Labour Contracts and Liabilities

Labour Contracts and Liabilities


An employee could be eligible for open-ended
contract in a few situations. The first one is that the employee has worked
for the employer for more than 10 years; the second one is that the employee and employer
have signed two times of fixed term contract and both parties agree to renew the contract. For this situation the practices are a bit
different in China in different places. The third one is that both parties maintained
the employment relationship for over a year without a written contract. Generally, there’re two parts of liabilities
if the company doesn’t want to renew the contract. The first situation is that according to the
Labour Contract Law of PRC, the company doesn’t have to sign an open ended contract with an
employee. In this case, the contract can be expired
but the employer should pay economic compensation to the employee. The economic compensation is calculated based
on the number of years that the employee has worked for the employer, at the rate of one
monthly wage per full year of work. For any period of more than 6 months and less
than one year, it’s calculated as one full year; for any period of less than 6 months
it’s counted as half of a year. Here’s a cap issue for those people who
get higher salary. If the employee’s salary is higher than
3 times of the average monthly salary of people declared by the local people’s government,
then it’s capped at 3 times of monthly average salary. The number of years is capped at no more than
12 years of the employee’s work. Another situation is that according to the
law, the employer has to sign an open-ended contract with an employee, in this case if
there’s no legal reasons found to support such expiration of contract then it’ll be
deemed as illegal termination. If you want to terminate an employee before
the expiration of the contract without any legal reason to support that, this termination
should be deemed as illegal termination. There’re two possible liabilities based
on different claims from the employee. First one is that if the employee claims to
return to work, the employer should offer the original job or provide another job for
the employee, as long as the employee’s claim is supported by the labour dispute arbitration
commission or the court, unless proved by the employer that after the dismissal the
employee has worked for another company, or it’s objectively impossible for the employee
to come back to work. Alternatively, the employee may choose to
ask for economic compensation from the employer due to the illegal termination. In this situation, the employee is supposed
to be paid a compensation which equals to double economic compensation. The first and the best way to resolve a dispute
is to avoid the dispute. For example, it’s essential for the company
to maintain compliance management. If you want to terminate an employee, it’s
suggested that you try to meet all the legal conditions and go through legal procedures. In some cases it’s very hard for the company
to find enough evidence terminate an employment relationship unilaterally, but from the perspective
of business management, some employees may not be kept any more. In this case it’s strongly recommended to
choose mutual termination. After a labour dispute happened, there’re
still many opportunities for the employer and employee to reach an agreement through
negotiation and mediation if the company wants to avoid potential litigation risks. If it is meaningless for the company
to negotiate, unilateral termination or waiting for a result of judgment is also a possible
option. But really be careful that before taking this
route the employer should know all the potential risks for every step.

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