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The Draft Labour Contract Law – Practical Implications Presented by Pattie Walsh and Lihui Zhou 10 January 2007

3 HK_91317_1 Why has this been Introduced? Labour Law in effect from Significant changes in society SOES less dominant in the labour market Move from rural to urban roles Differences in different regions The aim is greater protection for Employees

4 HK_91317_1 Why has this been introduced? (cont.) Increase in trade union power? More cohesive approach to labour regulation Incited lots of views and opinions

5 HK_91317_1 Background and Current Status The State Council submitted a draft to NPC for a first reading in December 2005 NPC circulated a further draft on 20 March 2006 for public consultation Internal amendments – “July version” Second Reading – 25 to 29 December 2006

6 HK_91317_1 What is an Employer? Employers are the legal “persons” lawfully incorporated within PRC who independently bear civil liabilities Workers will not include (this is subject to on-going amendment): Legal representatives and senior managerial personnel Soldiers and armed police Full-time students Household workers

7 HK_91317_1 What is the Guiding Principle? “The employers and workers must conclude the labour contract in accordance with the principles of legitimacy, fairness, equality, voluntariness, good faith and unanimity through consultation and must perform the labour contract in accordance with the principle of legitimacy and good faith”

8 HK_91317_1 The Employer’s Rules Rules which relate to immediate interests of employees (pay, hours, benefits, discipline, etc) should be discussed with the employee representatives or with all staff and then agreed through mutual negotiation

9 HK_91317_1 Disclosure of Information Employer to disclose Job requirements, working conditions, work place, occupational hazards, remuneration and other issues related to the labour contracts “which the workers want to know” Consider non-disclosure agreements at the recruitment stage?

10 HK_91317_1 Disclosure of Information (cont.) Employee to disclose Age, physical health, working experience, knowledge and skill, current employment status Consider making the fact the employer has relied on these representations very clear in the contract itself

11 HK_91317_1 Form of the Labour Contract Must be in writing 3 categories: Fixed term Non-fixed term “Job basis” i.e. accomplishment of certain work will trigger the termination

12 HK_91317_1 What Happens if An Employer does not Conclude a written Agreement Once a labour relationship is established a written contract should be signed within one month In the absence of a written contract the standards provided in the collective contract of the employer or industry applies or if no collective agreement on the basis of equal pay for equal work If no written contract is signed employer must pay double salary

13 HK_91317_1 Encouragement to Sign Non-Fixed Term Agreements If an employer seeks to renew a contract it should sign a non-fixed term if: The employee has worked for 10 years continuously The contract is renewed after 2 renewals of fixed- terms Failure to sign non-fixed term results in double severance payment

14 HK_91317_1 What if the Parties Feel Differently About Whether a Labour Relationship Exists? Unless these is clear evidence to the contrary the worker’s understanding will prevail

15 HK_91317_1 What if the employer accepts there is a labour relationship but the parties disagree on the terms! If the event of different understandings on the terms of the labour contract a “general understanding” prevails. Where there are 2 or more interpretations possible the one in favour of the worker will be adopted

16 HK_91317_1 What must go into the Labour Contract? Name address and legal representative of the employer Name and ID number of the worker Terms for terminating the labour contract Job requirements and work place Working hours, rest and vacation

17 HK_91317_1 What about Probationary Periods? Contract: Less than 1 year - Maximum 1 month 1-3 years - Maximum 2 months 3 years (and - Maximum 6 months non-fixed term) Salary during probation no less than 80% of the minimum of the same job or the salary in the contract No termination unless the employer can show the employee does not meet recruitment requirements

18 HK_91317_1 Training Expenses Employers can agree that workers shall pay damages if they beach conditions linked to the provision of training i.e. a service period Total damages shall not exceed the total training expenses (pro-rata for the un-performed part of the service period) This applies to off-the-job-professional, technical, or vocational training of more than a month

19 HK_91317_1 Non-Competition For those who are subject to obligations in the labour contract Period of non-competition no longer than 2 years The protection is limited to senior management, senior technicians and others who know the trade secrets of the employer

20 HK_91317_1 Terminations Through consultation with agreement A worker does not satisfy employment standards during probationary period There is a serious violation of the rules and regulations of the employer Deception occurs causing losses to the employer Other labour relations with another employer are established by the worker Worker is subject to a criminal liability

21 HK_91317_1 Terminations (cont.) Following 30 days’ Notice or payment of a month’s salary: After treatment of non-work related injuries the worker cannot do his/her job and no agreement on modifying the contract can be reached The worker is not competent for the job assigned even after being trained or given other jobs

22 HK_91317_1 Redundancy Restructure under bankruptcy law The business operation is undergoing serious difficulty Relocation for pollution prevention Other major changes in the objective conditions according to which the labour contract was concluded

23 HK_91317_1 Terminations (cont.) Redundancy of 20 or more people or more than 10% of the total staff the employer must inform the trade union or employees 30 days in advance, listen to views, and report the redundancy to the labour authorities “Last in First Out” Principle for selecting employees Protection for those on longer fixed-term, permanent contracts, where family member has no job, the elderly and those under 18

24 HK_91317_1 Terminations (cont.) No Terminations for the following individuals: Those who have lost capability to work due to occupational disease or job injury Those in the period of treatment for diseases or injury Workers who are pregnant on maternity leave or in the breast-feeding period Worker’s representatives Others determined by law or regulations

25 HK_91317_1 Trade Union Role Employer must notify the union before dissolving a labour contract and the union has the right to raise opinions If there are legal violations the trade union can demand correction The employer must study the opinions of the trade union and notify the decision in writing The trade union shall support and assist a worker who applies for arbitration or goes to court

26 HK_91317_1 Employee’s termination obligations Generally 30 days’ notice is required but various exceptions including: The absence of a written labour contract It is agreed to increase the notice period following the provision of off-the-job professional study or vocational training with fees paid by the employers (a maximum of 6 months’ notice may be agreed)

27 HK_91317_1 Fixed-Term Contract These are still acceptable but Economic compensation must be paid if the labour contract is not renewed

28 HK_91317_1 Practical Tips for Employers Audit existing employment and HR management Plan new arrangements in accordance with the new law Prepare documentation amend existing rules, procedures and contracts and draft of new ones Report to management and notify employees of the changes

29 HK_91317_1 Q & A

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