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The New Shanghai Employment Contract Regulations
Interpreted by Implementation Rules
By Ron
(Rongwei) Cai
[June 2002]
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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