Hiring employees in China (the right way) is almost as difficult as terminating them. If you do not do your due diligence on your new employees, you find yourself losing lawsuits.
Consider the following scenario, based on an actual case:
New Employer wanted to hire Employee. Employee was still working for Old Employer, but he assured New Employer that all he had to do to leave Old Employer was to give Old Employer 30 days written notice. Employee then informed New Employer that Old Employer was angry with him for having left his Old Employer and was demanding he pay Old Employer damages for the early contract termination, but because it had been 30 days since he had given Old Employer his notice, “there should be no problems.” Employee also proposed a “perfect solution” to New Employer: he would sign a letter of guarantee to New Employer stating that he (Employee) would be solely responsible for any damages payable to Old Employer and expressly providing that New Employer would not be liable for any such damages.
New Employer was in a rush to hire an employee with the Employee’s particular skill-set so New Employer went ahead and hired Employee right after Employee executed the guarantee letter. About a month after Employee started working for New Employer, Old Employer sued both Employee and New Employer. Employee and Old Employer had an education reimbursement agreement that required Old Employer pay a substantial amount of money for Employee’s extensive training in Europe, and Employee had agreed to a 5-year service period in return for this European training. Employee was nowhere near to completing his contracted-for five years of service when he left Old Employer to be hired by New Employer.
At trial, Old Employer was able to prove everything, including producing actual receipts for the training provided to Employee. The court deemed the education reimbursement agreement valid and found New Employer liable for the damages incurred by Employee’s breach of contract. In other words, New Employer had to pay for having failed to conduct due diligence on Employee before hiring him. Even if New Employer could pursue Employee for all the money it paid Old Employer, it still is itself on the hook for the liability and it still had to pay its own lawyers to defend against the lawsuit. It also took a public hit to its reputation.
This case (and various other cases) make clear the importance of ensuring that your China hires are not joining you with similar legal baggage. Non-compete agreements are the most common “baggage” of which you should be aware. There are plenty of other employee agreements that can be important as well, such as the education reimbursement agreement in the case above. We do not recommend our clients use private investigators to investigate their potential new hires as that is generally illegal in China. We instead advise they request their potential employees provide such agreements before making any hiring decisions and that they also check with the potential hire’s previous employer, after first securing the potential employee’s consent to do so. It is, of course, entirely at the discretion of the previous employer to provide or not provide information on the previous employee, but in our experience, they usually will. It also is a good idea always to check the proof of termination of employment relationship. If the potential employee does not have this proof or is taking too long to get it, there is probably a problem. The failure to get this proof quickly likely means the potential employee did something wrong or is subject to some sort of contractual restriction. And when there are red flags, you should consider not hiring that person.
It also makes sense to insert a provision in your employment contracts with new hires that makes clear that a condition of employment is that your new employee has no restrictions of any kind from its previous employment. Note though that for this sort of provision to be effective you must set a probation period, and not a super short one. Then if the employee fails to meet the conditions of employment, he or she can be terminated before the end of probation period. Just be sure you have a well-drafted employment contract, well-drafted Employer Rules and Regulations, and that you document everything.
Slack off in making a new hire at your own peril.