China Updates- Employment-related issues

The Supreme People’s Court issued Judicial Interpretation IV on various employment-related issues, effective 1 February 2013. Key items include:

Non-compete Covenants

• The amount of compensation appropriate for non-compete obligations is indicated to be 30% of the previous 12 months’ salary.
• Previously, some amount has been required on the basis that the employee’s job-hunting prospects are damaged by a non-compete agreement, but there has been no national guidance available.
• If, during the non-compete period, the employer terminates the non-compete agreement, the employee will be entitled to an additional 3 months of non-compete compensation.
• If the employer fails to pay the non-compete compensation for 3 months, then the employee may terminate the agreement.
• Breach of a non-compete agreement by an employee does not relieve the employee of the obligation to comply, even if damages are awarded.
• The payment may apply even if the employer does not want to enforce the non-compete clause or the employee has no intention of breaching the clause. Hence, employers should consider whether they either need the clause in the first place or should release an employee from such a clause before the employee leaves.

Transfers of Employees: where a transfer of an employee is arranged by the employer, his or her years of service should be recognised by the new employer.

Oral Variation of Contracts - will be legally recognised if both the employer and the employee have acted in accordance with the oral variation for more than a month.

Expiry of Business Licence – does not relieve an employer from the obligation to pay severance pay.

Foreigners Without Work Permit: a foreigner without a work permit will not be able to seek redress in the Chinese courts.

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