(Document No. 13 (2002) by the Labour Relations Division of Shanghai Labour & Social Security Bureau on April 17, 2002) To all labour and social security bureaus at district/county level, supervisory bureaus and holding (group) corporations: In order to implement Labour Contract Regulations of Shanghai Municipality (hereinafter referred to as the Regulations), we hereby notify you of the following issues. I. Sphere of Application 1 This Regulations apply to all enterprises, individual economic organizations and profit-making institutional organizations (hereinafter referred to as employing units) established in Shanghai Municipality and employees who form labour contract relations therewith. This Regulations apply to all state organs, institutional organizations and social organisations and odd-job holders under the administrative quota who form labour contract relations therewith. . 2. Employees who establish labour contract relations with the employing units shall be at or above the statutory working age as well as meeting certain conditions for employment according to the state and municipal regulations, and shall have working capability. This Regulations shall not apply to those who are beyond the scope of regulations on labour contract relationship such as domestic helpers, professional insurance agents, agency workers and full-time students engaged in remunerative work. II. Conclusion of A Labour Contract 3. A labour contact, which does not contain certain basic clauses, shall still be valid if major rights and liabilities are not affected thereby. 4. The parties of a labour contract may agree upon the social insurance issues according to relative state and municipal regulations. 5. The conditions for termination of a labour contract shall be agreed upon through consultation by the parties involved and shall not run counter to the laws, regulations and administrative rules. 6. Where the service term in a labour contract agreed upon by the parties according to Article 14 of the Regulations is longer than the term of the labour contract, and the employing unit terminates the contract upon its expiration, the employing unit shall not claim compensation from the employee for the unfulfilled service term. Where upon expiration of the labour contract, the employing unit requests the employee to continue fulfilling the service term, the parties shall renew the labour contract. Where other particular agreements are reached on the fulfillment of the service term, such agreements shall prevail. The employee shall be liable for compensation for violation of the agreements reached on the service term. 7. Where the parties of a labour contract agree upon compensation for breach of the contract according to Article 17 of the Regulations, the maker, amount and payment of such compensation shall be defined on the principle of fairness and reasonability. Where the employee is in breach of the agreement, the employee shall bear the responsibility thereby. Where the amount of compensation agreed upon by both parties exceeds the actual losses incurred to the employing unit due to the employee’s breach of the contract, the employee shall pay the compensation agreed upon. Where the actual losses exceed the agreed amount of compensation, the employee shall be liable for the actual losses if the employing unit claims compensation. Where the compensation agreed upon by the parties is unreasonably high, the party may request for a rational decrease. Any disputes arising from the compensation may be settled through the labour dispute settlement procedure. 8. Both parties may, according to Article 16 of the Regulations, set clauses in the labour contract or the confidentiality agreement that the employee shall not hold a position in any of the former employing unit ’s competitors within a certain period of time. The employee shall pay the compensation agreed upon for breach of the non-competition clauses. III Fulfillment and Modification of A Labour Contract 9 Modification to a labour contract refers to the addition, amendment or abolition agreed upon by the parties involved of some clauses of the original labour contract. 10 Changes on the name of the employing unit or its legal representitive (or main responsible person ) shall not affect the fulfillment of the labour contracts. 11 Where the employing unit concluding the labour contract with the employee is not the one using the employee as referred to in Article 25 of this Regulations, the contracting employing unit and the employee user may make an agreement on the change of the actor fulfilling the contract. Then the original labour contract shall be implemented by the changed actor of the contract. Where the employee user is unable to fulfill the obligations defined in the labour contract, the contracting employing unit shall be under obligations to the employee. 12 The rights and obligations defined in a labour contract shall temporarily stop being carried out where the labour contract is suspended as stipulated in Article 26 of this Regulations. During the suspension period of the labour contract, the employing unit could apply for suspending settlement procedure for its social insurance account. The suspension period shall not be integrated into the seniority of the employees with the employing unit. The labour contract shall be terminated where the contract expires during the suspension period. However, provisions otherwise in laws, regulations and rules or other agreements on the rights, liabilities and duration of the labour contract suspended shall prevail. The employee shall not establish labour relations with other employing unit within the suspension period of the labour contract. The employing unit shall make up for social insurance contributions for the concerned employees according to relevant laws and regulations if the employing unit has gone through Suspending settlement procedure for those who do not meet the requirements of labour contract suspension; where losses incur to the employee, the employing unit shall be liable for compensation. The disputes thereby between the two parties shall be settled through labour dispute settlement procedure. 13 Stipulations in (2) of Item 1 in Article 26 of this Regulations refer to the circumstances under which the employee is temporarily unable to fulfill the labour contract not for his own misconduct, while there still exists the possibility for the employee to resume fulfilling the labour contract. The circumstances that conform to the stipulations of labour contract termination and conclusion as in the Regulations shall not fall into this category. 14 The stipulation, “the remuneration and working conditions shall be defined in favour of the employee.” as in (2) of Article 27 of the Regulations, refers to that where the remuneration and working conditions of the employee are lower than the statutory labour standards, the latter shall prevail; where the standards on the remuneration and working conditions of the employee as defined in the regulations of the employing unit , or the collective agreement are higher than the statutory labour standards, the former shall prevail. IV Revocation or Termination of a Labour Contract 15 Under the circumstances where the advance notification of revoking a labour contract is required, and the parties of the contract agree upon the period of advance notification, the labour relation shall be terminated on the date as per being agreed by the parties involved. 16 Where the employee is unable to work upon the expiration of the prescribed medical treatment period for diseases or injuries not suffered at work, the employing unit may terminate the labour contract with the employee according to the provisions on extra medical treatment period 17 Where the employing unit expels or dismisses an employee who has seriously violated its labour disciplines or rules, leading to the end of the labour relationship between the parties involved, this shall be defined as labor contract revocation due to violation of labour disciplines or rules by the employee. 18 Where the employing unit terminates the labour contract with the employee according to (3) of Article 37 of the Regulations, the liquidation organization or the person responsible for liquidation shall handle the relevant procedures of labour contract termination with the employee. 19 Where the employee is confirmed to have partially lost working capability due to occupational diseases or injuries suffered at work, the labour contract may be terminated when the labour contract expires or the circumstances for labour contract termination agreed upon by the parties involved occur. 20 The employing unit shall not terminate the labour contract where the employee is confirmed to have largely or totally lost working capability due to occupational diseases or injuries suffered at work, with the exception of the circumstances conforming to (3) or (4) in Item 1, Article 37 of the Regulations or other circumstances agreed by the parties involved. 21 The labour relationship shall be terminated where one party or both parties involved revokes or terminates the labour contract. The employee could then go through unemployment registration with valid materials that could prove the labour contract has been terminated or revoked. 22 The salary as the base for calculating economic compensation as stipulated in the Regulations, refers to wage, bonus, allowances listed in the Total Salary Statistics according to relevant regulations by the State or Municipality. But the taxes and fees that are collected by the state or the Municipality shall not be included in the calculation base for economic compensation. Earnings from investment including shares, options, dividends not listed in the Total Salary Statistics shall not be included in the calculation base for economic compensation for labour contracts revocation or termination. 23 In case of difficulty to confirm the amount of average monthly salary of the employee, the economic compensation base for labour contracts termination or revocation shall be defined by the two parties involved through consultation in the light of the average monthly salary of the employing unit or the Municipality in the previous year. 24 The stipulation, “if the year of service with the employing unit in Article 42 is between 6 to 12 months, it shall be calculated as 1 year.”, as in Item 2, Article 45 of the Regulations refers to that the service period of the employee with the employing unit is under 1 year but above 6 months, or the service period is above 1 year but the remainder after deducting the number of full years of service is under 1 year but above 6 months. V. Supplementary Provisions 25. Either party involved in the labour contract breaking the contract shall bear responsibilities thereby. The party shall be liable for compensation according to the actual losses incurred to the other party. Where this compensation is related to the employee’s service term, the compensation shall be paid on the principle of equal allocation and corresponding decrease according to the length of the service term. Shall there be any other agreement on the payment of the compensation, such agreement shall prevail. 26. The rights and liabilities of foreigners and personnel from Taiwan, Hong Kong and Macao who are approved to be employed within the jurisdiction of Shanghai Municipality shall be determined by the board of directors or management body of the employing unit and then embodied in the labour contract. 27. The employing unit shall, in light of the respective provisions of the Regulations and its own conditions, revise and perfect the collective agreement and related internal regulations to guarantee the smooth implementation of the Regulations. (In case of discrepancy between the English translation and the original Chinese text, the Chinese text shall prevail. --- the translator)