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PRC Labour Law - Bitesize

6 March 2013
Mayer Brown JSM Newsletter

Conclusion of Employment Contract (cont'd)

For how long must a fixed-term contract last?

A fixed-term contract can cover a period of any length of time, subject to the agreement between you and the employee. However, there are two exceptions to this.

First, the law requires that a labour contract between an agency and an employee must be valid for a period of not less than two years. Therefore, if you use a labour service agency (such as FESCO) to employ your employees, you should be aware that the agency may generally require the relevant employee to be seconded to you on a two-year basis.

Second, any fixed-term labour contract you enter into with an employee holding foreign citizenship must be valid for a maximum period of five years.

When must I enter into an indefinite contract with my employee?

Under any of the following circumstances, you are obliged to enter into an indefinite contract with your employee (unless the employee specifically asks to conclude a fixed-term contract, which seldom happens in practice):

  • When you have no written contract with the employee and the same situation has lasted for one year or more
  • When the renewal occurs following the conclusion of two prior fixed-term contracts, or
  • When your employee has worked for you continuously for ten years or more

What are the legal consequences if I fail to enter into an indefinite contract as required above?

You may be required to pay your employee double his or her salary, starting from the date on which the indefinite contract should have become effective, up until the date on which it is actually entered into in writing.

Can I terminate an indefinite contract? Am I required to employ an individual on an indefinite contract until he or she retires?

There are certain specific circumstances under which you can terminate an indefinite contract. These are: mutual terminations under Article 36 of the Labour Contract Law (LCL); immediate terminations under Article 39 of the LCL; terminations with 30 days' notice or payment in lieu of notice under Article 40 of the LCL; and termination by reason of redundancy under Article 41 of the LCL.

Note: The above terms apply to all contracts (fixed-term contracts, indefinite contracts or contracts valid for a term that expires upon completion of a certain job).

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