Nicholas Lakeland, Employment Partner at Laytons and Donfil Huang, Legal Advisory Manager at Dezan Shira & Associates (DSA) discuss whether we can include a term of service that legally binds an employee to pay compensation if they do not fulfil contract terms.

In China, you can include a term of service that legally binds an employee to pay compensation if he/she does not fulfil the terms included in the contract, subject to certain conditions:

You as the employer have spent special training expenses in providing professional technical training for the employee.
The employer and employee have agreed to a full term of service, based on the training expenses that have been spent.
It can specify in the agreement that if the employee breaches the agreement on the terms of service, he/she shall pay liquidated damages to you as the employer. However, the amount of liquidated damages shall not be more than the training expenses you have spent on the employee and shall be calculated in proportion to the remaining period of service he or she has not completed.

In the UK, employers are required to provide the employees with information about training, whether that training is to be paid for by the employer and perhaps then recouped for an employee where an employee looks to leave earlier than perhaps the employer might have hoped.

Sometimes training agreements are put in place, where training is given over a whole series of years and is very expensive, and then the requirement can be that the employee leaving before a set period of time has to repay part of that training if they leave early.

The requirements of section one is however insufficient to protect an employer. Just giving an employee the information that would be required as a minimum in law is not sufficient to protect the employer from harm.

The typical employment contract with employees who have a certain amount of seniority will include restrictive covenants, such as the obligation to:

Not work for a competitor for a period of time.
Not to poach employees for a period of time.
Not to interfere with the contractual arrangements with third parties or suppliers for a period of time.
Not to poach or deal with customers or clients of the employer.

Drafting a contract of employment in China and the UK (minimum requirements) Episode five: Can we include a term of service that legally binds an employee to pay compensation if they do not fulfil contract terms?