China’s Labor Contract Law

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China’s new Labor Contract Law came into effect on January 1, 2008. The new law has changed many well-established rules and filled loopholes that have long been considered too favorable to employers. Here are highlights of some of the important changes to the old rules of employment in China:

  1. Previously, an employee had no right of renewal of a fixed-term contract. Under the Labor Contract Law, the employer must renew the contract on the same terms or pay severance;
  2. The maximum probationary period for labor contracts between 1 and 3 years has been reduced to 2 months from 3 months;
  3. The employer must notify the labor union in advance of its decision to terminate an employee and if the labor union believes the termination would be unlawful, it may request the employer not to terminate; the employer must respond to the labor union’s request in writing;
  4. Open-ended contract now is a right of employees after two fixed-term contracts or after 10 years of continuous employment;
  5. Labor contracts must still be in writing but failure of the employer to sign a contract after one month of commencement of employment will require payment of double salary and after one year will result in an open-ended contract;
  6. Non-compete agreements are recognized but non-compete period is reduced from 3 to 2 years and compensation for the non-compete must be paid monthly after termination;
  7. Company rules and regulations are not binding unless negotiated and agreed by employee representatives;
  8. Liquidated damages for breach of labor contract are invalid (except for training contracts).

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