China: The Keys To Terminating An Employee İn China

Last Updated: 8 January 2018
Article by Bill Song

Employee terminations in China can be quite unlike terminating an employee in other countries. Whether the termination is for cause because the employee was embezzling from the company or for legitimate performance reasons, terminating an employee in China can often lead to a somewhat torturous and lengthy process that can turn very ugly very quickly. Terminated employees can threaten to turn on their employer and report the employee to the tax authorities, the local labor commission or some other government agency. Unless employers are fastidious about following Chinese law to ensure they are "squeaky clean" in all aspects of their operations as well as that they have well-crafted internal employment policies that were adhered to in connection with the employee's termination, the situation can quickly get out of hand. In such an instance, employers in China (particularly foreign employers) would be wise to consult an expert on Chinese law in order to avoid not only the potential fallout that can come from terminating a potentially problematic employee, but also to avoid potential landmines in the termination process.

Legal Requirements to Terminate an Employment Contract under the PRC Labor Contract Law

The legal process for terminating an employee in China is much more employee-friendly than in some other jurisdictions like the United States. Under China's labor laws, which are set forth in the PRC Contract Law (the "Labor Contract Law"), every employer is required to have a written employment contract with each of the employer's full-time employees. The Labor Contract Law applies to both foreign employees who are working in China as well as Chinese nationals working for a foreign employer in China. Under the PRC Labor Contract Law, an employer may include probationary periods in labor agreements with employees. However, the maximum length of these probationary periods cannot last more than 1 month in the case of an employment contract of one year or less, 2 months if the contract length is greater than one year but less than three years and, where the contract term is more than 3 years or non-fixed, the probationary period may not exceed 6 months. After this probationary period has passed, termination of an employee in China usually requires good cause as well as a severance payment in most cases.

Most importantly, an employer also must be able to show that any unilateral termination of an employee was based on statutory grounds. China's Labor Contract Law provides that an employer may terminate an employee under any of the following scenarios without first having to provide notice or economic compensation to the employee:

  • the employee does not satisfy the conditions for employment during the probation period;
  • (ii) the employee materially breaches the employer's rules and regulations;
  • (iii) the employee commits a serious dereliction of duty or practices graft, causing substantial damage to the employer;
  • (iv) the employee has established an employment relationship with another employer that materially impact the completion of his or her tasks with his or her existing employer, or he or she refuses to terminate such employment relationship with the other employer, after required to do so by the existing employer;
  • the employee uses deception or coercion, or takes advantage of the employer's difficulties, to cause the employer to conclude the labor contract, or to make an amendment thereto, that is contrary to the employer's true intent; or
  • the employee has criminal liability imposed against him or her.

If an employer can successfully establish one of these statutory grounds, the employer can terminate the employee without notice or the payment of severance. Nevertheless, as discussed below, this is not always a scenario that plays out in the way a reasonable employer would expect it to; there are many potential landmines in this process for the unwary employer.

Other Considerations That Come Into Play When Terminating an Employee in China

Although a company may be well within its legal rights in terminating an employee under Chinese law in any of the six scenarios described above and may follow all applicable laws in the termination process, there also are other considerations that come into play when an employee is being terminated. This is particularly true for foreign employers who may not be familiar with not only the intricacies of Chinese law but also and maybe more importantly, the realities on the ground in China. As can be seen from even the brief discussion of the Labor Contract Law above makes clear, most provisions of the Labor Contract Law are very broad. Therefore, a problematic employee who wishes to fight his or her termination can easily make considerable noise (and trouble) in the process of doing so if he or she wishes. Employees often may threaten to go to tax or other government authorities and turn over sensitive information the employer may not want revealed to the Chinese tax authorities or to a competitor company unless the employer either forces the employer not to carry out the threatened termination or pay the employee an often substantial severance payment. It is also not unheard of for employees about to be terminated to physically threaten or harass other employees or their supervisor, simply to obtain severance the employee believes he or she is entitled. This can cause not only serious discomfort to the employer and its remaining employees, but also result in financial losses or adverse reputational consequences.

Employers Should Exercise Extreme Caution When Terminating Employees in China

Because it is so common for employees to threaten to go to the tax or other government authorities in China or take similarly drastic steps when threatened with termination, employers need to ensure that their operations are squeaky clean and that they follow all applicable Chinese laws in the operation of their business. This includes any internal employment guidelines or policies the employer may have which relate to employees and their conduct. This will allow an employer to avoid a potentially embarrassing situation if and when an employee in China threatens the company with extortion or worse when the employer attempts to terminate the employee. Employers should also ensure that their internal labor/employment policies are detailed and specific so that a rogue employee cannot exploit any loopholes or vagaries in an employer's internal policies and procedures in addition to the vague nature of the Labor Contract Law. However, employers, particularly foreign companies doing business in China, should also be aware that even though a planned termination might be lawful and justified under the Labor Contract Law, it may sometimes be best to simply settle the matter with the problem employee to avoid any of the nightmare scenarios described above. Or the particular situation may call for fighting the problem employee with the local labor commission. This can be an even more difficult situation in the event an employee slated for termination is on the employer's board of directors or, even worse, is the employer's legal representative. In any such scenario, a company faced with the need to terminate a problem employee should always seek experienced legal counsel in order to minimize the chances of a termination going sour in the many ways described. Unfortunately, the Labor Contract Law has created a situation in which employers are at a distinct disadvantage when seeking to terminate an employee. Only then can the employer, in conjunction with a trusted legal advisor, make the right decision as to whether to terminate the problem employee quietly and without fanfare or fight the employee tooth and nail if the employee refuses to go without kicking and screaming. Ultimately, what any employer operating in China needs to understand is that terminating an employee in China can be a very difficult proposition that is filled with potential land mines that an employer should not face without first consulting a trusted legal advisor. We always advise our clients to collect – to the greatest extent possible – documentation of non-performance and misdeeds. These, in conjunction with the assistance of an experienced legal counsel, are often the keys to a smooth termination.

December 29, 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions