Understanding the complexities of employee termination in China is critical for businesses operating within the country. China's labor laws afford substantial protection to employees, making terminating an employee more stringent than in many Western countries. For employers, it is essential to navigate the legal framework carefully to mitigate risks and ensure compliance with Chinese labor law.
The Chinese Labor Contract Law outlines the legal guidelines surrounding employee termination, which stipulates the various conditions under which an employer can legitimately initiate an employment termination. Familiarity with these regulations, coupled with an awareness of the proper execution of an employment contract, is indispensable. The termination process involves several mandatory steps, including settlement of outstanding payments such as unpaid wages and bonuses.
The article will guide you through the legal ramifications, best practices to follow, and common pitfalls to avoid when handling employee termination in China. With a comprehensive grasp of these elements, you will be able to approach this delicate process with confidence and precision.
China Employment Laws
When you operate a business in China, it's essential to comprehend the complexities of China Employment Laws. These laws establish a framework that offers substantial protection to employees and mandates specific obligations on employers.
The Labor Contract Law
The Labor Contract Law is a cornerstone of employment regulation in China. Instituted on January 1, 2008, it governs the creation, execution, and termination of labor contracts. It applies to all employers and has comprehensive stipulations regarding working hours, rest and leave, remuneration, and the conditions for contract termination.
Employment contracts are mandatory. Each employee must have a written contract that indicates terms such as salary, job description, and employment duration. Failure to establish a written contract can result in penalties and the obligation to pay the employee double their wages.
Termination of employees must be justifiable, typically in correlation with one of the statutory reasons laid out by law:
- Non-fulfillment of employment conditions during the probation period.
- Serious breaches in discipline or legal stipulations.
- Inability to perform duties after training or adjustments in position.
- Circumstances that render the employment contract unenforceable.
Unlawful terminations may require the employer to pay severance or even reinstate the employee's position.
You should be aware of the nuances involved in employee dismissals:
- Summary dismissal
- Dismissal with notice
- Collective redundancies
Severance pay is another critical aspect; it is calculated based on the employee's average monthly salary in the preceding 12 months to termination. Various scenarios can influence the severance owed.
Read more about the Average Salary in China.
Legal Grounds for Termination
When terminating an employment contract in China, you as an employer or HR professional are required to adhere to statutory grounds. Understanding the legal framework helps ensure compliance and can prevent potential legal disputes.
Termination with Cause
If you're considering terminating an employee for cause, it's important to know that Chinese law specifies clear grounds for such an action. Termination due to fault or misconduct may occur if an employee:
- Violates company rules or regulations
- Commits a serious dereliction of duty or practices favoritism, causing substantial damage to the employer
- Establishes employment with another employer which impacts their current job performance or if they refuse rectification after the employer's revelation
- Is subject to criminal liability
Termination without Fault
You can terminate an employee without fault under certain conditions. Statutory grounds for termination without fault include:
- Expiration of a medical treatment period for an illness or non-work-related injury, and the employee cannot resume their former position or a position arranged by the employer
- An employee is unable to perform their job and remains so after training or adjustment of their position
- A major change in the objective circumstances under which the employment contract was concluded, rendering it non-fulfillable, and no agreement on modified contract terms is reached
Mutual Agreement and Resignation
You may also terminate employment contracts through mutual agreement. This typically involves negotiation and requires the employees' consent. Resignations are initiated by employees, yet you should ensure the proper procedures are followed, including:
- Serving any contractually agreed notice period
- Settling severance if stipulated, is contingent on who proposes the termination
Mass Layoffs and Restructuring
In the case of mass layoffs, which may result from restructuring or other economic reasons, you must:
- Follow specific legal procedures
- Potentially develop a reemployment plan
- Consult the trade union or all employees 30 days in advance, submitting the mass layoff plan
- Notify the labor administrative authorities
Contracts and Termination Procedures
Understanding the distinction between fixed-term and open-ended contracts, probationary periods, and the protocols surrounding notice periods is vital to navigating the termination process in China.
Fixed-Term and Open-Ended Contracts
In China, labor contracts can be categorized into fixed-term and open-ended contracts. Your fixed-term contract has a specific end date, whereas an open-ended contract lacks such a limitation and continues indefinitely until termination by either party under compliance with legal requirements. If you are transitioning from a fixed-term to an open-ended contract, this typically occurs after consecutive fixed-term contracts have been renewed, depending on the guidelines outlined in the Labor Contract Law.
Probationary Period and Termination
Starting a new job, you may be placed on a probationary period, during which both you and the employer assess suitability for the role. The maximum probationary period varies depending on the contract duration: up to six months for a fixed-term contract of over three years, up to three months for contracts ranging from one to three years, and not exceeding one month for contracts under one year. During this period, termination requires a shorter notice period and fewer procedural requirements, but employers must still provide a legitimate reason.
Notice Period and Prior Notice
When it comes to contract termination, you are ordinarily entitled to a 30-day notice period or a month's salary in lieu of notice. However, note that immediate termination is permissible if an employee engages in misconduct as defined by Article 39 of the Labor Contract Law. If your employer initiates a termination by mutual agreement, they are required to propose it and to make severance payment as dictated by the law. For terminations that aren't the result of employee misconduct, you should receive prior notice or severance in compliance with the procedural requirements laid down by China's employment statutes.
Employee Rights and Protections
In China, your rights and protections as an employee are specifically outlined under the Labor Contract Law. When it comes to termination of employment, these regulations ensure you are treated fairly and by the law.
Statutory Reasons for Dismissal:
You cannot be dismissed at will; there are defined reasons for lawful termination. These include:
- Summary dismissal: Only permissible under certain misconduct circumstances
- Dismissal with notice: Generally requires a 30-day notice or payment in lieu
- Collective redundancies: Allowed under specific economic conditions
Legal Compliance:
Your employer must follow strict legal protocols during the termination process.
- Fault-based termination should align with proven misconduct or failure to meet job requirements.
- Faultless termination needs appropriate justification, like company restructuring.
Severance Pay:
If terminated, you might be entitled to severance. Key circumstances include:
- Termination by mutual agreement initiated by the employer
- Dismissal with the required notice period
- Company bankruptcy or dissolution
Protection from Unlawful Termination:
- Unilateral dismissal must align with legal reasons.
- Illegal termination can lead to employer penalties.
- Collective dismissal requires prior notification to the trade union and labor authorities.
Read more about the Workers' Rights in China.
Severance Pay and Compensation
In China, your severance pay is calculated based on your years of service. The standard formula is one month's pay for each year you have worked for your employer. If you have worked less than a year but more than six months, you will receive half a month's pay. Work of less than six months entitles you to a pro-rata severance.
Examples of Severance Pay Calculation:
- 1 year of employment: 1 month's pay
- 3 years and 7 months of employment:some text
- 3 years = 3 months' pay
- 7 months = half a month's pay
- Total: 3.5 months' pay
The conditions under which you receive severance include:
- Mutual Termination: If your employer proposes termination by mutual consent, you are entitled to severance.
- Employee Resignation with Cause: If you resign due to employer fault, such as breach of labor laws, you still get severance.
- Unilateral Termination: Should your employer dismiss you without cause, severance payment is required.
In situations where the employer has committed wrongdoing, you may be entitled to double the standard severance or the so-called "2N" compensation.
Scenarios for Termination without Severance:
- Summary Dismissal: In cases where you have violated company rules or laws.
- Employee Resignation without Cause: If you voluntarily resign without justifiable reasons related to employer's behavior.
Regulatory Environment
When you operate a business in China, understanding the regulatory environment governing employee termination is crucial. This ensures compliance with local regulations and labor laws that define your responsibilities as an employer.
Local Regulations and Labor Union Involvement
Labor Contract Law and various local regulations form the backbone of employment termination rules in China. You must recognize that the Labor Union, significantly involved in employment matters, acts as a safeguard for employees' rights. Every termination must follow statutory reasons outlined by law. For example, you cannot terminate an employee without a valid reason such as dereliction of duty or redundancy.
As an employer, it is essential to engage with the local labor unions during the collective redundancies process. Their approval plays a critical role, especially when it concerns mass layoffs. Local legislation and labor laws may also have unique requirements depending on the region—knowing these subtle differences keeps you compliant and avoids potential conflicts.
Dispute Resolution and Labour Arbitration
When disputes arise from termination, both parties can seek resolution through Labour Arbitration. This is a mandatory first step before any litigation can be pursued in China. Labor arbitration aims to resolve disputes in a way that is efficient and less formal than court proceedings.
You should also be aware that, regardless of the situation leading to termination, the Labour Contract Law mandates the provision of a Termination Certificate. A dispute might arise if an employee deems the termination unlawful, and in such cases, the labor arbitration committee's ruling is critical. It's important to have well-documented and lawful grounds for termination to support your case during arbitration.
As you navigate through the termination process, ensure your practices align with the requirements set forth by the Labor Regulations. Doing so will help you manage the legal risks associated with terminating an employee in China.
Specific Termination Circumstances
When navigating employee termination in China, you should be aware of specific situations under which termination is legally justified. Each scenario has distinct legal requirements and implications that must be considered carefully to ensure compliance with Chinese labor legislation.
Economic Layoff and Bankruptcy
In unfortunate events where your company faces economic layoff or bankruptcy, you must adhere to the Chinese Labour Contract Law. If your company is undergoing liquidation due to bankruptcy, you may terminate employment contracts. However, in a situation of economic layoff, you are required to explain the circumstances to the trade union or all the workers 30 days in advance and consider their opinions. In addition, economic layoffs must follow the "last in, first out" principle unless the employee is:
- On a fixed-term contract with a considerable remaining term
- Engaged in operations that expose them to occupational hazards and have not undergone a pre-departure medical examination
- In a maternity or medical treatment period for an occupational disease or work-related injury
Termination for Health and Safety Reasons
If an employee is unable to perform their job due to a non-work-related injury or illness, you may terminate their contract after they have used up their medical treatment period. To terminate employees on these grounds, you should have attempted to accommodate their condition or adjust their position accordingly. Should an employee suffer from an occupational disease or a work-related injury, their contract cannot be terminated if they are:
- Undergoing treatment
- In the medical observation period
- Confirmed to have lost or partially lost their ability to work
Moreover, you are obliged to respect their rights to sick leave and medical treatment and cannot terminate their employment during this period without violating labor laws.
Termination due to Employee Criminal Activity
Terminating an employee due to criminal activity is a clear-cut situation. If an employee is convicted of a crime or involved in corrupt or neglectful behavior that is serious enough to warrant immediate dismissal, you, as the employer, can terminate the contract without notice or severance pay. The circumstances under which these actions are deemed to have occurred include:
- Committing a crime during employment
- Being found guilty of theft, fraud, or disclosure of trade secrets
It is crucial to follow due process and have conclusive proof before proceeding with termination based on criminal grounds to prevent potential legal disputes.
Effects of Termination
When your employment in China is terminated, it's crucial to understand the financial and social security implications that affect your stability and future.
Compensation and Benefits
Upon termination, you're entitled to certain compensation and benefits. Law dictates that any unpaid wages, including monthly salary and accrued overtime, are due to you. Specifically, you may receive a severance payment typically equating to one month's salary for each year of service. This severance is mandatory when termination occurs for most reasons not involving employee fault.
- Compensation Amount: Calculated based on your average monthly salary.
- Severance Payment: One-month salary per year of service; this may vary based on the circumstances of termination.
Impacts on Social Security and Retirement
Termination impacts your social security benefits and plans for retirement.
- Social Security: In China, employers contribute to a social security fund, which includes pensions, medical insurance, and more. Termination may affect your access to certain benefits.
- Retirement: Severance payments do not typically affect your statutory retirement benefits. However, contributions to your pension fund cease upon termination, potentially impacting your financial situation upon reaching the statutory retirement age.
Conclusion
Get the help you need with firing employees in China with this easy-to-understand guide. Stay out of trouble and make smart choices with help from Choi & Partners, the best lawyers for job laws in China. Keep your business safe and do things the right way by getting this book and talking to these expert lawyers today.
Must Read Article:
Frequently Asked Questions
In this section, we address common inquiries surrounding the termination of employment in China, providing you with concise, reliable answers to navigate this complex area.
What are the risks of wrongful termination?
Wrongful termination occurs when an employee is dismissed in violation of employment laws or the terms of a contract. In China, this can lead to legal disputes, financial penalties, and reputational damage for your company.
How can employers handle disputes with terminated employees?
Disputes with terminated employees should be addressed through negotiation and mediation. Employers can seek legal counsel and can try to resolve the matter through Labor Arbitration Committees, which is a mandatory step before any litigation in China.
What is the compensation for termination of employment in China?
Compensation typically includes payment for any unused annual leave and severance pay based on the employee's length of service, generally one month's wage for each year of service. The specific amount can vary depending on the circumstances of the termination.
What is the notice period for employees in China?
The notice period for terminating an employee contract depends on the reason for termination and the length of service. Normally, a 30-day notice is required, or a payment in lieu of notice may be offered. For probationary employees, notice can be as short as three days.
What is the legal termination of employment?
Legal termination of employment requires compliance with the Chinese Labor Contract Law. Both parties must adhere to contractual terms and legal provisions, which stipulate acceptable reasons for termination and necessary procedures to follow, ensuring fairness and legality in the dismissal process.
Subscribe to receive updates
Subscribe to receive the latest blog posts to your inbox every week.
