A Strategic and Practical Approach to Structuring, Managing and Terminating Employment Relationships...
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Transcript of A Strategic and Practical Approach to Structuring, Managing and Terminating Employment Relationships...
A Strategic and Practical Approach to Structuring, Managing and Terminating Employment Relationships in the PRC
Fiona Loughrey (Partner, Head of China Employment Group)
Matthew Durham (Consultant, China Corporate Group)
Yijia Jin (Associate, China Employment Group)
Presentation organised by CCH
Shanghai – 3 March
Beijing – 5 March
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I. Introduction
Current trends and an overview of the employment environment in the PRC
Impact of the Labour Contract Law 2008 (劳动合同法)
Increasing number of claims
– Statistics (in China)
– Hotspots
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II. Pre-employment issues
The interview process - what information can be requested?
Pre-employment checks and screening - what is permitted and what information is available?
– Legitimacy
– Feasibility
Basic information that relates directly to the employment
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Discrimination in selecting employees
No sophisticated laws, but fundamental principles:
gender
ethnic group
race
religious belief
Some incentives for encouraging employment of handicapped persons
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III. The employment contract
Written contract (书面合同) . Time limits and penalty.
Fixed and open term ( 固定期限或无固定期限 )
Use of probation periods (试用期)
Job description (工作说明书)
Training bonds (服务期)
Working hours and overtime
Amendment of contract
Termination provisions
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Written Employment Contract
Enter into within one month of commencing employment
Contract must specify:
name of legal representative of employer
name, domicile and ID no of employee
term (duration) of contract
job description and place of work
working hours, rest and leave
remuneration
details re working conditions and labour protection
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Probation periods
Maximum probation period will depend on term of the contract e.g. 1 month for contracts of less than 1 year, 2 months for contracts of 1 year or more but less than 3 years, 6 months for contracts of 3 years or more
Employers can (potentially) pay 20% less during probation
Additional restrictions on employer’s right to terminate unilaterally without notice or severance during the probation period – prove that employee does not satisfy the conditions for employment, etc.
Employers will need to be more diligent in monitoring new joiners on probation and ensuring they have sufficient evidence to justify any termination during such period
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Fixed and Open Term
Fixed or open term (固定期限或无固定期限)– the two fixed terms rule. Regional differences in interpretation?
Under LCL an employer may only have two fixed term contracts with an employee. After that, if a further contract is entered into it must be open term
Starts from first fixed term contract entered into or renewed after 1 January 2008
What duration to choose?
The employer must also pay severance on the expiry of a fixed term contract without renewal, unless the employee rejects a new contract on the same or improved terms
Implications: fixed term contracts more expensive for employers. Employers will also need to consider carefully how long fixed term contracts should be for
Treat first contract with new hire as quasi “probation” period?
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Training Bond
Agreement specifying ongoing term of service
Must be “professional technical training”
Paid for by employer with “special funding”
Liquidated damages – must not exceed training costs
Employee liability also limited to amount allocable to unperformed portion of lock-in period
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Working Hours and Overtime
Normal working hours ( 8 hours per day, 40 hours per week)
Overtime payment (or time off in lieu)
150% for normal OT, 200% for weekends and 300% for public holidays
Implement clear internal policy and guidelines
Can employee be exempted? does a special scheme apply?• Irregular working hours scheme (不定时工作制)• Comprehensive working hours scheme (综合计算工时工作
制)
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Flexible working hours schemes
Irregular working hours scheme
Remuneration under contract already covers certain potential overtime
Applicable to senior management staff and certain sales staff
Needs to be registered with and approved by the local labour bureau
There is no definition of "senior management staff" nor "sales staff" and applications are approved on a case-by-case basis
Approval may vary from location to location
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Flexible working hours schemes
Comprehensive working hours scheme
Engaging staff to work for “X” number of hours over a certain period of time
No need to pay overtime if the employee does not work for more than an average of 8 hours per day and 40 hours per week over a cumulative period of time
Applicable to employees engaged in sales or transport, or other employees for whom the system is “suitable”
No definition as to what “suitable” means
Needs to be approved by the local labour bureau and the applications are considered on a case-by-case basis
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Amendment of contract
Difficult for employer to impose unilateral changes
Employee consent required to change a contract term
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IV. Termination
Termination for “cause” (LCL Article 39) – no notice or severance
Proved during probation period not to satisfy conditons for employment
Material breach of employer’s rules and regulations
Serious dereliction of duty or graft, substantially harming employer
Additional employment relationship
Pursued for criminal liability
Deception or coercion in obtaining employment
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Other grounds for termination (LCL Article 40)
With minimum 30 days’ notice (or payment in lieu) and severance
For non-work related illness / injury after expiry of statutory medical treatment leave period
Incompetence even after training or adjustment of position
Major change in objective circumstances relied on to conclude contract renders it unperformable
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Other grounds for termination (LCL Article 41)
Mass lay-offs (经济性裁员)
Minimum 20 persons (or 10% of staff if less than 20 employees)
Must be in specific circumstances:
Restructuring under Bankruptcy Law
Serious difficulties in production and/or business operations
Change in production or major technological innovation
Other major change in objective circumstances relied on to conclude contract renders it unperformable
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Other grounds for termination (LCL Article 41)
Notice and severance applies
Must explain circumstances to all employees (and labour union if applicable) at least 30 days in advance
Must consider views of employees and labour union
Must file report with labour bureau (in some locations) – effectively an “approval” requirement
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Other grounds for termination (LCL Article 41)
Priority issues for mass lay-offs:
Employees with long-term fixed term contracts
Employees with open term contracts
Employees that are sole provider to their family and whose family has an elderly person or minor to care for
If new hires are made within 6 months of staff reduction, must give preference to re-hiring staff laid off
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Exemption from termination
Exemptions apply, unless termination is for “cause” (Article 39)
Female employee during pregnancy, maternity leave or nursing period
Occupational disease confirmed
On statutory medical treatment leave
Engaged in job exposed to occupational disease risk and no pre-departure health check
Working for employer continuously for at least 15 years and less than 5 years from retirement age
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V. Employee handbook (员工手册) and policies
Regional or country-specific?
What and how much detail to provide?
The required consultation process - what are the options?
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Employee handbook (员工手册) and policies (Cont’d)
Rules and policies or other material matters (and any changes) that have a “direct bearing on the immediate interests of employees)
No definition of “consultation” and little formal guidance
Must involve all employees or employee representatives
Must involve labour union (if any) in consultation process
Must consider feedback from employees and labour union, but no express “approval” requirement
Final version of rules and policies must be published
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Employee handbook (员工手册) and policies (Cont’d)
Apply principle of reasonableness
Allow reasonable time for consultation process
Document the process – keep formal records of process and any feedback, plus reasons for discounting any feedback
N.B. Handbooks and policies are very important for supporting employment contract (especially re termination)
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VI. Employment arrangement “structuring”
Labour dispatch arrangements - use for representative offices
What laws apply - the interaction of national and local level regulations in the PRC
Direct employment in the PRC or secondment arrangement (派遣) (for expatriates) - implications, advantages and disadvantages
What documentation is required?
How and when will the documentation be provided and signed
Independent contractors (独立缔约人)
Recognition of free-lancers under the Beijing High Court/Labour Arbitration Commission Meeting Minutes
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Employee –v- independent contractor
Some general criteria likely to be considered:
Working exclusively for company?
Working at company premises?
Assigned employee number?
Using company equipment and materials?
Company handbook and policies apply?
Basis of payment – fees or regular “salary”?
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Questions?
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VII. Inventions, confidentiality and non-compete agreements
Employee inventor remuneration and first right of refusal on transfer of technology
How to structure non-compete provisions and which employees are covered - duration, industry and geographical scope, reasonable compensation?
Non-solicitation provisions - clients, employees
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Non-compete provisions
Maximum 2 years
Scope restrictions
Must pay employee financial compensation on a monthly basis
No national law guidance on “compensation”
Local regulations and guidelines apply
Best to specify amount or basis for calculation in the agreement
Liquidated damages
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VIII. Corporate Governance
Reports to regulatory authorities and employee threats
Whistleblowing schemes
Specific qualifications and experience requirements for certain positions/industries
Company chops and who can bind the company
Scope of authority for senior personnel
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Corporate Governance (Cont’d)
Liability of legal representative, directors and “responsible” personnel
Compliance audits
Labour unions and company business – e.g. right to attend board meetings
Data privacy and data transfer
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IX. M&A Situations
Due diligence
Key personnel – who do you want and who are you getting
Implications of asset deal
Implications of share deal
Restructurings and transfer of employees (e.g. rep office to WFOE)
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Share Deal
Buyer takes over existing workforce
Buyer takes on existing liabilities
How to retain and motivate staff after transaction completed
Is termination/retrenchment possible before or after transaction?
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Asset Deal
No automatic transfer mechanism for employees to follow assets
Buyer can be selective
More complex process – transition plan and communication
Conditional offer letter and resignation letter
Incentives to join buyer
Liaison between buyer and seller
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X. Stock options and share plans
Incentive and helpful for staff retention
No clear body of law
Limit number of participants
Foreign exchange issues – SAFE
Tax implications
Separate from employment contract
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XI. Managing the employment relationship
Performance monitoring and management
Appraisals and performance reviews
Warnings and disciplinary proceedings
Underperformance (表现不好) -v- incompetence (不能胜任工作)
Employee investigations
Whistleblowing
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XII. Handling employment disputes and termination
Grounds for termination - is there a clear ground for lawful termination?
– Grounds
– Legal consequences of unlawful termination
Evidential requirements – do you have all the documents and other evidence you need?
Mass lay-offs (经济性裁员) - communication with employees and the labour bureau
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Handling employment disputes and termination (Con’d)
Timing issues
The role of and dealing with labour unions (工会)
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Handling employment disputes and termination (Cont’d)
Negotiated or mutual terminations – use of release and waiver agreements (免责和弃权协议)
Severance
– Is severance payable to a leaving employee?
– Calculation formula for severance payment
Enforcing confidentiality clauses
Specific issues with expatriate and high-level staff
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Handling employment disputes and termination (Con’d)
Notice periods, and garden leave
– Notice period
– Garden leave
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XIII. Labour Arbitration and Litigation
What is the process - labour arbitration or courts?
How long does it take?
– Arbitration
– Litigation
Rights of appeal
Some statistics on the outcomes of cases (source: Internet news reports)
– In Shanghai
– In Beijing
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Questions?
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XIV. PRC Labour Decisions
Employment contract related cases
– Company ordered to pay double wages for issuing letter of appointment without signing labour contract (Shanghai; 2008; http://www.labour-daily.cn)
– Employer unit told to repay social security insurance to employee for lack of legal grounds (Beijing; 2009; http://www.chinacourt.org)
– Employer told to refund fees for reversing the decision to employ worker after medical examination (Beijing; 2009; http://www.chinacourt.org)
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XIII. PRC Labour Decisions (Con’d)
Termination related cases
– Employing unit lost the lawsuit for unlawful dismissal due to different penalty standards for the same issue (Shanghai; 2009; http://www.51labour.com)
– Company told to compensate department manager RMB 237,000 for unlawful layoff (Shanghai; 2009)
– Employment unit loses dismissal case against security guard who was fired instantly (Shanghai; 2008)
– Employer publishing dismissal announcement in the newspapers is legal (Beijing; 2009)
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XIII. PRC Labour Decisions (Con’d)
Confidentiality obligation related cases
– Appeal for Protection of Business Secrets Rejected Due to Lack of Evidence (Beijing; 2009; http://bjgy.chinacourt.org)
– Beijing No.2 Intermediate People’s Court, Civil Division, No. 1637 of 2004 (Beijing; 2004)
– Shanghai No. 1 Intermediate People’s Court, Criminal Division, Final Judgment No.343 of 2003 (Shanghai; 2003)
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XIII. PRC Labour Decisions (Con’d)
Non-compete obligation related cases
– Non-competition clauses nullified if no agreement on economic compensation (Beijing; 2009; http://bjgy.chinacourt.org)
– Non-compete clauses nullified for appointing employee's duties only (Beijing; 2009)
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PRC Labour Decisions (Con’d)
Non-discrimination related cases
– Employer told to compensate for employment discrimination due to hepatitis B (Shenzhen; 2008; http://www.chinacourt.org)
Q&A