On 7 May 2014 Beijing Higher People's Court and Beijing Labor Arbitration Commission jointly issued their Meeting Minutes 2 on Law Application in Labor Dispute Cases (the "Minutes") which follow the Minutes 1 issued in 2009. They became effective on the same day. The Minutes must be followed by all courts and employment arbitration commissions in Beijing when hearing employment dispute cases. By law, Beijing courts/employment arbitration commissions have jurisdiction if the employing company is registered in Beijing or, if not registered in Beijing, its employee's normal work place is Beijing.

Entering into employment contracts

New joiners

A written employment contract must be entered into within one month of the employee's actual start date. The penalty for failure to provide a written employment contract include the employee's entitlement to double salary from the second month onwards, and a deemed open-ended employment relationship if the written contract is still not concluded one year after the employee's start of work.

The Minutes clarify that the double salary shall be paid for a maximum of 11 months. If the written employment contract is still not entered into after one year, the employee can only claim for recognition of the open-ended employment relationship.

Employees whose contracts are to be renewed

For employees who have a fixed-term employment contract, it is important that a written renewal contract is entered into at the latest on the day immediately following the expiration of the original fixed term employment contract. Failure to do so will give the employee a potential claim for double salary for the period from the day following the expiration day of the original fixed term employment contract to the day prior to the date of the written renewal contract (subject to a maximum of 12 months).

Companies will need to improve their employment contract management system to avoid missing the above deadline, for example by setting up reminders and taking earlier actions to ensure the timely conclusion of a renewal contract.

Employees entitled to an open-ended employment contract

An open-ended employment contract must be entered into in certain situations, for example after two consecutive fixed-term contracts. Failure to enter into an open-ended employment contract will give rise to a claim for double salary.

The Minutes clarify that the double salary shall be paid from the day when an open-ended contract should have been concluded until the day prior to the date of the open-ended contract (subject to a maximum of 12 months).

Senior managers

A claim for double salary due to the absence of a written contract will not normally be upheld if the claim is raised by the legal representative of the employer company, as this individual is responsible for the employer company and has full external signature power. Similar claims from other senior managers including HR directors and managers may be upheld unless their job responsibilities cover the management of employment contracts and there is no evidence that shows that the employer is not in agreement with the senior manager's request for a written contract.

Limitation of double salary claims

Double salary consists of the normal salary paid for the employee's work plus an amount equal to the employee's normal monthly salary as a type of punitive damages. The limitation period for claims for the punitive damages is one year from the day when the employee knew or should have known that their rights had been infringed. This is normally the day when the contract is entered into. If the breach continues, the double salary claim will also be possible for the year preceding the date on which the employee brings their claim.

By contrast, the limitation period for claims for the normal salary is not subject to any time limit provided the employment relationship continues. If the employment relationship has been terminated, such claims must be raised within one year of the termination date.

Student interns

It was commonly understood that no employment relationship is established between companies and their student interns. However, the Minutes provide that companies are considered to have entered into an employment relationship with student interns if in substance an employment relationship exists. The typical elements of an employment relationship are:

  • the employer arranges the employee's work and the employee is paid for their work by the employer;
  • the employee observes internal rules and regulations and is subject to the control of the employer; and
  • the employee's work is part of the employer's business.

Exceptions are as follows:

  • internships arranged by the students' school/university; and
  • internships for the purpose of being engaged in social practice activities based on the students' own initiative.  

The difference between item (b) and being employed as an employee is unclear and if one of these exceptions is intended to apply it would be sensible to specify this in a written internship agreement. If not, the employer of a student intern is expected to adhere to employment law requirements, such as entering into a written employment contract within the statutory deadline and following statutory rules for termination of the employment relationship, and will be liable for any failure to do so.

Open-ended contracts after two consecutive fixed-term contracts

An open-ended employment contract must be entered into after two consecutive fixed-term contracts have expired unless the employee requests differently.

In line with existing local court practice in Beijing, the Minutes confirm that after two consecutive fixed-term contracts, the employer no longer has the right to determine whether or not to enter into a third contract but must enter into an open-ended employment contract if the employee requests one. By contrast, in Shanghai, after two fixed-term contracts, the employer still has the right to choose whether or not to enter into a third contract.

The Minutes further clarify that if the third contract is still a fixed term contract as requested by the employee, once this third fixed-term contract expires, the open-ended contract rules apply. If the employee requests an open-ended contract at this stage the employer does not have the right to decide whether or not to enter into a fourth contract.

If during the first fixed-term contract both parties jointly agree to prolong the contract term, they will be deemed to have entered into two fixed-term contracts and, once this contract expires, the above open-ended contract rules apply.

The Minutes list several examples of prohibited avoidance attempts, such as entering into the contract with affiliated companies on a rotating basis. These are strictly prohibited.

Implementing agency workers regulations in Shanghai

The Shanghai Human Resource and Social Insurance Bureau released two implementing regulations to the Tentative Provisions on Labor Dispatch (effective as of 1 March 2014, the "Labor Dispatch Provisions") respectively on 30 June 2014 and 16 July 2014 (jointly the "Implementing Regulations").

Filing requirements

Any enterprise registered in Shanghai where agency workers accounted for more than 10% of the total headcount before 1 March 2014 is required to file an Employment Adjustment Plan by 31 October 2014 at the latest. The Employment Adjustment Plan must cover the following:

  • measures to reduce the number of agency workers to the maximum cap of 10% of the total headcount; and
  • timing for carrying out the measures over the 2 year grace period up to the deadline of 29 February 2016.

HR outsourcing vs. agency workers

The Implementing Regulations confirm that it is possible to switch to so-called "HR outsourcing", but they fail to define this term. Based on current practice, this is similar to the agency workers. In an HR outsourcing model, the employee is directly employed by the employment agency and instructed to work on projects or assignments of the employment agency's client. However it is unclear what the material difference between agency workers and HR outsourcing is.

The Implementing Regulations hint that the key difference may be in the "staff management". In the case of agency workers, the individuals are directly managed by the end user. Whereas in HR outsourcing the individuals are directly managed by the employment agency. Based on current understanding, "staff management" includes performance reviews, work reports and salary adjustments. This implies higher requirements on employment agencies conducting outsourcing activities. If challenged, they will need to prove that they understand their client's business in order to be able to directly manage the outsourced staff.

If the underlying contracts have been formally changed to outsourcing service contracts, but in reality the outsourced employees work in the same way as agency workers, the Shanghai authorities will regard this as an attempt to circumvent the restrictions and this could result in penalties being imposed on the company.