China law requires all employers to execute written employment contracts with all employees within one month of when they start work, and any employer that fails to do so is liable to pay double wages for all time worked without a valid contract (see China Employment Contracts Act). Knowing this, employees sometimes refuse to sign an employment contract to exploit this rule. Under China Employment Contracts Act Regulations § 5, an employer may terminate any employee who refuses to sign their contract within the first month by giving written notice.[1] To do so, your onboarding or renewal procedures must tell the employee they are required to sign a contract, and you must then request the employee’s signature during that month. For any time they did work, you owe only regular wages.

Contents

• Double Wage Liability for Unsigned Contracts
• Automatic Renewal After Expiry
• Statute of Limitations for Double Wage Claims
• Employee Fault in Double Wage Claims
• Double Wage Claims from HR Executives
• Best Practices to Avoid Double Wage Liability

Double Wage Liability for Unsigned Contracts

If your employee does not sign the employment contract within 30 days of onboarding or renewal after you have sent them a written request, you should issue a written termination notice and retain it as evidence for any possible dispute. For any time worked between one month and one year without a signed contract, Regulations § 6 allows termination by written notice but requires double wages for the time worked. After one year without a signed contract, § 14 of the China Employment Contracts Act deems the parties to have entered into a permanent employment contract, after which time § 82 of the Act prohibits terminating the employee for refusing to sign an employment contract.

Recent Chinese court decisions have held against employees who willfully omitted to execute an employment contract. In the Beijing case, Kong (2024 Model Cases #2), the employee willfully delayed signing their employment contract despite the company’s numerous written and electronic requests.[2] The employee later filed for arbitration and claimed double wages; however, their employer produced chat logs and video evidence proving their attempts to get them to sign the contract.

The arbitral tribunal thus rejected Kong’s demand, ruling that the double wages required under the China Employment Contracts Act § 82 did not apply since he violated the good faith requirement under § 3(a) of the same Act. Therefore, the tribunal ruled that the employer was not obligated to pay double wages on account of Kong’s refusal to enter into an employment contract.

In China, a written employment contract obligation implies a duty of good faith, which be used a defense against legal claims by an employee continues to work in bad faith after their contract expires. Therefore, you should keep records showing that you closely followed the employment contract execution process to control this risk.

Automatic Renewal After Expiry

The expiration of an employment contract does not equal automatic termination, and, in China, employers who don’t negotiate a renewal or terminate an employment contract are deemed to have a de facto employment relationship. Under this rule, a Chinese employment contract automatically renews on the same terms if an employee continues working for one month past their contract’s expiration and the employer does not say otherwise. (See Supreme Court Interpretation of Employment Dispute Law #2 § 24)[3]

Damages for violations begin accruing from the contract’s expiration date. In a leading case applying this rule, Huang, cited as Beijing Case 02-cv-7569 (2024), the employee continued working for his employer for one month after his fixed-term contract expired; the employer raised no objections and continued paying him regular wages. When Huang was terminated, he filed a lawsuit claiming double wages on the grounds that the work was performed without an employment contract, as well as severance pay and damages for illegal termination.[4]

The business argued that it no longer employed Huang since his employment contract had expired. However, the evidence showed that Huang continued working after the contract’s expiration, and the employer produced no evidence documenting Huang’s termination or any refusal to renew his contract. Applying Supreme Court Interpretation #1 § 31, the court ruled that the employment relationship persisted and ordered the employer to pay severance under § 46 of the China Employment Contracts Act.

Both precedents covered show that communication records can determine the outcome of disputes arising from unsigned employment contracts in China. Employers should therefore retain all such records to mitigate the risk of paying damages for illegal employee termination or for employing a person without a valid employment contract.

Statute of Limitations for Double Wage Claims

When an employer fails to sign a written employment contract in China, the law requires the employer to pay “double wages” as a penalty. However, determining how long employees have to bring double wage claims is far from straightforward, because different components of the claim are subject to different rules.

Observe that the term “double wages” in the law consists of two components: regular wages owed to the employee, and punitive damages. The regular wages portion is subject to a 1-year statute of limitations starting from the termination date; during the term of employment, they are exempt from the general one-year limitations period for labor disputes (See Employment Dispute Arbitration Act § 27(a)).[5] The other part, however, is not considered wages but statutory punitive damages. The China Employment Contracts Act Interpretations explains that § 82 is intended to be a punitive civil liability imposed on employers, which deters noncompliance and incentivizes employers to expeditiously enter into written employment contracts with employees.[6] Therefore, a one-year statute of limitations applies to the punitive damages component.

The statute of limitations to claim double wage penalties in general begins on the day after the 1st month of employment and ends on the earlier of: the day before the first anniversary of employment; or the date a written employment contract is executed (See China Employment Contracts Act Administrative Regulations §§ 6-7).[1] However, national law has no rules for calculating the limitations period and local courts have adopted two different calculation methods.

Month-to-Month Calculation. The limitations period is calculated separately for each month, beginning a month after employment starts without a written contract. Consider, for example, the Shanghai Upper Appeals Court Guidance No. 34 (2010): Employment Disputes Q&A.[7] It states that the limitations period for the statutory punitive damages begins a month after employment starts without a written contract, and the limitations period for each month is calculated separately.

Whole Period Calculation. The limitations period is treated as a single whole under this approach, and the claim remains valid as long as the final month of delay falls within the arbitration limitations period. The Zhejiang Upper Appeals Court and Zhejiang Employment Dispute Arbitration Tribunal adopted this approach in Guidance No. 7 (2014): Employment Disputes Q&A #2.[8] It provides that an employee’s lawful claim for up to eleven months of double wage payment is effective if the final month falls within the arbitration limitations period.

Employee Fault in Double Wage Claims

Although Chinese law imposes double wage penalties on employers who fail to sign written employment contracts, courts differ on whether employers should nonetheless be liable when the employee is the one who refuses to sign.

China Employment Contract Act § 82 provides that an “employer that fails to execute a written employment contract within one month after the employee begins work” is subject to the double wage penalty. The section addresses only the lack of a signed contract and does expressly allocate responsibility between the parties, so employers are liable for the double wage penalty as long as a written contract is not signed. Employers must terminate employees who refuse to sign an employment contract in writing and pay any required severance. (See Employment Contract Act Administrative Regulations § 6, interpreting Employment Contract Act § 47)[1] This appears to mean that employers may only be liable to pay double wages if they do not terminate employees who refuse to sign a contract.

However, there are conflicting approaches among local courts.

Strict Construction Approach. Some courts apply the law without considering who is at fault for the failure to sign the contract. Consider, for example, the Zhongshan Intermediate Appeals Court; there, employers must pay double wages if they fail to terminate employees who refuse to sign a contract. (See Employment Dispute Opinions (2011) §4.7, interpreting China Employment Contracts Act § 82) [9]

Good Faith Approach. Other courts consider whether it was the employee who refused to sign the contract. In this view, applying the double wage penalty without considering fault does not comport with the good faith principle in general civil and employment law, and could encourage dishonest employees to act in bad faith for improper gain. Shanghai Upper Appeals Court adopted this view in Adjudicative Guidelines No. 73 (2009): Employment Contracts Act.[10] It provides that double wage penalty does not apply if the employer negotiates the employment contract in good faith, yet the employee refuses to sign.

Additionally, an employer will not be held liable for “failure to enter into a written employment contract with the employee” under the Employment Contracts Act Administrative Regulations, should the failure to sign arise from force majeure events, unforeseeable events, or the employee’s actions.[4] The Hunan Upper Appeals Court shares the same view in Circular No. 11 (2009): Employment Dispute Interpretive Guidance, holding that an employer is not subject to double wage penalties if it can prove the employee is responsible for failure to sign the contract.[11]

Employers should exercise caution and react appropriately if an employee refuses to sign the employment contract; otherwise you’d risk being held liable for double wages since there is no uniform law here. The rules can vary from jurisdiction to jurisdiction, as, court decisions depend on the court and often individual judge—contact CBL if you need help to find a lawyer to make sure you are on the right track.

Double Wage Claims from HR Executives

What happens when executive responsible for HR or employment contract management makes a double wage demand? Local courts take a variety of approaches.

Managers sometimes hide executed employment contracts to dishonestly to seek double wages. Here, Chinese law considers it manifestly unjust to hold an employer liable. Shanghai Upper Appeals Court in its Guidance No. 34 (2010): Employment Disputes Q&A allows employers to present circumstantial evidence that a contract has been signed, if they allege executives in charge of HR and employment contract management hid or destroyed the employment contract, or pursued another scheme to seek double wage payment.[7] Employers will not be required to pay double wages under China Employment Contracts Act § 82(a) if they can prove that a contract was signed, even if they can’t furnish the signed employment contracts as evidence.

Courts will consider whether the employer refused to sign an employment contract despite the executive’s request to sign a contract. Consider, for example, the Employment Dispute Adjudication Q&A issued by Sichuan Upper Appeals Court.[12] It provides that an employee’s double wage claim will be denied if the employer can prove it was the employee’s job duty to ensure the contract was signed. However, the claim will be granted if it was the employer who refused the employee’s request to sign an employment contract. The Beijing Upper Appeals Court and Employment Dispute Tribunal express a similar view in the Employment Dispute Adjudication Conference Report.[13]

Best Practices to Avoid Double Wage Liability

The double wage penalty is a legal policy intended to encourage employers to sign written employment contracts with employees. While it is mandated by the China Employment Contracts Act, there are no national administrative regulations interpreting how it should apply. Instead, these questions are answered under local policies, similar to other employment law issues. Consequently, courts in different localities have different interpretations.

Employers should consider adopting an employment contract signing process to mitigate the risk of double wage liability. Any employee refusal to sign an employment contract should be documented. Employers should take into account local court opinions on the matter and terminate employees who refuse to sign in jurisdictions where the local judiciary enforces the double wage penalty without considering who’s responsible for not signing the contract.

FURTHER READING

Get more insights about Chinese employment law:

Contract Non-Renewal to Terminate a China Employee—Without Severance

FOOTNOTES

[1] China Employment Contracts Act Administrative Regulations (中华人民共和国劳动合同法实施条例), (Ministry of Human Resources and Social Security, Sep. 18, 2008), (in Mandarin)

[2] 2024 Beijing Employment Disputes Model Cases (2024年北京市劳动人事争议仲裁十大典型案例), (Beijing Human Resources and Social Security Office, Dec. 17, 2024), (in Mandarin)

[3] Supreme Court Interpretation of Employment Dispute Law #2 (最高人民法院关于审理劳动争议案件适用法律问题的解释(二)), (China Supreme Court, Dec. 12, 2023), (in Mandarin)

[4] Beijing Case 02-cv-7569 (2024) ((2024)京02民终7569号), (China Judgements Online, 2024), (in Mandarin)

[5] Employment Dispute Arbitration Act (中华人民共和国劳动争议调解仲裁法), (Ministry of Human Resources and Social Security, Jul. 18, 2022), (in Mandarin)

[6] Interpretations of the China Employment Contracts Act (中华人民共和国劳动合同法释义), (China Employment Publishing, Aug., 2007), (in Mandarin)

[7] Shanghai Upper Appeals Court Guidance No. 34 (2010): Employment Disputes Q&A (上海市高级人民法院关于审理劳动争议案件若干问题的解答(2010)), (Shanghai Upper Appeals Court, 2010), (in Mandarin)

[8] Zhejiang Upper Appeals Court and Zhejiang Employment Dispute Arbitration Tribunal Guidance No. 7 (2014): Employment Disputes Q&A #2 (浙江省高级人民法院民事审判第一庭浙江省劳动人事争议仲裁院关于印发《关于审理劳动争议案件若干问题的解答（二）》的通知), (Zhejiang Upper Appeals Court and Zhejiang Employment Dispute Arbitration Tribunal, Apr. 14, 2014), (in Mandarin)

[9] Labor Dispute Opinions (2011) (广东省中山市中级法院关于审理劳动争议案件若干问题的参考意见), ( Zhongshan Intermediate Appeals Court, 2011), (in Mandarin)

[10] Shanghai Upper Appeals Court Adjudicative Guidelines No. 73 (2009): Employment Contracts Act (上海市高级人民法院关于适用《劳动合同法》若干问题的意见), (Shanghai Upper Appeals Court, Mar. 3, 2009), (in Mandarin)

[11] Hunan Upper Appeals Court Circular No. 11 (2009): Employment Dispute Interpretive Guidance (湖南省高级人民法院《关于审理劳动争议案件若干问题的指导意见》), (Hunan Upper Appeals Court, Jun. 4, 2009), (in Mandarin)

[12] Sichuan Upper Appeals Court Employment Dispute Adjudication Q&A (四川省高级人民法院民一庭关于审理劳动争议案件若干疑难问题的解答（川高法民一〔2016〕1号), (Sichuan Upper Appeals Court, Jan. 15, 2016), (in Mandarin)

[13] Beijing Upper Appeals Court and Employment Dispute Tribunal Employment Dispute Adjudication Conference Report (北京市高级人民法院、北京市劳动争议仲裁委员会关于劳动争议案件法律适用问题研讨会会议纪要（二）), (Beijing Upper Appeals Court and Employment Dispute Tribunal, May, 2014), (in Mandarin)