China’s Labor Contract Law, administered by the Ministry of Human Resources and Social Security, permits companies to set a probationary period for new employees. This is intended to lower the risk of hiring permanent, full-time employees. Setting a probation period may be especially useful for foreign companies that are new to doing business in China and wish to reduce the risk of arduous labor disputes. Recent entrants into the Chinese market may be unsure of the differences in know-how and skill-sets in particular niches and, thus, relatively more uncertain of how a particular employee will affect their business.
The law offers the following general features of employment probation periods:
There are a number of restrictions on the probation period to prevent abuse and exploitation. Among these are limitations on the length of the probation period, types of employees for which an employer may not set a probation period and rules regarding termination. Companies must ensure that they are compliant with these restrictions or may be required to pay a fine or face other penalties. All details regarding the probation period should be put in the employee contract for their review when given the job offer.
The statutory maximum length of the probation period depends on the length of the labor contract:
Suppose that the company sets a probation period that exceeds the statutory maximum and, otherwise legitimately, terminates the employee for failing to meet the specified job requirements. Additionally, suppose that the employer does so after the statutory maximum has passed but before the company-set probation has lapsed (refer to the section on termination later in this piece). In this case, the employer is unlikely to be able to terminate the contract without having to pay severance (under normal circumstances, the employer can terminate the contract during the probation period without paying severance).
If the employer stipulates a difference in salary between the probation period and afterwards, a case of non-compliance is likely to result in the employer being required to offer the employee the wages they were entitled to during the excessive probation. If the employer sets a probation period that exceeds the statutory maximum, it will need to provide the employee with the compensation that he/she was deprived of during the time under probation that exceeded the statutory maximum.
For example, let us assume that the contract entitles the employee to 10,000 RMB per month during probation and 12,000 RMB per month after probation. Let us further assume that the statutory maximum probation period for the employee is 6 months and that the employer sets the probation period for 8 months (that is, 2 months over the legal maximum). In this case, the employer would owe the employee (assuming they continue to work beyond the probation period) 4,000 RMB (2,000 RMB for each month that the probation period exceeds the statutory maximum). The employer may also be subject to penalties issued by the local administrative body.
Termination during probation period is less onerous and less likely to result in a complex labor dispute. Nonetheless, protections are still given to the employee and the employer’s ability to terminate remains regulated.
If the employee does not meet the requirements for the job, as stated in the job description, the employer can terminate the contract during the probation period without paying severance to the employee. The company is responsible for detailed proof that the employee is unable to meet the requirements of the job based on the job description provided to the employee when he/she applied. For this reason, it is important that the job description is written in considerable detail and done so before candidates apply. If all relevant skills, competencies, and expected duties are shown on the description, the employer is able to clearly point to specific deficiencies justifying the termination.
Simply being unsatisfied with an employee is not a legal basis for terminating the contract without paying severance. If, for example, the employer decides during the probation period that a slightly different skill set in the position would be better for the company, the employer is not legally entitled to terminate without paying severance. Again, this is because the termination is not related to employee’s inability to meet the requirements of the position, as originally detailed in the job description
Employers should rely on a standardized probation appraisal form based on the features of the original job description. This would be a tool to clearly document how well the employee meets the specific requirements of the original job description, thus better ensuring compliance.
When the employee initiates contract termination during probation period, he/she is only required to give three days notice. This may make it less desirable for the company to set a probation period that is longer than necessary.
Some foreign companies find themselves in trouble for misunderstanding and subsequently violating laws governing the probation period. ‘Probation period’, as it were, is not a window for the employer to freely terminate the employee for any reason. During the period, the labor contract has begun, but under slightly modified terms. Failure to realize this can result in significant costs and penalties.