China Employment and Labor Update (Part 2)

HANGZHOU, CHINA - MARCH 09:   Jobseekers atten...

The update is Part 2 of a blog post on current China employment and labor law update.  Part 1 is located here.

Non-Compete – During Employment

Non-compete agreements are somewhat common that employers ask of their employees.  In China’s legal framework, there is no obligation for the employee to commit to a single employer.  Running a business “on the side” or even solicitation for the benefit of the second employment is allowable.  Thus, it is important for companies to set up HR policies and practices, clear statement in the employee handbook and follow through on violators of company policies.

Items that should be clearly spelled out include confidentiality, non-disclosure, non-solicitation, non-compete and code of conduct.  Not only is having a policy but, clearly spell out examples of what is appropriate and in-appropriate practices.  Documentation of the disciplinary steps and corrective actions are required to be spelled out clearly.

Lastly, ensure that the employee signs and acknowledge form that they have agreed and understood the company policies.  After all, after a policy violation, the person may claim that they were not told of the company regulations.


Non-Compete – Post Employment

Companies often use post-employment non-compete agreements in an attempt to prevent employees from joining competitor companies.  Bosses also want to utilize non-compete to retain employees, thinking that they can prevent employees from leaving to join a competitor company.

In order to enforce a post-employment non-compete agreement, the company is required to pay for that agreement.  The amount could be equivalent to the loss of income if the employee was prevented from working in the industry where she has the skills, knowledge and talent.

The seminar panelists all agree that multi-national companies may want to reconsider using non-competes.  It is a very heavy-handed approach to handcuffing employees to stay working for the company.

Consider the real purpose of a non-compete – it is to protect valuable information pertaining to the competitive edge of the business.  It is not a tool for retention.

Non-Compete is also ineffective.  The agreement is only applicable if the employee is employed by a China based entity.  The non-compete is unenforceable f the employee joins the competitor located in another country.  Chinese courts do not have jurisdiction.


Labor Unions

Another hot topic was collective bargaining.  The concept of labor unions are different from those of the US.  Unions are often seen as not always working on behalf workers they represent.  They often stuck between the government’s interest in promoting industry growth and quelling labor strikes for unfair labor practices.

Panelists during the workshop suggests for companies to actively engage in the creation of a labor union.  Who is selected as the union leader is critically important.

  • Is the person loyal to the company and seeks to support the company’s interests or will the person resist company policy changes.
  • Engage the union chair in company policy changes early in the process.
  • The company should also providing funding and support employee social and recreational activities.


Overtime Practices

According to the employment law, working hours can be categorized into the following:

  • Full-time or Part-time
  • Standard working hours – no more than 8 hours or 40 hours per week
  • Comprehensive working hours – this is a special category where the work may be seasonal or other requirements stipulating set hours (i.e., railway / transportation industry).  There are specific calculations of hours worked and over-time calculations.
  • Flexible working hours – where the work follows an irregular pattern or hours worked cannot be determined by standard working time (i.e., sales, senior management).  There are no cap on working hours and the concept of overtime does not exist

Calculation methods for OT is complex.  Moreover, different cities have different calculation methodology.  It is best to seek the advice of payroll or labor experts.  


This is a summary of the key topics from the China Employment and Labor Management workshops.  Part I of the summary is here.

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