China Releases Implementation Regulations for Labor Contract Law

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By Cathy Gao

SHANGHAI, Sept. 24 – China’s State Council has released the implementation regulations for the new Contract Labor Law. While the labor law was hailed as a landmark step in protecting employee’s rights, many complained it only served to increase a company’s operational cost.

A brief rundown of the new regulations:

If an employee fails to sign a written labor contract with an employer within one month after commencing work, the employer can terminate the contract with the employee by written notice. Under this circumstance, the employer only needs to pay the salary for the period of work.

If the employer fails to sign the written contract with the employee within one month, unless due to the unwillingness of employee, the employer shall be liable to pay double salary for the period without written contract. The said period starts from the first day after the allotted one month since the employee begun work.

The law says that if the employee has worked for the employer for over 10 years continuously, the employer shall sign an open term contract with the employee for as long as they require. According to the implementation regulations, the 10 year period begins from the date the employee started working for the company and includes the time prior to the implementation of the law. This regulation renders the efforts of companies to terminate and re-employ their employees at the end of 2007 useless.

If the employer wants to close a company and transfer its employees to another company under the same group, the service years are calculated differently. Under the implementation regulations, there are two options. A company can either convert its employees to the other company, including the calculation of their previous years of service or pay compensation according to the law and then re-employ the employee without having to calculate their years of service.

The implementation rules clarified the subject of compensation. For an employment contract that expires upon the completion of a task, the employer shall be liable to pay the employee severance pay based upon the service term only.

The implementation regulations include six chapters and 38 clauses, clarifying many aspects of the Labor Contract Law. The rules also contain details on terminating labor contracts, disposition of labor, and legal liability.

Cathy Gao is a business advisory service associate with Dezan Shira & Associates.

For more information and advice, please contact legal@dezshira.com.