A fundamental item within the human resources context is the employment contract. According to legal firm Johnson Stokes & Master, most disputes and cases handled in the past three years were related to reductions in employee benefits. The company advises local and international corporations on employment issues, including legal obligations of employers and employees, termination issues, industrial disputes, retirement schemes, mandatory provident funds and employee share option schemes. 'Historically, salaries were being reviewed annually accompanied with a raise. This has been reversed as a result of the sluggish economy. Most employers found their employees were being over-compensated, and looked for ways to cut salaries,' said Duncan Abate, a partner at the law firm. Besides salary cuts, reductions in other benefits such as the 13th-month bonus have also been widely considered and adopted. In this respect, corporations have been seeking professional advice in executing these cuts legally. 'Any salary cut is a breach of contract. Employers intending to reduce salaries have to obtain the employees' consent. In this employer-driven market, there are only two options for the employees: take the cut and stay with the job, or simply leave,' Mr Abate said. Moreover, employers are looking for more flexibility in employment contracts, such as relating remuneration to productivity. Though the economy has started improving, Mr Abate said employers would prefer to continue enjoying flexibility in employment contract issues. 'After experiencing the economy's ups and downs, employers will prefer to stick with the trend.' Compared with Hong Kong, which has a more mature employment contract system, China has a number of labour concepts that western corporations would find very unusual. One of these has to do with their ability to hire staff. 'A number of foreign entities cannot hire directly. They have to hire staff through a job agency - namely FESCO - which plays the middleman role in the process. The very first question foreign corporations need to answer is: do we have the capacity to hire directly?' said Andy Yeo, a partner of the law firm who is based in Shanghai. Corporations also need to ensure that employees hired locally have completely terminated their relationships with their previous employers - this is only applicable when the previous employer is a state-owned enterprise. 'Employers need to obtain written proof from the new recruit. This is to prevent corporations from bearing any loss caused to the state-owned enterprises as a result of staff leaving. This is quite an uncommon practice in the western world,' Mr Yeo said. In addition, corporations are advised to enter into employment agreements for a shorter time frame, such as a year. 'In China, there is a strong school of thought that any termination cannot be made by period, but only by cause,' Mr Yeo said. 'Only a severe problem can lead to a termination; that means you cannot simply give notice and ask them to leave. 'Prudent employers are strongly advised to prepare any contract for a shorter term instead of a long one,' he said. Another area requiring attention is holidays. In the western corporate world, employees are entitled to a specific number of holidays a year which can be used at their discretion. 'Mainland Chinese employees don't do this yet. Employees ask for different holidays for different occasions, which causes substantial problems for corporations in managing resources efficiently,' Mr Yeo said. 'We are here to give our professional advice to keep corporations away from headaches and painful situations.' Despite the 'foreign' employment practices, corporations continue to be keen to hire staff locally. 'There are measures that can be taken to avoid problems. When dealing with the cost factor, it is three times cheaper to hire people in China than Hong Kong. It is not a decision that multinationals will make for not investing.' In recent years, the firm has experienced continued demand for its advice on employment matters. 'There is no surge or substantial decline in demand. After working with experienced investors who started becoming familiar with the system, there are always new investors for us to work with,' he said.