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Andreas Lauffs of Baker & McKenzie scopes out the major changes ahead for employers that will undoubtedly effect a wave of change in the structure of contracts and HR policies.
A draft of The Labour Contract Law of the People's Republic of China was passed by the State Council in October 2005 and is scheduled for the second reading by the Standing Committee of the National People's Congress. It could become law in the second half of this year. The Law, if enacted in the current form, likely will cause employers, including foreign-invested enterprises, to review and restructure their labour contracts and human resources policies.
The most significant aspects of the Draft are discussed below.
Shortened probationary periods
The Draft stipulates that labour contracts with a term of three months or above may include a probationary period. Under the Draft, the length of the probationary period will depend on the type of work conducted by the employees: workers in non-technical areas may have a probationary period of up to one month, employees who work in technical fields up to two months and lastly the probationary period for high-tech workers may last up to six months.
Fixed-term contracts less attractive
China does not recognise at-will employment. Currently, all labour contracts can be terminated, but only in limited circumstances. The current practice is to use short-term contracts: if an employer wishes to let the employee go but has no sufficient termination ground, he could simply let the contract expire, without the need to pay severance.
The Draft does not outlaw fixed-term contracts, but it strongly discourages using them through the following measures:
(1) fixed-term contracts cannot be terminated early, except for cause and in the case of mass lay-offs;
(2) severance is payable if a fixed-term contract expires...