Following the promulgation of the PRC Labor Contract Law, the China entities of many multinational companies began to adopt their own employment handbooks. Also known as “staff handbooks” or “employment guides,” in the PRC Labor Contract Law and the PRC Labor Law (collectively the Labor Laws) they are referred to using the Chinese term “gui zhang zhi du” (herein, an “Employment Handbook”). This advisory highlights key elements of, and explicates legal requirements for, an effective Employment Handbook in China.
The Labor Laws require that employers produce an Employment Handbook to ensure that employees enjoy their employment rights and perform their employment obligations. The Labor Laws contain detailed provisions on employment rights. As for obligations, the Labor Laws only contain generic provisions. The Employment Handbook is therefore a resource that employers can use to lay out employees' obligations.
What to include
In addition to generic policies (i.e., conflict of interest, an internal transfer policy, etc.) and a description of corporate culture, an Employment Handbook should focus on two areas: (1) implementation of the Labor Laws; and (2) specific employee obligations.
1. Implementation of the Labor Laws
Without misrepresenting principles of the Labor Laws, and subject to standards of fairness and reasonableness, employers may provide detailed implementation rules and definitions of certain generic terms in an Employment Handbook. Such rules and definitions can help to implement the Labor Laws in a particular workplace. Below are some examples.
Deception. The Labor Laws provide that an employment contract is void if one party deceives the other to enter into the contract against the other party’s will. A court or arbitration body may determine what constitutes “deception.” An Employment Handbook may also define deception, such as if an employee provides a fake education certificate or false qualification documents, offers untrue information regarding his/her previous working experience, etc. The courts and the labor arbitration commissions usually respect the provisions of an Employment Handbook.
Competency. Under the Labor Laws, an employer may terminate an employment contract if the employee is not competent and remains incompetent after position adjustment or training. The Labor Laws are silent as to how to determine whether an employee is competent, and they leave an employer the option to choose between position adjustment or training, as well the length of position adjustment or training before the employer can again determine whether the employee is competent. The Labor Laws’ silence on these issues could lead to disputes.
An Employment Handbook may fill in the gap by including details and procedures on how, and who, is empowered to determine incompetence (such as stipulating a twice-yearly performance review conducted by an employee’s direct supervisor, or that consistent customer complaints suffice for determining incompetence); how position adjustment or training is effected; and how long an employee must be at a new position or in training before the employer can again determine whether he/she is competent. As long as the procedures are clear, the employer will be in a strong position to implement this clause of the Labor Laws.
Illness and injury. The Labor Laws provide that if an employee is sick or injured due to a non-work-related cause and cannot resume work in his/her original position after expiration of the proscribed medical treatment period, and neither can he/she assume any other position arranged by the employer, the employer may terminate the employment contract. The Labor Laws are silent as to how to determine whether an employee is unable to resume his/her original position, and how to determine whether an employee is competent after the employer adjusts his/her position.
Again, an Employment Handbook may set forth details and procedures thereof. For example, an Employment Handbook could provide that, upon returning to work, an employee’s direct supervisor and a human resources manager will jointly assess whether he/she is competent for his original position. If they determine the employee incompetent, the employer will offer him/her a new position which the employer deems appropriate for him/her. After a month in the new position, the direct supervisor of the new position and a human resources manager will jointly assess whether the employee is competent for the new position. If the employee is determined incompetent, the employment contract may be terminated.
Changing circumstances. The Labor Laws further provide that, if the objective circumstances on which the conclusion of an employment contract was based have changed considerably, and if the employment contract is unable to be performed and no agreement on altering the contract is reached after negotiation between the employer and employee, then the employment contract may be terminated. An Employment Handbook may expound this clause by defining what constitutes change to objective circumstances (i.e., relocation of facilities, closing a branch which does work exclusively for a customer and this customer no longer exists, etc.) and stipulating that if such change occurs, the parties must agree on revision of the employment contract within a specified period; otherwise the contract may be terminated.
Rule violations. If an employee seriously violates his/her employer’s rules and regulations, the Labor Laws provide that the employment contract may be terminated. An Employment Handbook is the medium that can stipulate such rules and regulations. For example, a rule could be a proscription on use of a company’s computers for operating online shops or downloading videos, or it could be a proscription on accepting gifts with a value of $20 or more.
Having stipulated such rules, the Employment Handbook also needs to define what constitutes serious violation of the rules. For instance, if a rule proscribes failure to report to work without prior approval, and if an employee fails to report to work for one day without prior approval, is this a serious violation? Is it a serious violation if an employee fails to report to work for three consecutive days without prior approval or application?
If a rule proscribes stealing company property, and if an employee steals company property with a value of $10, is this a serious violation? If such is not regarded as serious, is it a serious violation if an employee is found to have thrice stolen company property? An Employment Handbook may provide that, once an employee is found to have stolen, it is indeed a serious violation if the value of the property exceeds a certain amount.
Comprehensiveness. The above are examples of what can be included in an effective Employment Handbook. They do not comprise an exclusive list. A comprehensive Employment Handbook should consider all aspects of the rules. For example, an employee’s annual bonus is typically paid within the first three months of the subsequent year. If an employee worked for the entirety of 2009 but left before bonus payment was due, is he/she still entitled to the bonus? Such issues (where disputes may easily arise) also need to be addressed in an Employment Handbook.
2. Specific employee obligations
What not to include
An Employment Handbook must not include any provision that violates the Labor Laws. For example, an Employment Handbook cannot provide that no employee is entitled to overtime pay. An Employment Handbook cannot include any provision that violates the basic rights of employees; for instance, that female employees cannot become pregnant while working for an employer.
We also suggest that an Employment Handbook not include provisions where China’s national laws and local laws diverge; for example, a salary payment standard for an employee when he/she takes sick leave. It is further advisable for an Employment Handbook to not include provisions where the rules are difficult to summarize. Some issues are difficult to summarize because the prevailing provisions are scattered among the Labor Laws and many regulations and notices; for instance, the rules concerning maternity leave benefits and calculation of compulsory severance pay.
Procedures for generating and revising an Employment Handbook
According to the Labor Laws, an employer must abide by certain procedures in order to generate and revise an enforceable Employment Handbook. For provisions concerning matters that are directly related to employee interests (i.e., remuneration, working time, holidays and vacations, work safety and sanitation, insurance and welfare, training, labor discipline, management of production quotas, etc.), the crafting and revision of such provisions should follow three steps:
After putting forward certain provisions, an employer must discuss the provisions at an employees’ representative meeting or with all employees. The formation and function of an employees’ representative meeting is subject to PRC law on trade unions. The employer may send notice to all employees to call a meeting, and then discuss the provisions at the meeting and record employee comments. The employer could send written (e.g., by e-mail) solicitation of comments to all employees, then record the same along with employee comments.
After discussions under the first step, the employer must discuss employees’ comments with trade union or employee representatives. A discussion with “employee representatives” is different from an employees’ representative meeting. Employee representatives are elected pursuant to an employer’s procedures, so long as such procedures are fair and transparent.
Following steps 1 and 2 above, the employer can make a final decision. Afterwards, the employer must either publish the provisions or the Employment Handbook at places where employees can easily access them or, instead, notify all employees in writing of the provisions or Employment Handbook.
A well-prepared Employment Handbook can serve as a supplemental, general contract between an enterprise and all its employees. To ensure effectiveness in China, an Employment Handbook should implement the Labor Laws and specify employee obligations. It should avoid provisions that violate the Labor Laws, provisions where Chinese law diverges, and provisions where the rules are difficult to summarize. An employer must follow certain procedures in order to generate and revise an enforceable Employment Handbook.