Last time I shared some pro tips to help you save time, money and legal issues when hiring in China, and this time around I’m going to walk you through how to legally fire staff in China and prevent costly lawsuits.
The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!
How to avoid legal problems in China: Training & Probation Period
Here are some important things to remember when setting up a training program in China.
- Compensation Claims in China relating to probation period
There is a trial period during which you can release staff with relative easy. But once that period is used up, strict severance laws will apply. So it is in your best interest to structure a training program that quickly gets the new staff up to speed on the job so you can evaluate them in a meaningful way.
- How to prevent lawsuits when firing staff in China during probation period?
Obviously, have a written methodology for this training and evaluation and make sure you know the labor laws concerning trial period length before you sign contracts and onboard new staff. The laws in China are constantly in flux and interpretation varies from location to location, but at the risk of oversimplification, here is the important stuff to remember:
- The trial period can normally be from 1 to 3 months in length.
- The trail period can be adjusted from 1 month to up to 3 months if the results of month 1 are not conclusive in the eyes of the employer.
- Important: This may be unique to China, but every month of trial period equates to 1 year of contracted labor. So if you end up hiring a person after a 3 month trial, you have in effect created a 3 year long contract period. If during those 3 years you wish to terminate the employment (at no fault of the employee, and sadly “poor performance” isn’t a legit reason to fire somebody in China!), the severance due will be as if the contract was for 3 years. There are different rules for project based employment vs open-ended contracts, but the rule of thumb I want to convey is that the longer the trial period, the greater your severance payout if you release the employee post-probation period.
Don’t make these big mistakes when setting up your labor contract!
You may be saying to yourself, “I paid a ton of money to a great lawyer back home to make my US labor contracts water tight. I’ll just translate them and use them in China.” BAD IDEA
The labor laws are quite different. It’s a communist country after all. So your contract will almost certainly run afoul of local labor laws in China.
Also, the PRC labor laws supersede any terms you may have in place with your staff in your “custom contract”. For example, you may wish to have some kind of “modern office” where Chinese staff can work from home or telecommute to the China office. So you set up a contract that states no overtime is due because employees are monitoring themselves and should limit work to 40 hours per week. Sound fairs, right? But if you end up terminating that employee, I guarantee the employee will ask for payment for OT performed on weekends, holidays and evenings. They will show the labor bureau emails from you asking about work. And the date stamps on those emails will show evenings, weekends and holidays. OT is 2X after hours and 3X on holidays by law. The law trumps your “custom contract”.
To help give you an idea of the items that should be included in a Chinese labor contract, here is English part of the bilingual template with important notes/terms in highlight.
- Term of Contract
- Job Arrangement
- Working Hours & Rest Hours
Be very clear about OT and office hours.
- Social Welfare & Benefits
Make sure this section is in exact compliance with national, provincial and local laws.
- Labor Protection, Working Condition and Prevention against Occupational Hazard
- Party B’s Responsibility
- Labor Disciplines
- Execution and Alternation of Contract
- Rescinding and Termination of Contract
- Invalidity and Nullification of Contract
- Compensation for Breach of Contract
- Confidentiality, Non-competition and Non-solicitation
- Intellectual Property
- Settlement of Labor Disputes
- Other Stipulations
Before we end this blog post, I’d like to answer this frequently asked question.
Do my contracts need to be in Chinese?
Having a bilingual contract is the only way you can hope to ‘win’ in a court of law
If the English only contract is signed by both parties, it is legally binding. But it’s a terrible idea to have English only contracts! Here is why:
Having a well-worded bilingual contract says to the Chinese employee that you “care” and it also shows them you are a professional not easily taken advantage of, even in China.
Don’t give your new Chinese employee some massive English-only contract template as it probably won’t even get translated, let alone read. The employee knows that signature is a prerequisite for getting the job, so many of them sign without even understanding the contract terms. To solve this situation, make it bilingual and easy to understand.
2 Technical reasons why it’s best to have a bilingual contract in China
- You have to list the Chinese name of the employee for the contract to be valid. The name should be the same as what you see in their official ID. Many Chinese people go by different names, yet their legal name is the one that needs to be on the contract.
- If your key documents are in English, it complicates things a lot should you need to go to court or arbitration. For example, before the courts can make a decision, the English documents/ supporting evidence will need to be translated into Chinese by a court approved translator for the court’s review. This can be expensive and very time consuming. Plus the defense can employ a stall tactic of fighting over the wording of the translation itself. It’s much better to have your attorney structure the wording in advance in Chinese rather than hope the court’s translation will be accurate. Be safe. Use bilingual contracts.
That concludes post no. 2 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series to find out what foreign manufacturers need to know about China’s mandatory benefits!