The COVID-19 pandemic has greatly accelerated the pace of digitalisation and intensified the search for digital alternatives to replace paper-based administrative procedures. In light of social distancing measures and travel restrictions hindering mobility, companies are increasingly looking into the viability of concluding electronic contracts and signing with electronic signatures. But does an electronic signature carry the same legal weight as a wet ink signature in the context of employment, and what are the provisos governing the validity of an electronic contract? In July 2021, the Ministry of Human Resources and Social Security (MHRSS) of China issued additional guidance on concluding electronic contracts between employers and employees, fleshing out in detail the notice issued in March 2020, which conferred legal validity on such contracts subject to certain conditions.
Background regarding the validity of electronic employment contracts
Prior to the issuance of the notice by the MHRSS in March 2020, there had been some confusion as to whether an electronic signature was legally valid and appropriate for the conclusion of an employment contract in mainland China. On the one hand, the Labour Contract Law
stipulates that an employment contract be inked by a wet signature, as both parties are supposed to hold their own copy of the contract. On the other hand, the Electronic Signature Law
provides that electronic signatures are in most cases valid, bar in specific kinds of documents, and the application thereof in documents relating to employment matters is not explicitly excluded.
Concise and compendious, the notice outlines the conditions under which an electronic employment contract is considered valid:
- The employer and employee shall, by mutual agreement, conclude a written employment contract in electronic form;
- The contracting parties shall use electronic messages deemed equivalent to the written form, and electronic signatures deemed reliable in accordance with the Electronic Signature Law and other relevant regulations;
- The employer shall ensure that the generation, transmission and storage of the electronic employment contract comply with the Electronic Signature Law and other relevant regulations, and that the contract is complete, accurate and tamper-proof;
- The electronic employment contract shall comply with provisions of the Labour Contract Law.
However, the brevity of the above guidance had left some room for uncertainty as to its practical implementation, specifically what constituted a “reliable” electronic signature and how an electronic employment contract could be concluded in a legally compliant manner. This gap was addressed in the more comprehensive Guidelines for the Conclusion of Electronic Employment Contracts
(“Guidelines”) issued in July 2021. Article 2 of the Guidelines reaffirms the legal effect of employment contracts concluded electronically in compliance with the law, and stipulates that both parties perform their respective obligations in accordance with the terms of the agreement.
You may wish to consider the following points when ensuring that your electronic employment contract is legally compliant:
Ascertain the willingness and identity of both parties
It should be noted that both the notice and the additional guidelines place a pronounced emphasis on ensuring that the decision to contract electronically has been reached by mutual consent. In addition, both parties shall ensure that the personal details submitted are true, complete and accurate. Their willingness to contract in electronic form and their identity should be established and verified through technical means, including digital certificates, network information verification, biometric identification verification and SMS verification codes. For such authentication steps to be carried out, it is necessary to adopt an e-contract system that supports these security features and can save and record the verification process. Further requirements to determine the suitability of a platform are explored directly below.
Choose a suitable e-contract system
You should choose an appropriate contract management platform on which the employment contract must be concluded. The platform should have the following functions:
- Allows for the conclusion, retrieval, storage and application of employment contracts via effective modern information technology;
- Capable of authenticating the identity of the parties, supporting the application of electronic signatures, verifying the willingness of the parties and safeguarding data;
- Ensures that the conclusion, generation, transmission and storage of information in respect of electronic employment contracts comply with relevant laws and regulations;
- Ensures compliance with the requirements of truthfulness, completeness, accuracy, tamper resistance and traceability.
While employers have discretion in deciding which contract management system to use, it is recommended, however, in Article 15 of the Guidelines that precedence be given to platforms provided by the government. Where an electronic employment contract is not concluded on a government platform, the data shall, all the same, meet the formatting specifications and standards as stipulated by the MHRSS and other government departments.
Additionally, employers have an obligation to provide a secure digital environment for signing electronic contracts and using electronic signatures, as well as to safeguard data and personal information. To mitigate legal risks, employers should also retain records of the entire contract conclusion process in a timely manner.
Use a “reliable” electronic signature
According to Article 20 of the Guidelines, an electronic signature refers to data contained in an electronic message used to identify the signatory and the signatory’s approval of the contents of the contract. An electronic signature is deemed “reliable” if it meets the following conditions:
- The data in respect of the electronic signature creation is owned by the signatory at the time of signing;
- The data in respect of the electronic signature creation is under the sole control of the signatory at the time signing;
- Any alternations to the electronic signature are detectable;
- Any changes to the content and form of relevant data are detectable.
In addition, an accurate and valid timestamp should be affixed to provide proof of electronic data integrity, i.e., proof that the contents of the contract existed before the time of signing and have not changed since then.
Things to do before and after concluding the contract
Prior to concluding the contract, the employer is obligated to inform the employee of the electronic contracting process, method of operation and other points requiring special attention. After the contract has been signed, the employer shall notify the employee of its conclusion by means of SMS, WeChat, email or other messaging applications. The employer shall also provide the necessary guidance and assistance in viewing and downloading the electronic employment contract. Should the employee request a hard copy of the contract, at least one copy should be made available free of charge.
While traditional hard-copy contracts are unlikely to be phased out for good, electronic contracts offer some key distinct advantages and should therefore be embraced more and more in the era of digitalisation. These include increased efficiency, lower administrative costs, more transparency thanks to the easily accessible electronic audit trail, mitigated risks associated with paper-based originals, and enhanced data security to safeguard against manipulation and tampering.