China Employee Handbook – Preventing Labour Disputes in China

Over the past few years, labour disputes in China have dramatically increased. By 2015, Chinese arbitration increased for labour case disputes from 135,206 at the start of the millennia to 813,859. The monumental rise in cases over 15 years topped out at 502%. The number is staggering.

But what are the reasons for these rises in numbers? Changes in China labour laws that protect employees and staff members are one reason. Other reasons include more efficiently run labour arbitration procedures, more educated employees, and the effects of an economic slowdown that we have been seeing over the past few years in China.

It’s now imperative that China companies that employ large numbers of workers put effective measures in place to prevent or lessen the labour dispute increases. A great way to achieve this necessity is to create a concise and well-crafted employee handbook that lays out all the terms and conditions in a logical sense. This might also be referred to as a staff manual or a code of conduct list.

What is an Employee Handbook and why is it Essential?

Where any business that employs staff is concerned, it’s always important to lay out the company rules and regulations right from the beginning. An Employee Handbook is the terms and conditions that staff need to know about from the first day they start working at the firm. They are the company rules, working practices and procedures, and the rights that employees have in the workplace.

It is the law of the company that governs the way things are done going forward. Employee handbooks are not mandatory or a legal requirement under Chinese law, but they make sense in a multitude of ways. They are not legally binding like employment contracts but they do lay out a clear definition of what is expected from the worker and the company. It’s essential to have a handbook to protect the company against employee labour disputes.

It’s really important in relation to when a company wants to terminate the contract of an employee due to them not fulfilling their responsibilities. This could be for staff members that are rebellious or uncooperative and are not adhering to the rules and regulations of the company pertaining to the details laid out in the handbook. If they have broken the rules in the handbook, theoretically you can terminate their contract without having to pay severance pay.

If you, as an employer, do not have an employee handbook in place, it will be almost impossible for you to terminate the contract of a rebellious employee without paying out damages. This is not only reserved for those who are guilty of inappropriate behavior. You might not even be able to terminate an employee who has seriously breached your rules or damaged the company. You need to have these rules in place to protect yourself as an employer in the employee handbook.

How Do I Formulate the Best Employee Handbook?

Now you are realizing how important it is to have an employee handbook, you need to find the best ways to formulate it. It must be clear and concise and not open to interpretation. It needs to be fully understood by all parties involved i.e. the employer and employee. Simplicity is the key to a well-worded handbook. And if it needs to be bilingual in both Chinese and English for example, it needs to be concisely written for both English and Chinese employees alike.

Ensure you have created a main Chinese version of your handbook though because it probably won’t get by the Chinese labour arbitration commission or any court it might get dragged through in the future. If you don’t have a Chinese version, the handbook will be invalid. An English copy might not be important in legal respects, but it’s essential that foreign workers in China fully understand the handbook and what they are agreeing to in terms of possible issues relating to contract termination.

A version of the Chinese employee handbook should not just be translated into English because some of the nuances might be wrongly converted. It needs to be tailor-made for the Chinese market and to be compliant with the ever-changing local labour laws but when written in a different language. It has to be perfect in explaining the said rules and regulations. If the handbook itself is in violation of Chinese law and is then used to fire an employee, it could be used against the employer, and in most cases, the arbitration courts will rule against the company. An ongoing review of the handbook is also essential because of changing labour laws.

Always be careful not to use vague and ambiguous laws and phrasing when compiling the handbook. A good example of this issue would be if the employee is constantly late or absent from work while not providing proper reasoning. It should be an offense that results in the termination of a contract, but if you don’t list and confirm the number of days and arrival times in the workplace, it would be difficult to force termination of a contract. Be clear. Being late for work or not coming to work one time with no reason would not be a firing offense using labour laws unless you have already specified that in the handbook. So if you didn’t specify that in the handbook, the termination would be an unlawful one.

References to employee labour contracts should also be included. As an employer, adding this will make your position stronger if a staff member breaks the rules in the book. The employer needs to add a section that details the exact rules of the company and how the employee should be fired or even disciplined in these potential eventualities.

Employers have certain legal responsibilities to the employee so it’s important that you list these legal obligations in the handbook that are detailed under Article 4 of the China Labour Contract Law (In Chinese: 中华人民共和国劳动合同法) (“LCL”), as follows:

“to have ‘consultations’ with all employees or the employee representative council about those rules before making a final decision. This is particularly crucial when such rules “have a direct bearing on the immediate interests of employees, such as labour remuneration, working hours, rest and vacation, occupational safety and hygiene, insurance and welfare, training, labour discipline and labour quota management”.

If you check out the LCL in Article 4, it details that the employer must legally and publically inform employees about the rules and regulations and any other important details about the relationship between both parties. In this situation, companies will usually post the details and the full handbook on a message board on their internal system that anyone in the company can view. All employees will in some shape or form receive these important details via email and a hard copy. If this process is not followed by the employer, the handbook rules will be deemed invalid and cannot be enforced.

If the employee does not agree with certain conditions in the handbook, they do not have to agree to them. And by that action, the employee is not forced to accept or agree with any comments on this. However, it’s also not mandatory for the company or employer to get the employee’s consent for everything in the handbook.

It is expected that new employees must sign a copy of the handbook after an initial review at the same time they sign their labour contract before they start work. If the employer and employee end up in a dispute and there is no written proof of receiving the handbook and agreeing to the terms and conditions, the employee can simply state they never even saw it in the first place. This will result in a situation that can end up being dealt with via the labour arbitration commission or in court and they usually favor the employee in this case. The burden of proof pretty much always lies with the employer in this situation.

What Content Needs to Be in the Employee Handbook?

Because employee handbooks like these are the responsibility of the employer, Chinese law doesn’t usually specify what needs to be included in the handbook. This is not a labour contract we are dealing with here. The company must decide what it wants to implement. However, here are some of the things you need to include:

  • Behavioral Standards and Disciplinary Procedures
  • Recruitment Standards for Probationary Employees
  • Employee Performance Assessment
  • Workplace Security
  • Working Hours & Overtime
  • Holidays and Leave
  • Remuneration Standards
  • Confidentiality & Non-Compete
  • Social Welfare

Some handbook rules might be defined by the industry that a company operates within. If the handbooks are for a manufacturing company, there might be details that need to be included that covers break lengths or being on time, safety in the workplace, and other industry-related ideals. If this is for a restaurant business, hygiene standards might be included. It all depends on what the industry specifies.

Here is a brief overview of the first three sections on that list and the things you need to think about when formulating your employee handbook in regards to employee contract termination:

Behavioral Standards and Disciplinary Processes

In regards to Article 39(2) of the LCL, employers can terminate the labour contract of an employee with zero notice if the employee “seriously violates the rules and regulations of the employer”. The behavioral standards of individual companies are not defined by Chinese labour laws and are defined by the employer. They aren’t usually included in the actual labour contract so you need to add them to the handbook for clarification. This should have a clear definition of the violations and if there is a warning process in place or it goes straight to termination of the employee contract.

In order to be clear, the employer must clearly define the differences between minor offenses and major violations. Minor violations are usually turning up for work late, and that would lead to verbal warnings and then followed up with written warning if the problem is not fixed. You need to define how many minor violations make up a major violation and so forth.

The employer also needs to inform the employee that the rules can be challenged if you go to labour arbitration or if it results in a court appearance. How serious the offenses are will be decided during labour arbitration. Each situation is handled individually. This is why it’s essential that the employer clearly lists the violations in the handbook so they can prove the legitimacy of the claims if it goes to arbitration.

Recruitment Standards for Probationary Employees

Employers must know that they cannot simply terminate an employee’s contract for no reason. This is against current Chinese labour employee contract rules. Article 39 (1) of the LCL states that employers can only terminate an employee’s labour contract with no prior notice and without severance pay if they can prove without a doubt that the employee somehow did not meet the conditions of the probation period via a performance assessment. But if the labour arbitration court rules the evidence inadequate, the employer might be forced to pay severance or even reinstate the employee.

Employee Performance Assessment

Although it can be quite easy to terminate the contract of an employee who fails to meet the standards and conditions of the probation period, it’s much more difficult to make this stick with a full-time employee who has already completed their probation. It’s much more difficult to terminate full-time employees who the company has deemed incompetent in their current position. In this case, the firm needs to perform an employee performance assessment.

In relation to Article 40(2) of the LCL, an employee labour contract can be terminated by the employer with 30 days’ “prior written notice or one month’s wages instead of notice” if the employee is still incompetent after receiving more training on the job. In this case, the employer must be able to prove the incompetencies and that they have tried to fix the issue with further training or by adjusting the employee’s position. If the employer has attempted to address and fix the situation to no avail or improvement, the employee is proven to be incompetent.

If a company is terminating the contract of a full-time employee due to incompetence in a non- probationary situation, severance pay needs to be issued, but the employer still needs to provide evidence. In relation to Article 47 of the LCL, this is how the severance pay is calculated using two different protocols:

  1. Salary is less than 3x the local average – (the average monthly salary of the employee) x (the
    number of years the employee has served).
  2. When the salary is less than 3x the local average – (three) x (monthly local salary average) x (the number of years the employee has served).

If the employer cannot adequately prove employee incompetence, the labour arbitration court may rule on the side of the employee and deem the termination as unlawful. In this situation, the employer will be ordered to pay the employee double the above-calculated severance pay rates. Or they might even be ordered to reinstate the employee.

Taking all these issues into account goes to show how important it is to list the definition of incompetence in your employee handbook to protect the employer. Specific information pertaining to what is deemed incompetent in the said position needs to be listed in the handbook.

Employee Handbook Conclusion

The employee handbook is one of the most important documents that companies need to set out their employment rules and regulations. It’s a good idea to individualize the handbook depending on the job type and related to the industry that the company works within. It’s also important that you have the main copy in Chinese and other copies written in languages that relate to those of your foreign employees.

It’s not a legal requirement to have an employee handbook, but it sure does come in handy for both parties. It doesn’t hurt to define rules and what is considered incompetence. Defining minor and major violations of the rules is another thing that you need to be clear about. Getting the info right in the handbook at the first attempt is beneficial for both the employer and the employee.