This page has a glossary of concepts for Chinese law in the contracts of employment topic.

You can learn more about this subject at CBL’s China employment & labor law FAQ here.

Generally

Certification Exam

In Chinese labor law, a certification exam is a standardized test that is used to determine an employee’s vocational skill level, offered by a third party certifying organization. The exams cover both practical and theoretical knowledge relevant to work in an occupation.

Company Policy

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Employment Contracts Act

The China Employment Contracts Act defines certain minimum and mandatory requirements for what must be included in a contract with every employee. The Act establishes standards for the employment relationship with a goal of protecting workers, which are embodied in a contract that must be signed by the parties.

The Act applies to all full-time employment relationships whether in the public or private sector. Under the Act, a contract must be signed with an employee within one month of their being employed; the contract can be terminated by agreement, by the employee with thirty days’ notice, or at any time if the employer is in violation of the law, for example as to working or to wage non-payment.

See full translation for free here.

Non-Compete Agreement

In Chinese employment law, a non-compete agreement is authorized by the Employment Contracts Act as a means to protect employer trade secrets by restricting a worker’s rights to compete with them, but to ensure fairness, requires compensation be paid to the employee during that time. A non-compete can only be signed with managers or technical workers who have access to trade secrets, and can prevent working at a competitor or a potential competitor. The non-compete period is based on how long the trade secrets will provide a competitive advantage but in no case can exceed two years.

A non-compete in China should make a detailed list of all competitors and types of job roles that may compete with the company.

Learn more about non-competes in China here.

Non-Disclosure Agreement

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Overtime

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Standard Work Hours

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Work Hours Plan

In Chinese employment law, the work hours plan refers to one of several plans that employers are allowed to use with full time employees. The three plans comprise the standard plan, the fluctuating workweek, and irregular hours.

Salary & Benefits

Compensation

In Chinese civil law, compensation refers to a monetary payment that is provided to make up for a financial loss, and is mainly found in the employment law regime. Compensation is different from damages, as damages is a payment for a breach or other wrong. In Chinese employment law, financial compensation is paid where the employer terminates a full-time employment contract or declines to renew it.

Where the employee voluntarily terminates the contract or declines to renew an expiring contract, no compensation is owed. Compensation is also owed where the employer upon renewing an employment contract offers worse terms than under the prior employment contract that the employee does not accept.

In this case, compensation liability can be avoided by ensuring the contract is the same or better than the existing one.  The amount of financial compensation owed increases by the equivalent of one month’s salary for each additional year of service under the Employment Contracts Act.

Compensation and Benefits

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Compensation Structure

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Disability Severance

In Chinese labor law, disability severance is a lump sum payment made by an employer to an employee whose disability evaluation shows that they are unfit for work, where the employer chooses to discharge the worker.

The rules for disability severance differ by region. For example, Beijing sets the disability severance base rate as the average monthly salary in the city, and the employee may receive anywhere from 3 to 18 months’ worth of severance based on the severity of the disability. Very seriously injured workers are eligible for the 15- and 18-month severance.

In Shanghai, the employee receives between 3 to 12 months’ worth of severance, and in contrast with Beijing, there is no extra payment for very seriously injured workers.

Financial Compensation

In Chinese employment law, financial compensation is a monetary payment made to an employee for the termination or cancellation of a contract where the employee is not at fault.

Financial compensation is fundamentally different from damages in the law. Damages can also be owed for employer’s breach of the employment contract or for other civil damages, and is distinguished from how damages is paid to right a wrong; compensation does not implicate civil wrongs.

The financial compensation owed to a terminated employee is different from unemployment benefits, which is an entitlement created as a result of unemployment insurance contributions. Unemployment benefits in particular are only available while the individual is unemployed in order to provide social security, whereas severance payments is a single lump sum payment meant to pay for the employee’s loss of earnings.

Monthly Wage

In Chinese employment law, the monthly wage is defined as the average earnings per month for the last twelve months of work, and is used to calculate severance payment amounts. The monthly wage includes piece rate compensation, monthly salary, commissions, and allowances. If there is not enough data, the local minimum wage applies.

If the employee’s monthly wage is higher than triple the region’s monthly salary, then the monthly wage that applies for severance payment calculations is capped at triple the region’s salary.

Retirement Benefit

In Chinese employment law, retirement benefits are a social security fund that all employers must pay into, which provides for payments to old age workers who have retired from the workforce.

Policy experts in China suggest that the fund is essential for social stability and maintenance of quality of life for the elderly.

Learn more about China’s social security requirements here.

Survivors Benefits

See full article here.