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Probationary periods serve as a buffer zone for employees to test the work environment, skills required, and future possibilities, as well as for employers to test how productive the new person will be and how they will fit into the team. However, lately, the situation has changed. Many employers use probationary periods to exploit employees by illegally extending the periods or paying low payment. Therefore, new provisions have been added to the Labor Contract Law to govern the setting of probationary periods. Here we sort out some of these newly added provisions and categorize them into the circumstances as follows:
No Probationary Periods Shall Be Set under the Following Circumstances:
1. Labor contracts for completing a defined project shall not specify probationary periods;
2. Labor contracts of less than three months fixed duration shall not specify probationary periods;
3. No probationary periods for a part-time employment arrangement; and
4. If an employee has concluded a labor contract with a probationary period, when he renews the contract, no probationary period shall be set again. The reason is that an employer may only specify one probationary period for any employee.
Therefore, probationary periods may only be specified for labor contracts with a duration of more than three months or for labor contracts with a non-fixed duration.
The Labor Contract Law Restructures the Following Probationary Periods:
1. No probationary periods for labor contracts of less than three months duration, or for contracts for completing a defined project;
2. A probationary period of no more than one month for a labor contract of a three-month to one-year fixed duration;
3. A probationary period of no more than two months for a labor contract of one to three years fixed duration; and
4. A probationary period of no more than six months for a labor contract of more than three-years fixed duration, or a non-fixed duration labor contract.
In order to reduce employment risk and cost, nowadays many employers tend to make probation agreements with employees before offering labor contracts. However, this method will no longer be viable. The Labor Contract Law provides that if a labor contract only specifies a probation period, such probationary periods shall be invalid and be the term of the labor contract.
Employers May No Longer Pay Salaries to Employees Who Are Serving Probationary Periods at Their Will.
Some employees are serving their probationary periods can only receive a threadbare income (usually around 800 RMB per month) for their work. Many employers dare to do so because, currently, the law only provides the salary of an employee during his probationary period shall not be lower than the minimum salary rate in the place where the employer is located. However, according to the Labor Contract Law which will take effect in 2008, the salary of an employee during his probation period shall not be lower than either the lowest rung on the salary scale for the same position with the employer or 80% of the salary specified in the labor contract, depending on which option the employer prefers in each labor contract they draft. Furthermore, the minimum salary for all contracts shall not be lower than the minimum salary rate in the place where the employer is located. Here is an example.
Example:
Mr. Brown concludes a labor contract with a company located in Shanghai. The contract specifies that after the probationary period, the salary for Mr. Brown is 2,000 RMB per month. The lowest lung on the salary scale for the same position with the company is 1200 RMB and the minimum salary rate in Shanghai is 750 RMB. According to the provision that the salary shall not be lower than the lowest rung on the salary scale for the same position with the employer, the salary for Mr. Brown during his probationary period shall be no less than 1200RMB. If the company set the salary pursuant to the provision that it shall not be lower than 80% of the salary specified in the labor contract, his salary during probationary period shall be no less than 1600 RMB. Both are above the minimum salary rate in Shanghai, that is, 750 RMB. Thus, the company only needs to pay no less than 1200 RMB to Mr. Brown for his salary during probationary period.
The Labor Contract Law Tightens the Conditions for Employers to Terminate Labor Contracts during Probationary Periods.
According to the new law, if an employer decides to terminate a labor contract, he shall document that:
1. During the probationary period, the employee has not satisfied the conditions of employment;
2. The employee seriously violated rules and regulations set by the employer;
3. The employee commits a serious dereliction of duty, practices graft or engages in embezzlement, causing material damage to the employer;
4. The employee simultaneously has a labor relationship with another employer, seriously affecting the completion of his work tasks with the employer, or, after having the same mentioned to him by the employer, he refuses to rectify the matter;
5. The employee has committed a criminal offense;
6. The labor contract is invalid because it is concluded or amended through means such as fraud, coercion or by taking advantage of the employer’s plight, causing the employer to conclude or amend the labor contract in a manner contrary to his true intent;
7. The employee contracted an illness or sustained a non-work-related injury and after the expiration of the set medical period he is unable to return to his original job or engage in other work arranged for him by the employer; or
8. The employee is incompetent and after undergoing training or an adjustment of his position he remains incompetent.
An employer may terminate a labor contract at any time if the employee is characterized by any of the circumstances mentioned by Items 1, 2, 3, 4, 5, and 6 in the preceding paragraphs. An employer may terminate a labor contract by giving the employee 30 days' prior written notice if the employee is characterized by any of the circumstances mentioned by Items 7 and 8.
As for employees in their probationary period, they may terminate their labor contracts by giving employers 3 days’ prior notice.
Liabilities for Employers to Illegally Set Probationary Periods
The labor administrative department shall order employers to rectify the matter if they illegally set probationary periods by means as follows:
1. The probationary periods set by employers exceed the maximum time limit specified by the law;
2. An employer set more than one probationary period for an employee;
3. Employers prescribe probationary periods that are not allowed to be within labor contracts of such duration; or
4. A labor contract only specifies a probationary period.
If the illegally set probationary period has been performed, the employer is required to make up the shortfall between what the employee would have earned under their regular monthly salary and the salary they received during the excessive probation. Additionally, the employer shall pay the employee compensation based on his regular monthly salary over the course of the excessive probation. Furthermore, the payment of compensation does not prevent the employee from obtaining his normal labor remuneration as described in the contract they signed. Thus, in this case, the employee will actually obtain a “double salary”.
Here we present three examples to help illustrate this point better.
Example I
Mr. Brown concludes a labor contract with a company. The contract only specifies a six-month probationary period and the monthly salary for that period is 1,500 RMB. After the expiration of that period, the salary is 1,800 RMB per month. As mentioned above, if a labor contract only specifies a probationary period, such probationary period shall be invalid and be the term of the labor contract. Therefore, if Mr. Brown has wholly performed the six-month probationary period, in addition to the agreed probationary period salary (A), the company shall make up the shortfall between Mr. Brown’s regular monthly salary and his salary during the probationary period (B), and pay compensation (C). Thus, the amount is:
A + B + C = Total payment over duration of the probationary period
(1,500*6) + ((1,800-1,500)*6) + (1,800*6) = 12,600 RMB
Because the probationary period is illegally set, thus, if the company terminates the contract during the probationary period, severance pay is needed in addition to the payment of compensation and the makeup of shortfall.
Example II
Mr. Brown has concluded a one-year labor contract with a company, which specifies a six-month probationary period. The salary for him during the probationary period is 1,500RMB. After that period, it rises to 1,800 RMB. However, probationary periods for labor contracts of one to three years fixed duration shall be no more than two months. Therefore, if Mr. Brown has wholly performed the six-month probationary period, in addition to the agreed probationary period salary (A), the company shall make up the shortfall between Mr. Brown’s regular monthly salary and his salary during the probationary period (B), and pay compensation (C). The amount is:
A + B + C = Total payment over duration of the probationary period
(1,500*6) + (1,800*4) + ((1,800-1,500)*4) = 17,400 RMB
As mentioned above, this labor contract can only specify a probationary period of no more than two months. Thus, if the company terminates the contract after two months of the probationary period have been performed, the payment of severance pay is required in addition.
Example III
Mr. Brown has concluded a three-year labor contract with a company, which specifies a six-month probationary period. The salary for him during the probationary period is 1500RMB. After that period, it rises to 1800 RMB. As mentioned above, probationary periods for labor contracts of more than three-year fixed duration shall be no more than six months. Therefore, the probationary period is legally set. No compensation is required.
If the company lawfully terminates the labor contract during the probationary period, it does not need to pay severance pay. However, even if the labor contract is terminated lawfully after the expiration of the probationary period, the company shall still pay Mr. Brown severance pay in accordance with provisions of Labor Contract Law.
If the illegally set probationary period has been performed, the employer is required to make up the shortfall between what the employee would have earned under their regular monthly salary and the salary they received during the excessive probation. Additionally, the employer shall pay the employee compensation based on his regular monthly salary over the course of the excessive probation. Furthermore, the payment of compensation does not prevent the employee from obtaining his normal labor remuneration as described in the contract they signed. Thus, in this case, the employee will actually obtain a “double salary”.
