China: Managers unable to claim against employers for failure to enter into a written labour contract

Recent developments clarify that managers may not be able to claim compensation from their employers in the same way as other employees.

Employers in China must enter into a written labour contract with each employee within the employee’s first month of employment. Failure to do so means that:

• the employer will, after the first month, be liable to pay double compensation to the employee; and
• after the first year of employment, in addition to double compensation for 11 months of the first year, the employer will be deemed to have entered into an open-term labour contract with the employee (which makes it harder to terminate the employment relationship).

In May 2014, the Beijing High People’s Court and Beijing Labour Arbitration Commission issued meeting minutes regarding certain employment-related disputes (“Meeting Minutes”).

Although the Meeting Minutes do not have a binding legal effect upon future cases, they do reflect the likely position to be taken by Beijing judicial and arbitral bodies. Accordingly, the Meeting Minutes have some reference value for future labour disputes in Beijing (and possibly elsewhere in China).

The Meeting Minutes clarify that an employee cannot claim compensation from their employer on the basis of the employer’s failure to enter into a written contract if the employee is:

• the legal representative of the employer; or
• a senior management officer, a person-in-charge, or an executive of the employer’s human resource department whose scope of authority includes management of the execution of labour contracts between the employer and the employees. However, the employee may still be able to claim if they can prove that they has asked the employer to enter into a written labour contract and the request was rejected by the employer.

Actions for employers

The Meeting Minutes reflect increased judicial scrutiny against the possible abuse of managerial powers to claim against an employer in circumstances where the individuals themselves share responsibility for the acts of the employer.

Employers are advised to rigorously maintain written employment contracts with every employee, including managers, so as to avoid unwanted claims for double compensation or open-term contracts.

If you wish to discuss further, please contact Karen Ip, Gareth Thomas or Helen Beech of our Greater China Employment, Pensions and Incentives Team.