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Asia Briefing

Case Study: Labor Contract Compliance in China

China Flag and GavelA company hired Ms. Wong to be its new Human Resource Manager after its previous one abruptly departed. One of Ms. Wong’s duties as Human Resource Manager is to ensure that all employees hold formal labor contracts. A company’s failure to have a written labor contract with an employee within the period of more than one month but less than one year from the start of employment will result in paying the employee double wages each month, in accordance with the PRC Labor Contract Law. Consequently, monitoring the status of employees’ labor contracts is an essential component of Ms. Wong’s duties to prevent the company from costly labor disputes.

Meanwhile, as an employee of the company, Ms. Wong herself also must have a labor contract. However, Ms. Wong did not communicate this need to her company and worked without a written labor contract. Ms. Wong then petitioned the courts to receive double wages for the work she did for the company.

The company argued that Ms. Wong leads human resources and is familiar with the consequences of not having a written labor contract for each employee. As such, the company claimed that Ms. Wong wrongfully withheld her knowledge of the law and did not perform her duty to ensure she had a labor contract in order to receive the compensation of double salary. From the company’s perspective, Ms. Wong is at subjective fault for the labor contract failure and must bear the liability of such subjective fault because she did not disclose the requirement in
accordance with her role as Human Resource Manager.

Ms. Wong, on the other hand, contended that there is no positional distinction when considering the legal liability of an employer to have a written labor contract with an employee. No law or regulation stipulates exemption, reduction, or remittance of the double wage liability of the employer when an employee is at subjective fault for the failure to conclude a labor contract.

The case went through the first and second trials and was then appealed for a retrial in the provincial High People’s Court. The company claimed that because Ms. Wong is in charge of concluding labor contracts with all employees in the company, the failure to conclude a contract with herself is her own fault and the company should not be liable to pay double wages. However, the court ruled in favor of Ms. Wong, asserting that it is the company’s responsibility to conclude a signed written labor contract with all employees. As a result, the company was required to pay double wages to Ms. Wong.

Even though human resource managers are responsible for signing labor contracts with all employees, it is an internal matter of dereliction of his/her duty not to sign a labor contract with him/herself, which does not exempt the employer from liability to sign a labor contract in writing with the employee. In accordance with Articles 10 and 82 of the PRC Labor Contract Law, the employer must pay the employee double wages within the period of more than one month but less than one year from the beginning of employment for the failure to conclude a labor contract in writing with the employee.


Since its establishment in 1992, Dezan Shira & Associates has been guiding American investors through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, including liaison offices in Boston and Waltham specifically established to support our American clients, we are your reliable partner for business expansion in Asia and beyond. For inquiries, please email us at [email protected]. For further information about our firm and how we can support American investors in Asia, please visit our North American Desk.