THE NEW SHANGHAI EMPLOYMENT CONTRACT REGULATIONS INTERPRETED BY IMPLEMENTATION RULES

By Ron (Rongwei) Cai

Effective May 1, 2002, all employment contracts in Shanghai need to comply with the new Shanghai Municipality Employment Contract Regulations (the "Regulations'). In late April, 2002, the Shanghai Administration of Labor and Social Security issued the Notice on Several Issues regarding Implementation of Shanghai Municipality Employment Contract Regulations (the "Notice") to clarify and interpret the Regulations.

DEFINITION OF EMPLOYER AND EMPLOYEE

According to the Notice, "employers" subject to the Regulations include all types of for-profit enterprises, sole proprietorships, incorporated and unincorporated non-profit organizations (the "employer") and all government agencies in Shanghai municipality.

Domestic workers, professional insurance agents, full-time students who work on a part-time basis, and those who provide independent services are not protected under the Regulations.

It is unclear whether employment contracts with non-PRC citizens or with those from Hong Kong, Macau and Taiwan will be subject to the Regulations. The Notice simply states that employment relationships with the above people shall be specified in an employment contract followed by decisions by the employer's Board of Directors or its management.

FORMATION AND TERMS

Even if an employment contract fails to include all the terms the Regulations require, as long as such absence does not affect the performance of the basic rights and obligations of the parties, the employment contract is still valid and enforceable.

The parties are free to agree upon detailed matters regarding social insurance as long as they are not in conflict with the relevant laws.

The terms and conditions for termination of an employment contract should be but they may not be in conflict with relevant laws.

If an employee receives training or other special preferential treatments from the employer, both parties may agree on a special employment term. In the event that such term is longer than the term of the employment contract, and if the employer does not wish to retain the employee at the expiration of the employment contract, the employer may not claim damages against the employee based on the special employment term.

If the employer requires the employee to continue the performance of the special employment term upon the expiration of the employment contract, both parties must first extend the employment contract.

LIQUIDATED DAMAGES

The damages clause in the Notice seems to be pro-employer. According to the Notice, even if the liquidated damages are more than the actual loss of the employer caused by the default of the employee, the employee should still pay the liquidated damages. If the liquidated damages are less than the actual loss of the employer, employer may claim additional damages against the employee.

If the liquidated damages are unreasonably high, either party may request a reasonable adjustment. Disputes between both parties on this issue may be resolved through labor arbitration proceedings and litigations.

CHANGE AND SUSPENSION

To protect employees' interest, the Notice clarifies that change of the name or legal representative of the employer does not affect the performance of the Employment Contract.

If a Employment Contract is suspended according to the Regulations, the rights and obligations of both parties under the Employment Contract are also suspended. Unless the laws and regulations provide otherwise or the parties agree upon otherwise, during the period of the suspension of the Employment Contract, the employer may suspend payments to the social insurance account, and if the term of the Employment Contract expires within this period, the employment relationship terminates accordingly.

The period of the suspension should not be calculated as the work period of the employee. When the employment contract is suspended, the employee should not enter into employment relationship with any other entity.

TERMINATION

Although the Regulations require an advance notice for the termination of the employment contract, the Notice seems to interpret that if both parties reach a different agreement, the employment relationship may be terminated at a time agreed upon by both parties.

If the employee fails to return to work upon the expiration of the medical treatment term as set for in Shanghai local medical benefit regulations, the employer is entitled to terminate the Employment Contract.

CALCULATION OF EMPLOYMENT COMPENSATION

For the purpose of calculating the damages owed to an employee, "employment compensation" shall mean the combination of salary, bonus, allowance and subsidies included in the total amount of the salary, but excluding various types of taxes paid by the employee. Stock, stock options, dividends and other income and interests that are related to investment but not listed in the total amount of salary should not be included.

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