Employment & Labour PRC Mainland

State Council Invites Comments on Draft Implementing Regulations
on the Labour Contract Law

The Legislative Affairs Office of the PRC State Council issued a notice on 8 May 2008 to invite comments from the public on the draft Implementing Regulations on the PRC Labour Contract Law (the "Draft Regulations"), which were finally published after a long wait from as early as September last year. The Draft
Regulations are composed of 5 chapters and include 45 articles altogether. The Draft Regulations clarify some major concerns of many employers with respect to the interpretation and implementation of the PRC Labour Contract Law.  This Client Alert highlights some of the main provisions in the Draft Regulations.

1.  Termination of Indefinite Term Labour Contract
 
The Draft Regulations clarify that an indefinite term labour contract can be terminated legally by an employer and will expire under certain specific circumstances. The Draft Regulations also provide a list of such statutory
grounds of termination/expiry (Articles 28 & 29 of the Draft Regulations) which are the present statutory grounds of termination with no new grounds introduced.
 
The details of such termination/expiry grounds can be referred to in the relevant articles of the PRC Labour Contract Law, i.e. Article 36 (termination by mutual consent), Article 39 (termination due to the employee's fault), Article 40 termination for cause that the employee has no fault), Article 41 (termination for economic
retrenchment of the employer), Article 44 (2)-(6) (expiry).
2.  Labour Secondment
 
(a)    Restrictions on Secondee Company
 
The Draft Regulations require that a secondee company should generally only use seconded employees for:
(i)    non-core business work positions of the company;
(ii)   work positions lasting for less than 6 months;
(iii)  work positions in substitution for those of original employees who are on training or leave.

However, the Draft Regulations do not address whether a representative office of a foreign enterprise in the PRC (the "Rep. Office") shall be subject to such restrictions as well. According to the relevant State regulations, the Rep. Office is only allowed to obtain its Chinese employees through qualified labour service
agencies like FESCO and CIIC.
 
In addition, as stipulated by the Draft Regulations, the secondee company cannot return any seconded employee to the labour service agency (the "Agency") before the expiry of the secondment term, except where the action of such seconded employee falls within the stipulations of Articles 39, 40(1) & 40(2) of the PRC Labour Contract Law. It is important for the employer in the PRC to be aware that such secondment term depends on the negotiation with the Agency, and it can be different from the term of labour contract concluded between the Agency and the seconded employee, which is required by the PRC Labour Contract Law to be at
least 2 years.

(b)    Restrictions on Labour Service Agency
 
The Agency is prohibited from: a) stipulating any probationary period in the labour contract signed with the seconded employee; or b) recruiting an employee on part-time basis, but the Agency is allowed to second its full-time employee to work in part-time positions in a secondee company.
 
Although the above restrictions are imposed on the Agency instead of the econdee company, it can be expected that any additional cost or risk resulting from the above restrictions will ultimately, or at least partially, be hived off to the secondee company.

3.  Scope of Coverage of "Employer"
 
The Draft Regulations clarify that an accounting firm, law firm, fund/foundation and other like organisation legally established in the PRC is subject to the coverage of employer stipulated in Article 2 of the PRC Labour Contract Law.
 
4.  Termination of Labour Relationship without Written Contract

Where an employee refuses to sign any written labour contract within one month from the date of commencement of employment (the "Commencement Date"), the employer can terminate his/her employment with a 3-day prior written notice provided to such employee, and is not liable to pay any economic compensation (i.e. severance) to such employee.
 
If a labour relationship, without a written contract between the parties, exists for one month or more but less than one year, the employer will be liable for payment of twice the amount of the payable remuneration to the employee as salary, as well as to sign the written labour contract with the employee. Where the employee
refuses to sign the written labour contract under such circumstances, the employer can, according to the Draft Regulations, terminate his/her employment and the statutory amount of severance payable to such employee. While unclear, this would appear to create a separate ground for termination for such "refusing" employees. Hopefully the final version will clarify this, as well as whether any notice is required for such ground of termination.
5.  Continuous Service Period
 
The Draft Regulations stipulate that, where for a reason not attributable to an employee like an administrative order, transfer of business, and the like, the employee is transferred to work for a new employer and concludes a new labour contract with such employer, his/her service period with the previous employer shall count for the purpose of calculation of his/her continuous service period with the new employer.
 
6.  Conflict of Local Regulations
According to the Draft Regulations, if the locality where the labour contract is actually performed (the "Performance Locality") is different from the locality where the employer is registered (the "Employer Locality"), for issues like the minimum wage, labour protection, labour conditions, protection for occupational hazards, and local employees' monthly average wage, the Performance Locality regulations shall apply; where any relevant standard in Employer Locality regulations is higher than that of the Performance Locality regulations, the parties can agree, through negotiation, on the application of the Employer Locality regulations.
 
7.  Minimum Amount of Special Training Cost

The Labour Contract Law has provided that liquidated damages payable by an employee for breach of a service term would only be allowed where a special training cost has been incurred by an employer for such employee. Now the Draft Regulations stipulate that where an employer pays as a lump sum, or cumulatively
within 12 months, an amount exceeding 30% of the average salary payable to its employees by such employer for the last year for training of an employee, such amount will be deemed as the special training cost mentioned in Article 22 of the PRC Labour Contract Law. Such special training cost includes the training fees
which can be proved by the relevant payment documents, the travel expenses during the training, and other direct expenses arising from such training.
 
8.  Severance and Damages
 
According to the PRC Labour Contract Law, in case any unilateral termination by the employer is held by an arbitrator or judge to be a wrongful termination, where the employee does not request for specific performance, i.e. reinstatement to his/her job position, or such contract is no longer capable of being performed, the employer will be required to pay twice the usual severance pay amount as amages to the employee.
 
It was unclear whether this double amount was inclusive or exclusive of the severance amount that might already have been paid to the employee at the time of the termination. The Draft Regulations now clarify that under such circumstances, the employer is not liable for any statutory severance pay as long as the said
damages have been paid to the concerned employee, i.e. such double amount is "inclusive".

9.  Termination upon Retirement
 
The PRC Labour Contract Law stipulates that a labour contract will be considered as having expired (no severance payable) where the employee is of retirement age and is entitled to enjoy his/her basic pension plan benefits. However, in the PRC an employee cannot enjoy such retirement treatment unless he/she: a) attains retirement age of  60 (male) or 55/50 (female) years old; and b) has paid the contributions to the pension plan fund for cumulatively 15 years. The status of employees having reached retirement age but not entitled to pension benefits was not addressed. The Draft Regulations now stipulate that if the employee
cannot enjoy such pension benefits when he/she is at the retirement age, the employer can terminate his/her employment upon expiry, but is liable for payment of statutory severance based on such employee's continuous service period.
 
10.  Confidentiality: Position Change before Termination
 
The Draft Regulations provide that in case of any confidentiality agreement between the employer and the employee who possesses the relevant confidential information, it can be agreed by the parties that during a specific period before the expiry of the labour contract or the resignation of the employee, the employer can
change the employee's work position, but cannot decrease the remuneration payable to such employee while in such changed position.

For further information, please contact: attorney in shanghai china steve lee 18721500024 

www.attorney-china-sh.com