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Employment Contract – Key Points to Watch Out For!

When signing an employment contract, it is crucial to understand the legal risks involved and take appropriate precautions. Here are some common issues in employment contracts and how to handle them effectively.

1. Failure to Sign an Employment Contract on Time

• Legal Requirement: Employers must sign a written employment contract with employees within the first month of employment.
• Risk of Delay: If the contract is not signed within one month, employees have the right to claim double wages as compensation.
• Common Trap: Some employers deliberately delay signing the contract or wait until the probation period ends. Employees should proactively follow up and keep relevant evidence.

2. Only One Copy of the Contract or Employer Keeps It Alone

• Proper Practice: Employment contracts should be issued in duplicate, with one copy for the employer and one for the employee.
• Stamp Requirement: The contract must be stamped with the company’s official seal to be legally valid.
• Legal Risk: In case of a labor dispute, the employment contract is a critical piece of evidence. Ensure you have a complete and signed copy for your records.

3. Signing a Blank Contract

• High-Risk Practice: Some employers may ask employees to sign a blank contract and later fill in terms that are unfavorable to them.
• Correct Approach: Never sign a contract with blank or incomplete clauses. Ensure all terms are clearly defined before signing.

4. Salary in the Contract Differs from Verbal Agreement

• Common Trick: An employer may verbally promise a higher salary (e.g., $5000) but state a lower base salary (e.g., $4000) in the contract, with the remaining amount classified as performance-based pay, which might not be explicitly outlined.
• How to Avoid:
  • Ensure the contract clearly specifies the salary structure, including base salary, performance bonuses, and allowances, along with payment rules.
  • Avoid signing contracts with vague salary terms such as "Total Salary: $XXX (including performance bonus)."

By being vigilant and ensuring your employment contract is legally sound, you can protect your rights and avoid potential disputes.

Examples of Invalid Clauses in Employment Contracts

1. Fines for Being Late

• Legal Basis: According to Article 50 of the Labor Contract Law, wages must be paid in full, and employers do not have the right to impose fines on employees arbitrarily.
• Acceptable Management Practice: Employers may regulate tardiness by adjusting attendance bonuses or deducting performance scores but cannot directly impose fines.
• Conclusion: While fine clauses are invalid, companies can modify their bonus systems or assessment criteria to manage tardiness effectively.

2. Automatic Resignation After Three Days of Absence

• Legal Basis: Under Article 39 of the Labor Contract Law, employers have the right to terminate employment if an employee seriously violates company policies.
• Key Considerations: Company policies must be legal, employees must be informed and acknowledge them in writing, and disciplinary actions should follow democratic evaluation and written notification procedures.
• Conclusion: This rule is only valid if it follows proper legal procedures; otherwise, it is considered unlawful.

3. Expired Annual Leave Becomes Void

• Legal Basis: According to the Regulations on Paid Annual Leave for Employees, employers must arrange annual leave for employees. If leave is not granted, the employer must compensate employees with 300% of their wages.
• Conclusion: The claim that "unused annual leave expires" is illegal. Employers cannot unilaterally deprive employees of their right to annual leave.

4. Performance-Based Forced Resignation (Last-Place Elimination Policy)

• Legal Basis: The Labor Contract Law explicitly states that employees cannot be dismissed solely based on performance rankings.
• Legal Termination Process: Employers should first offer job transfers or training. Only if the employee remains unqualified can termination be considered.
• Conclusion: Dismissing employees solely due to low performance rankings is illegal. Employees have the right to claim compensation if terminated under such circumstances.

Key Considerations for Employment Contracts

Signing a formal employment contract is a critical step in protecting the rights of both employers and employees. Here are some essential points to pay special attention to:

1. Confirm the Nature of the Contract

• Ensure that you are signing an employment contract, not a labor service contract, to be covered by labor laws.
• Verify that the employer matches the company you interviewed with to avoid signing under an unexpected company name.
• Be cautious of contracts signed under shell companies, which may affect social security contributions and legal rights.
• Confirm that the company can pay local social security to avoid issues affecting your benefits.
• Check the company’s registered location and understand how cross-region registration might impact your rights.

2. Define Work Hours and Location Clearly

• Avoid contracts with vague descriptions of work hours and locations, which could allow the employer to relocate or reassign you unexpectedly.
• Be cautious when signing irregular work hour agreements, as they may exclude you from overtime pay eligibility.

3. Probation Period Regulations

Ensure the probation period aligns with the contract duration and complies with legal limits:

• Contracts longer than 3 months but shorter than 1 year → Probation period ≤ 1 month
• Contracts between 1 and 3 years → Probation period ≤ 2 months
• Contracts of 3 years or indefinite duration → Probation period ≤ 6 months

4. Salary and Benefits

• Clearly define the structure of base salary and performance-based pay to avoid ambiguous terms that could impact earnings.
• Probation period salary must not be lower than 80% of the regular salary to protect employee rights.
• Social security, housing fund, and severance pay should be calculated based on base salary—avoid vague contract terms such as:
  • Unclear salary breakdowns: E.g., “Total salary: XXX (includes base + performance),” which may obscure the actual salary base.
  • Unreasonable salary composition: E.g., “Total salary XXX per month, including attendance bonus xxx, performance pay and allowances xxx, base salary XXX, position salary XXX,” which may lead to an artificially low base salary affecting social security contributions and severance pay.
  • Vague salary adjustment clauses: E.g., “Both parties may adjust salary structure based on actual work conditions,” which could create uncertainty in salary stability and pose financial risks.