If you want to protect your business from liability and inappropriate working situations, you need a formal “Rules and Regulations” booklet.

What Are Rules And Regulations?

Rules and regulations are specific obligations and labor disciplines that you require in your factory. This includes a complex set of documents that function like an employee manual. The document becomes the basis for the employment relationship.

“Rules and regulations” apply whether you own the factory or you subcontract the factory. You may or may not need “rules and regulations” if you are only purchasing a few orders from a factory as a client.

In most areas of China, the rules and regulations are a requirement. Nevertheless, even if it’s not a requirement, it’s usually a good idea to have. Rules and regulations keep your business and employees safe.

If you have a small business, you especially can’t afford to take risks. Even one lawsuit could destroy your small business (particularly for Amazon sellers). This is especially important, as there is no de minimis exception in China as there is in the U.S. The Chinese government doesn’t care how small you are; you need to protect yourself in all forms of legality.

If you operate a factory or partner with a manufacturer, we recommend rules and regulations no matter how small your operations.

Why Do You Need Rules And Regulations?

In the United States, employment is at-will. This means that an employee can leave at any time for any reason (with sufficient notice), and an employer can fire an employee at any time for a valid reason.

China, though, is not an at-will employment region. Instead, each Chinese employee has a written labor contract with the employer. This will determine how long the employee will work for the company and the general guidelines by which they have to follow. During their contract time, it can be difficult to terminate an employee.

If you want to terminate an employee before their employment term has ended, you need a just, proven cause. Usually, this “cause” is not found in the employee contract but in the factory’s rules and regulations.

One of the most important uses for the “rules and regulations” is the legal termination of employees outside of their contract date.

Rules and regulations are especially important if you’re a foreign employer. If you operate overseas, the Chinese government will keep you under tight scrutiny. If Chinese employees pursue litigation against you, it’s not uncommon for the Chinese government to back them up.

Thus, a comprehensive “rules and regulations” can help protect you against liability.

This is also true for social compliance concerns. You can include certain regulations in the handbook that ensure your workers and employers are always following your social compliance standards.

The Importance Of Factory “Rules And Regulations” rules and regulations binder on desk at office

What Should Your Rules And Regulations Look Like?

Rules and regulations should be, in essence, your employee manual. The more in-depth it is, the more you’ll be able to protect your business.

You should include every single action you prohibit. The rules and regulations should clearly ban certain actions and their consequences. If you don’t want someone stealing from your company, you should list that stealing is grounds for immediate termination. You should even define what “stealing” is. If you don’t want someone to start a fire in the production room, you should clarify that starting a fire is against company policy.

In some cities, like Shanghai, employment is in “good faith.” This means you don’t need to specify every punishable act in the company rules and regulations.

Nevertheless, it’s best to be as thorough as possible. You don’t want to neglect one rule and have it come up in litigation as a grey area.

The document should include all employee obligations and terms, including:

  • Employee evaluations (frequency, grading system, evaluation measures)
  • Probation reviews
  • Protection of company information (employees cannot share trade secrets, resell items, etc.)
  • Employee hours and overtime
  • Employee compensation
  • Employee benefit programs, like insurance and training
  • Employee leave, vacation, and PTO
  • Necessary quality standards each employee is expected to meet
  • Disciplinary actions
  • Quitting (the process if an employee leaves; especially important to discuss Chinese New Year time when employees don’t come back)
  • Termination

Your “Rules and Regulations” should be in both English and Chinese. If they are only in English, you’re likely neglecting certain Chinese employment laws. You also want it to be in Chinese so your employees can read it, understand it, and adhere to it. Moreover, Chinese courts will look at the Chinese rules and regulations if there is a suit. If you don’t have a Chinese version, it’s almost an automatic loss of your case.

On the other hand, if the handbook is only in Chinese, it may be hard for your HR team or lawyers to make sense of certain rules in case of litigation.

When creating “Rules and Regulations,” you want truly bilingual, Chinese cultural policies. A translation is not enough; often, a translation can create a mismatch of rules that could get you into legal trouble in case of a suit. Work with a global, bilingual team to create an appropriate rulebook in both languages.

The Importance Of Factory “Rules And Regulations” gears labeled policies, control, guidelines, security concept of business running smoothly

What Should You Be Aware Of With Rules And Regulations?

Your rules and regulations aren’t the “law” though. You can’t include rules that are illegal in the U.S. or Chinese government. If one of your provisions is against the law and you terminate an employee based on that provision, it will be considered unlawful termination. For example, Chinese work hours are limited to 40 hours per week; anything more than that is considered overtime. If you force an employee to work 42 hours without paying overtime, this could be considered illegal—even if it’s in your rules and regulations. Moreover, if you fire them for not working that overtime, it will be unlawful termination and likely also a social compliance issue.

All of your rules and regulations should be aligned with the local and country laws. You should also align your employment rules with industry standards.

Moreover, it’s not enough to just have an employee handbook. Firstly, you’ll want to make sure every employee reads and signs off on the rules and regulations. Hold regular meetings for employees to ask questions or open up the floor for suggestions. When an employee agrees to the rules and regulations, they are giving written consent that their contract can become void if they break one of the provisions in the handbook.

You should also make employees aware of any changes you make to the rules and regulations. They should sign off on any new or changed document as well.

If you want to terminate an employee or change their work status, you should also keep careful discipline records and proof to provide the basis for a legal termination and dismissal.

It’s important to note that the rules and regulations may not supersede the employee contract. This depends on the local laws of the Chinese jurisdiction in which your company operates.

The Bottom Line

“Rules and regulations” allow you to legally employ and terminate your employees. This document outlines the manner in which employees should act to avoid a termination of their employment contract.

You need a legal, comprehensive set of “rules and regulations” to maintain social compliance, quality standards, and grounds for dismissal. Whether you’re a small or large company and whether you’re outsourcing or managing the factory, you want to implement your own set of rules and regulations to maintain your legal standing and compliance.

Contact Ask Idea Sourcing now to negotiate and draw up legal contracts for your overseas sourcing.