China Enforces New Labor Law
Since 2008, China has taken into effect three new Labor laws: Labor Dispute's Mediation and Arbitration Law, Employment Agreement Law, and Implementation Regulations on the Employment Agreement Law. These new labor laws are measures taken by the government to assist in China's transition of economy and society. The new laws will strengthen the protection of employee's legal rights and balance the relationship between the employer and the employee. They will severely punish the employer who violates any labor regulations, like the lack of written employment agreements, violation of the prevailing wage standard, postponed or reduced wage payments, or wrongful employment termination. In particular, foreign investors in China should pay close attention to these changes.
Under the new labor law, an employer will assume more proof-of-evidence burden. This means that when there is a labor dispute the employer must provide the related evidence and if he/she cannot, then the employer shall be treated adversely. To avoid such treatment, the employer should improve management by implementing employee handbooks, conducting performance reviews on a regular basis, enforcing discipline policies, and maintaining personnel records.
The new labor law sparked changes to the rules of the unlimited-period employment agreement. Now the employee has the right to require their employer to sign an unlimited-period employment agreement. For example, after the employer and employee have continuously made the limited-period employment agreement twice, the employee has the right to sign an unlimited-period employment agreement with the employer unless the employer refuses to lengthen the employment with the employee. However, an unlimited-period employment agreement does not equal a lifetime employment because the employer has the right (illustrated by the new labor law) to unilaterally terminate the unlimited-period employment agreement. In practice, a foreign investor in China always employs local employees in a short-term manner and, therefore, should take into consideration new rules of the unlimited-period employment agreement.
Finally, the new labor law stipulates, in principle, how to protect the employer's trade secrets and intellectual property rights. This enables the employer to establish more detailed and specific clauses in the employment agreement and confidentiality agreement with the employee. While the employer needs to plus an unfair-competition-restriction clause against certain employee with confidential obligations, the clause is subject to the term of no longer than two years.
In conclusion, the new labor law will knock out any ill-abiding companies by it's strengthened compliance and enhanced punitive expenses. The new labor law regulates a well-mannered labor market in China, and promotes the employer's competitiveness as well as the employee's living qualities.
Authored by:
Jun Xu
(212) 332-3806
jxu@sheppardmullin.com
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