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. 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.
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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. 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)
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.
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.