China Employee Vacation Days aka Annual Paid Leave

China’s labor laws require employers provide their employees paid vacation days based on their total years of service. Employers are legally obligated to ensure their employees take their vacation days and to the extent the employer fails to do so, it must pay the employee an additional 200% of her normal wages for each unused vacation day.

The law also requires China employers pay their employees for unused vacation days at the time of termination. One question our China employment lawyers are often asked is whether an employer has the same payment obligation when it unilaterally terminates an employee for employee breach. The governing law is silent on this. But since it says that at the time of termination, an employer must pay employee compensation for unused vacation days, a strict interpretation would dictate such a payment must be made. As is typical of almost everything China employment law related, the real life answer depends on where the employer is located and even at which court the labor dispute will be adjudicated. For example, the general view of the Shanghai courts is that an employee terminated for her own fault is not entitled to payment for unused vacation days, because she is at fault for being terminated before she could use all of her vacation days.

This though gets complicated when the unused vacation days are spread among several years. For example, suppose an employee terminated in 2017 due to employee breach did not use any vacation days in 2017 prior to her termination. Assuming the employer’s unilateral termination decision was held to be lawful, the employer will probably not be required to pay the employee for unused vacation days in that year. But suppose that same employee was never paid for unused vacation days in 2016 either. In that case, the employer very well may be required to pay for unused vacation days — assuming the employee did not voluntarily relinquish her vacation time via a clear writing and the statue of limitations has not otherwise run out against the employee.

Employees usually do not pursue labor arbitration just to try to collect money for a few unused vacation days. These claims typically show up as part of a claim challenging the lawfulness of the employee termination. So this is yet another reason why unilateral termination can be so problematic. Employers that unilaterally terminate their China employees often find themselves caught up not just in one lawsuit but in several proceedings—labor arbitration, trial, appeal, and sometimes a retrial and in most of those proceedings, it has to defend itself against not just its termination decision but also against multiple other ancillary claims. “Mutual” terminations with a clear written settlement agreement avoid the employer having to jump (stumble) through so many hoops.

Also, like most aspects of China employment law, vacation time is not an area where it makes sense getting creative. For example, don’t just assume that a provision in your rules and regulations stating that your employees forfeit their unused statutory vacation time by not taking that time. Think twice before you ask your China employees to give up something to which they are legally entitled. If you are unable to secure a separate written agreement (in Chinese) from your employee saying she voluntarily chooses not to take her vacation time (who would, really?), you must pay her for those days or find a way to let her take the paid time off.

Last but not certainly least, we also are sometimes asked whether employees under the flexible working hours system are entitled to statutory vacation time just like employees under the standard working hours system. The answer to that is a resounding yes.

 

 

China Law Blog

China Employee Vacation Days aka Annual Paid Leave

China Employee Terminations: Don’t Get Lazy

Do not flick off your China employees!

The old saw, “hire slow fire fast” does not work for China. This is because China employee terminations require far more careful legal handling than in the United States. When it comes to employee terminations, China is still very much a Communist country. Think France not the United States. I estimate botched terminations cost foreign companies on average around five times as much as a well-handled termination that includes severance, and yet our China employment lawyers spend more time trying to fix badly done terminations than providing legal consulting on how to achieve one correctly.

This is largely because in disputes arising from an employee termination, the employer bears the burden of proving its termination was both handled properly and justified. This means that for an employer to prevail in a termination dispute, it must have the evidence/records to support the termination.

A recent employee-employer case out of Shenzhen nicely highlights the importance of the employer have good evidentiary support, and what can happen to an employer lacking that support. The facts of this case are not terribly complicated and I have simplified it even more for this post. A Shenzhen employer issued a written notice to an employee immediately terminating the employment relationship. At trial, the parties did not dispute the termination date (even though this issue is often contested) or that the employee actually received the termination notice (even though this is often contested by the employee). The termination notice essentially said nothing more than “we are unilaterally terminating your contract.” The employer contended that it had fired the employee for a series of breaches of the employer rules and regulations and alleged it had orally explained the reasons for the termination to the employee when it delivered the employee’s termination notice.

The Shenzhen intermediary court basically said that the employer had failed to specify the grounds for termination when it served the employee with the termination notice because oral communications of those grounds do not count. Since the employer never gave its terminated employee the grounds for termination, the court deemed the termination to have been unlawful and it awarded the employee the full amount of statutory severance, doubled.

Complain all you like about this court decision, but recognize that if you should find yourself in the same situation as the Chinese employer who lost this lawsuit, you too will probably lose 999 times out of a 1000. This court handled everything “by the book,” which is 100% par for the course in China employer-employee disputes. The employer lost because it got lazy and failed to do something the law required it to do and because it had no good evidence that it had done it. Had this employer merely provided its employee with a written explanation for the termination and made the employee sign for having received that written explanation (it does not hurt to videotape the providing of notice), it no doubt would have prevailed. In other words, all the employer needed to have done was to have strictly complied with the law.

All the employer needed to have done was to have fired slow, by first determining all necessary steps to a proper termination under all applicable China and local laws, and then done all that it needed to do to act accordingly.

China Law Blog

China Employee Terminations: Don’t Get Lazy

Seven Myths About China Employer Rules and Regulations (aka Employee Handbook)

Every China employer should have a set of rules and regulations setting out employee and its employer duties and obligations. This document should cover all types of employees, including part-time employees. It also should at minimum, cover the following:

• employee evaluations, especially end-of-probation reviews
• protection measures on company’s confidential information (trade secrets) and property
• employee benefits program(s)
• special leave such as maternity leave
• vacation days
• rest and working time
• overtime
• disciplinary actions for employee’s breaches
• termination

Many foreign employers wrongly assume that whatever they use in their home country is good enough for their China employee manual. This is virtually never true as the reason for having employee manuals is so different as between China and Western countries. Western companies often learn too late about these differences when one of their employees leaves or is terminated.

The following are seven common myths our China lawyers often hear about China employer rules and regulations:

Myth 1: It need not be in Chinese. Though having your rules and regulations entirely in English will not necessarily invalidate the entire document (this depends on where you are), it needs to be in Chinese so your employees can understand it. If you do not have a Chinese language version of your rules and regulations, you run the risk of a Chinese court finding it not binding on your employees because they could not understand it and you didn’t bother explaining it to them. Also, the local labor authorities may require a Chinese translation for audit purposes and you don’t want to be caught flat-footed when that happens. And whatever you do, do not just take your English language version and pay a translator to put it into Chinese. Your Chinese language rules and regulations are what the courts will be looking at to determine whether you acted properly or not, so you want that document to be written clearly (and in Chinese) for this purpose.

Myth 2: It need not be in English. You really should have an English translation done and make sure that too is good. You as the employer will need to refer to this document in making employee decisions (especially termination decisions). Unless all of your people who will be making these decisions are fluent in written Chinese, you need a well-written English version to serve as your roadmap on how to handle all sorts of decisions regarding your employees.

Myth 3: It need not be updated because it has a provision that says the outdated sections will automatically be replaced and superseded by then-current laws. Wrong. Both nationally and at the local level, China’s employment laws are constantly changing. It

Seven Myths About China Employer Rules and Regulations (aka Employee Handbook)

China Employers: Perform Your Obligations Upon Employee Termination

When a China employer and one of its employees end their employment relationship, one of the most important things the employer must do is provide the former employee with a Proof of Termination of Employment Relationship document. This employer obligation is stipulated in the PRC Labor Contract Law (and in many local regulations as well). The Law says that if you as employer fail to perform this obligation, you can be subject to both administrative corrective orders and to damages.

Let’s consider an actual recent case in Beijing (simplified a bit for this post). An employee and employer entered into a contract for a 3-year term and it came to a natural end on May 3, 2014. Employee’s base salary was 16,000 RMB/month. The parties terminated the employment relationship on May 5, 2014. Employee alleged that Employer refused to provide a Proof of Termination of Employment Relationship document. Employee began working for a different employer (Employer B) on May 7, 2014. Due to the Employer’s failure to provide a Proof of Termination document, Employer B issued a termination notice on May 27, 2014 and the parties formally terminated their contract on May 30, 2014. On July 29, 2014 Employee received a job offer from a prospective employer. However, on August 8, 2014 Prospective Employer provided a notice of its decision not to extend employment due to Employee’s failure to provide a Proof of Termination of Employment Relationship document. Employer B paid Employee 22000/month and Prospective Employer offered the same rate.

Employee brought a labor arbitration claim and Employer was ordered to provide a Proof of Termination document. There was some disagreement as to whether Employee contributed to the non-issuance of this document. Employer still refused to provide a Proof of Termination document. Employee sued in court and asked for RMB 113,034.48 in damages or almost 6 months of salary.

Beijing Chaoyang District People’s Court sided with Employee and found the Employer’s failure to provide a Proof of Termination document caused Employee damages but did not agree that the amount of damages should be RMB 113,034.48. Without providing much analysis the Chaoyang court awarded the employee RMB 40,000. Employee appealed and the appellate court (Beijing Third Intermediary People’s Court) affirmed the lower court’s decision. It held that the damages Employee claimed were not actual, definitive, or inevitable losses and after considering the total circumstances of the case and the parties’ fault, the lower court’s decision was appropriate.

Bottom line: Perform your employer obligations at the time of employee termination, including most importantly, issuing your terminated employees a Proof of Termination of Employment document.

 

China Law Blog

China Employers: Perform Your Obligations Upon Employee Termination