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PRC Labour Law - Bitesize: In China, what is the typical length of a labour contract?

21 October 2009
Mayer Brown Newsletter

In China, what is the typical length of a labour contract?

You can sign a fixed term contract, an indefinite contract or a contract with a term to expire upon completion of a certain job.

Both a fixed term contract and an indefinite contract are commonly used in China. The contract with a term to expire upon completion of a certain job generally applies to employees whose jobs or duties are performed on a project basis.

How long must the fixed term be?

The fixed term can be either one month (or shorter) or 10 years (or longer), subject to the agreement between you and the employee.

However, if you use a labour agency (such as FESCO) to employ your employees, the law requires that the labour contract between the agency and the employee must not be less than two years. As a result, if an agency has a two-year contract with an employee, it will generally require that the relevant employee will be seconded to you on a two-year basis.

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

Under any of the following circumstances, you will be obliged to enter into an indefinite contract with your employee unless the employee specifically asks to conclude a fixed term contract (which generally will not happen in practice):

  • Where you have no written contract with the employee and the situation has lasted for one year or more
  • Where the renewal occurs following the conclusion of two prior fixed term contracts or
  • Where your employee has worked for you continuously for 10 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 from the date when the indefinite contract should have been entered into until the date when it is actually entered into in writing.

Can I terminate an indefinite contract? Does it mean that I have to employ the individual with an indefinite contract until he or she retires?

There are certain specific circumstances in which you can terminate an indefinite contract. These are: mutual terminations under Article 36 of the Labour Contract Law (the “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: these are actually the same for all contracts (fixed term contracts, indefinite contracts or contracts with a term to
expire upon completion of a certain job), but clearly have greater impact for an indefinite contract.

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