On 18 September 2008, the State Council of the People’s Republic of China issued implementation rules in connection with the Labour Contract Law which took effect immediately upon issuance (Implemental Rules). Compared with the previous draft of the implementation rules publicly issued for comments in May 2008 (Draft Rules), the newly promulgated Implemental Rules made substantial amendments in some respects. To some extent, these amendments reflect the Chinese Government’s compromises in response to increasing controversies over the Draft Rules throughout China. In addition, the Implemental Rules further clarify some points of the Labour Contract Law.
Expanded Scope of Employers
The Implemental Rules clarify that partnerships, including law firms, audit firms, and other entities such as funds and branch offices, are qualified employers. For branch offices, the Implemental Rules provide two scenarios. Those entities that acquire a specific business license or registration license can sign labour contracts directly, but entities that do not have the such licenses should have authorisation from the parent company before signing labour contracts.
More Practical Rules Regarding Written Form of Labour Contracts
In addition to the employer obligation to execute the labour contract with employees, the Implemental Rules specifically require that the employee execute the labour contract within a certain period upon receiving written notice from the employer; otherwise, the employer is entitled to terminate the employment relationship without paying any additional compensation to the employee except for salary.
Accumulation and Calculation of Working Years
Since the Labour Contract Law was promulgated in 2007, the rules regulating the open-ended labour relationship have caused a series of events. For example, it was reported some enterprises in China, such as Carrefour, forced their employees with long-term employments to resign and execute a new labour contract, with the term being calculated all over again. The purpose was to avoid the existing labour relationships becoming “open-ended”, which employers fear may be regarded as an “iron rice bowl” (a secured job).
In reaction to this issue, the Implemental Rules clarify that the employment term should be calculated accumulatively if any interruption was caused because of administrative orders and businesses development needs, etc., that are not attributed to the employee.
Open-Ended Labour Relationship Clarification
By emphasising the open-ended labour contract issue, the Labour Contract Law was meant to set up and maintain a relatively stable labour relationship between employers and employees, so as to better protect the rights and interests of the employees who had served their employers for a long term. Particularly, both the Labour Contract Law and the Draft Rules explicitly provide that the open-ended labour relationship could be terminated early under certain circumstances.
To further clarify, the Implemental Rules provide again that an open-ended labour contract could be terminated prior to its expiration by the employer subject to 14 conditions as set forth by the Labour Contract Law. In other words, an open-ended labour contract does not mean that employees can take advantage of the employer or jeopardise its interests. In such cases, an employer could definitely terminate the labour relationship.
Protection for Dispatched Employees and Penalty on Employers
Article 66 of the Labour Contract Law states “Labour dispatch services are normally used for positions that are temporary, auxiliary, or substitutive” (collectively, the three categories). However, the meaning of these three categories is not clear.
The Draft Rules provide some detailed interpretation regarding what qualifies as temporary, auxiliary or substitutive. For example, temporary refers only to vacancies of a short term, up to six months, which have demands for temporary replacement, which could be occupied by dispatch workers, etc. However, the final version of the Implemental Rules removes the definition of the three categories and keeps silent on this topic.
The Labour Contract Law only imposes administrative penalties on the dispatching company if any violation occurs. To supplement, the Implemental Rules provide that labour users (any enterprise that accepts the dispatch employees) will also be subject to administrative liability, i.e., any violation of the dispatch rules could result in a penalty, such as “order to correction” and fines of RMB1000 to RMB5000 per employee.