidentiality agreements. All except interns must have a
certificate from their former employer and a health report.
2.1.3. It is important that the employee sign an acknowledgement letter. This
may take the form of an employee handbook which can be referred to in
the event of a dispute. Many employers do not realise the importance of
such a document and neglect it but it is potentially more significant than
the contract. There are very limited grounds for termination of contracts in
China but one is the violation of company regulations. The existence of a
handbook is therefore useful as it shows that the employee was aware of
the regulations.
2.1.4. Employee handbooks ought to be updated continuously to reflect
international law. Acknowledgement letters ought to be specific to
individuals rather than generic. They may be in electronic or hard copy.
2.1.5. The job description may also be considered a legal document insofar as it
may be produced as written proof of the employee's responsibilities in the
event of arbitration.
2.1.6. Many employers stumble at the arbitration stage when seeking to fire staff
on the grounds of poor performance. There are four necessary steps in this
arbitration process: the employer must show 1) what the employee agreed
to (hence the importance of a signed document); 2) that the employee
failed in their duty; 3) that the employer attempted to train the employee
accordingly; 4) that after this training the employee still neglected their
duty.
2.1.7. In view of the above, a job description may be an indispensable legal
document. If the relevant specifications occur only in the contract then it
may be hard to prove underperformance. A job description suggests that
the employee has read and/or understood their duty. This is a grey area,
however. It is advisable to specify changes to employees' duties in writing,
e.g. in email discussions.
2.1.8. If your company's performance reviews are online, employers should
consider whether 1) they get updated and 2) it might not be better to have
a hard copy signed by both parties. Hard copy, rather than email, remains
the preferred documentary format in China.
2.1.9. Employees should be asked to sign a document if they resign.
2.1.10. The panel was asked how to enforce confidentiality when an employee
leaves having previously signed a confidentiality agreement. The response
was that there is no way of doing this other than relying on the goodwill of
the employee. This is a legal inevitability as laws are not able to prevent
violations but only to deal with them later.
2.1.11. It is useful to make clear to employees that violations will have
consequences. For example, an employer may refuse to provide a good
reference for an employee who lets the company down. This need only
take the form of a friendly discussion.
2.2 . Part 2: The employee termination process
2.2.1 A) Requirements of a written employment contract
2.2.2 Anyone who is remunerated for more than 24 hours' work per week in
China requires a contract. This amount of work is considered de facto
employment. The absence of a contract may have dire consequences.
2.2.3 Chinese workers tend to be aware of their rights and as such employers
are advised to be too. It is also important for employers to speak to their
employees rather than just handing over the legal documents.
2.2.4 Provided that freelancers or contractors have signed something to
release the employer from legal responsibility, then it is difficult for
them to succeed in court.
2.2.5 B) Terminations and non-renewals – differences and restrictions
2.2.6 Many people do not know the distinction between termination and nonrenewal. Termination usually entails severance payments. Termination
for reasons other than misconduct requires statutory grounds, a notice
period and compensation. Non-renewal does not usually require
grounds.
2.2.7 There is a mandatory requirement in some places for a fixed-term initial
contract to be converted into an open-term contract upon expiry.
Therefore it is not possible to employ one person on a series of fixedterm contracts to create a safety net against committing to an openterm contract. This makes the length of the initial contract important. In
addition the length of the probationary period sometimes has a bearing
on the length of the later contract. Most companies choose initial
contracts of two to three years. There are pros and cons to both long
and short initial contracts.
2.2.8 The panel was asked when an employer should inform an employee that
their contract will not be extended. The answer was that this differs
according to location owing to local regulations. For example, 30 days'
notice for non-renewal is not required in Shanghai, but is in Beijing.
Employers are advised to check whether grounds are required locally for
non-renewal as the costs of a mistake may be high. Documentation of
this process should be unambiguous.
2.2.9 C) Consequences of arbitration
2.2.10 Unilateral termination can be troublesome. Some employers mistakenly
believe that they can just pay off an employee but in fact the employee
also has the option of reinstatement. However, it was pointed out that
in normal circumstances employees do not want to be reinstated; rather
it is a means for them to negotiate higher compensation.
2.2.11 The panel suggested that especially since the adoption of the Labour
Contract Law in 2008 the law has been very much on the side of the
employee.
2.2.12 HR has a crucial role in arbitration. It is important for HR staff to
understand Chinese culture as much as possible. This is often less about
knowing policy and procedure, and more about communication with
employees.
2.2.13 D) Redundancy
2.2.14 Chinese law is restrictive as regards unilateral layoffs. It favours mutually
agreed separation.
2.2.15 There are two types of layoff: collective and individual. Collective layoffs
mean those of 20 or more staff (or over 10 per cent of staff). It is not
necessary for employers to offer an alternative position to staff but a
report must be filed to the Labour Bureau. Although the latter is
technically only a report, it reality it constitutes a request for approval
from the Bureau and can be complicated. HR staff should be aware of
this and plan accordingly as regards the timing of the redundancy and
the report. Their target dates must accord with the filing process to
ensure all goes smoothly.
For individual layoffs the employer must offer an alternative position. It
is advisable for employers not to go down this route if there is no
alternative position available.
2.2.16 Generally speaking, 90 per cent of people accept redundancy. HR staff
are advised to write politely to those who are to be made redundant, in
order to encourage them to accept it. Around 8 per cent push for better
terms. The remaining 2 per cent fight to take the case to arbitration.
2.2.17 In the event of arbitration employers should aim to show that a fair
process was available to all concerned. They may also try to persuade
the employee that it is in their best interests to move on.
2.3 Part 3: Trade Unions Overview
2.3.1 Trade unions in China differ greatly from those in the West.
2.3.2 There were cases in 2005 of Walmart and Dell, among others, being
blacklisted for "obstructing unionisation efforts". This was before the
adoption of the Labour Contract Law (2008).
2.3.3 Chinese trade unions are not independent employee organisations, but
are under the auspices of government. Funding comes not from
members, but from mandatory contributions by employers in the
amount of 2 per cent of the payroll. The Chinese Government will
refund 60 per cent of this contribution if the company forms a trade
union. This puts pressure on companies as although there is no
obligation in law to form a trade union, in practice there often is. PRC
law is ambiguous in this respect and in respect of penalties.
2.3.4 The All-China Federation of Trade Unions (ACFTU) is subject to the
whims of government insofar as its degree of freedom depends on
policy objectives such as employment targets. It may exert pressure on
employers indirectly, e.g. via media or the Tax Bureau.
2.3.5 Roles of trade unions include commenting on company policy and
regulations before they are adopted, and commenting on terminations
and collective layoffs. More aggressive roles in future are possible but it
is thought likely that trade unions will remain benign for around the next
decade thanks to the government's desire to maintain harmony.
2.3.6 The panel was asked whether it is best to accept or refuse when the
authorities ask for the aforementioned 2 per cent contribution. The
response was that there is probably more to gain from opting in than
opting out, particularly for small companies.
2.3.7 The panel was asked whether companies with fewer than 20 employees
are still expected to form trade unions. The answer was yes – they may
have to unite with other small companies to do so.
2.3.8 It was pointed out that it is worth keeping a reserve fund to cover this 2
per cent contribution in case it is requested at short notice.
2.3.9 The panel was asked what happens if a planned termination coincides
with an employee's maternity or medical leave. The panel answered that
it is not necessary to wait until the end of the leave period to terminate
the contract. If the employee cannot produce a medical certificate they
can also be released.
2.3.10 The meeting was closed. No action points were raised.