China Releases Implementation Regulations for Labor Contract Law

More than eight months after the Labor Contract Law came into effect, China’s State Council has released implementation regulations to clarify certain aspects of the new 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, not 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 open term contract with the employee for as long as he requires. According to the implementation regulations, the 10 year period is counted from the date the employee started worked for the company and include the time prior to the implementation of the law. This regulation renders the effort of certain companies to terminate and re-employ its employees at the end of 2007 useless.

-If the employer wants to close the company and transfer its employees to another company under the same group, how do we then calculate for the service years? Under the implementation regulations, there are two options. The company can either convert its employees to the other company, including the calculation of his previous years of service or pay compensation according to the law and then re-employ the employee without the calculation of his years of service.

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

The implementation regulations includes six chapters and 38 clauses to make the Labor Contract Law more effective. It details rules for terminating a labor contract, disposition of labor, and legal liability, to name a few.
Source:China Briefing
BY Cathy Gao, a business advisory service associate with Dezan Shira & Associates.

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