Terminating Employees in China: Why It's So Hard and How to Get It Right
Over the past few years, our law firm has been flooded with requests from foreign companies looking to shut down or scale back their China operations. Almost every one of those closures has involved complex China employee terminations, and in nearly every case, the foreign company underestimated how hard and risky those terminations would be.
Time and again we see foreign employers lose China termination cases they thought were "slam dunks." If you are operating in China and thinking about reducing headcount—or even terminating just one problem employee—you need to understand that China does not have employment at will. Every single termination must follow strict legal requirements, and a misstep can cost you double severance for wrongful termination, years of litigation, and increased government scrutiny.
Why Unilateral Employee Terminations in China Are So Risky
Employee terminations in China are never easy, but unilateral terminations—when you, as the employer, act alone—are exponentially more difficult. Courts lean heavily toward protecting employees, and the burden is entirely on you to prove you had a clear, legal basis for termination.
Beyond the need for a legal basis, remember that Chinese law offers strong protections for certain employee categories (for example, employees who are pregnant, on maternity leave, on sick leave, or recovering from work-related injuries). These protections make termination in these situations extremely restricted, even if "for cause" grounds might otherwise exist.
The investigation process is also critical—you must investigate properly and document every step before taking action.
How to Lay Off an Employee in China Who Has Done Nothing Wrong
Not every termination in China happens because of misconduct or poor performance. Sometimes a foreign company needs to reduce staff purely for operational or financial reasons. Maybe your product line is shutting down, you're relocating production, or the company is restructuring. In many jurisdictions this would be a simple "layoff." In China, it is anything but simple.
Here is what you need to know if you need to end the employment of someone who has done nothing wrong:
1. Economic Layoff Grounds Must Be Clear and
Legitimate
Under Chinese labor law, you cannot terminate "without
cause." A valid economic basis is required, such as a material
change in the economic circumstances that makes the original
employment contract impossible to perform. The law is interpreted
narrowly. You need to be able to clearly tie the layoff to
legitimate business needs and document those needs.
2. Severance Is Mandatory
Even when an employee has done nothing wrong, you must pay
statutory severance at a minimum—generally one month's
average salary for each year of service. If you try to treat it as
a zero‑cost separation, you will almost certainly lose at
arbitration or in court and risk paying double severance
for wrongful termination in China.
3. Mutual Termination Is Often the Only Realistic
Path
Because unilateral terminations are so difficult, the most
practical and legally safe method is to negotiate a mutual
termination agreement. You offer an enhanced severance package in
exchange for the employee's signed consent to end the
employment relationship. This approach avoids a fight over whether
economic conditions truly justify the layoff.
4. Follow Local Consultation and Filing
Rules
China's employment laws are national, but implementation is
local. In some cities you must first inform or consult with the
labor bureau before proceeding with layoffs—even individual
ones. For larger reductions, there are formal mass layoff
consultation requirements in China that include
30‑day notices and union or employee representative meetings.
Skipping these steps exposes you to serious penalties.
5. Document Everything
When laying off someone with no misconduct, your documentation
becomes even more important. You should have:
- Written records of the economic reasons for the layoff (financial statements, board resolutions, restructuring plans).
- Copies of consultation notices or filings with the local labor bureau, if required.
- A signed mutual termination agreement that spells out severance and waives future claims.
6. Be Sensitive to Protected Categories
Even when business needs are legitimate, you generally cannot lay
off employees who are pregnant, on maternity leave, or recovering
from work‑related injuries. Trying to do so will almost
always result in a losing case.
In today's climate—where China's economy is under pressure and scrutiny of foreign companies is high—you cannot simply "let someone go" without cause. If the employee has done nothing wrong, your safest option is to negotiate a mutual termination with proper severance, document your economic justification, and strictly follow local procedures. Anything less invites a labor dispute, government scrutiny, and potentially very expensive consequences.
Essential Rules for Legal Employee Termination in China
Terminating an employee in China is never as simple as handing over a notice and escorting them out the door. Chinese labor law imposes strict procedural and substantive requirements on employers, and failing to follow them can lead to expensive disputes, reinstatement orders, and double severance for wrongful termination in China. The following core principles are what every foreign employer should keep in mind before moving forward with a termination.
1. Your Rules and Regulations Must Be Enforceable.
Chinese courts rely heavily on an employer's internal rules and regulations to determine whether a termination was justified. If your employee handbook or policies are out of date, not properly implemented, or don't comply with local labor laws, you may have no valid basis to fire an employee—even for what seems like obvious misconduct. Regular employment compliance audits in each city where you operate help ensure your policies are enforceable and up to date. Don't assume a generic set of rules will pass muster across China's different jurisdictions.
2. Don't Apply Rules Retroactively.
If your rules and regulations did not exist when the alleged misconduct happened, you cannot go back later and use them as grounds for dismissal. Courts view retroactive enforcement as fundamentally unfair. For example, if you discover a résumé discrepancy years after hiring and try to rely on a policy adopted long after onboarding, you're unlikely to prevail. Ensure your policies are in place and acknowledged by employees from the outset.
3. Act Quickly on Misconduct.
Chinese labor authorities and courts expect employers to respond to misconduct within a reasonable time after discovering it. Sitting on a violation for months or years—while continuing to renew contracts or give raises—signals to the court that the issue wasn't serious. Prompt investigation and documentation show you take the matter seriously and strengthen your legal position if you later decide to terminate.
4. Strong Evidence Is Everything.
In China, the burden of proof is on the employer. You need solid, contemporaneous evidence to support a termination—witness statements, written warnings, signed acknowledgments, performance records, or other tangible proof. Oral allegations rarely suffice. A well-documented file is often the difference between winning and losing at a labor arbitration or court hearing.
5. Mutual Terminations Are Usually Smarter.
Even when you think you have cause, it's often safer and cheaper in the long run to negotiate a mutual termination agreement. A properly drafted settlement, signed by both sides, minimizes the risk of litigation and government scrutiny. While this usually involves paying severance beyond the legal minimum, it buys certainty and avoids the reputational and operational costs of a protracted dispute. Using a carefully crafted mutual termination agreement also helps protect against claims that your termination process was flawed.
China Contract Non-Renewal: Legal Requirements and Risks
After two consecutive fixed-term contracts, an employee often has a right to an open-term contract. Failing to renew without a legal ground can trigger wrongful termination claims and double severance.
China Mass Layoff Regulations: Compliance Requirements
If you are planning 20 or more terminations (or a certain workforce percentage), you enter mass layoff territory. You must consult with a labor union or all employees, notify authorities, and meet strict timelines.
Avoid the Consultant Trap
We've seen foreign employers try to terminate an employee and immediately rehire them as a consultant. China generally does not allow independent contractor status for what is really an employment relationship.
Foreign Company Terminations: Increased Scrutiny in 2025
China's economy has slowed, and government scrutiny of foreign businesses has intensified. Terminations—even minor ones—are more likely than ever to trigger lawsuits or regulatory action.
Map Out Every Termination Carefully
Employee terminations in China are a legal minefield. Before taking any action, you need to:
✅ Confirm you have a legally recognized ground for termination.
✅ Review the employee's contract and your Rules and Regulations.
✅ Calculate all severance obligations.
✅ Consider whether a mutual termination agreement might be safer.
✅ Document everything and get local legal advice before you act.
A rushed termination in China almost always costs more than a careful one.
Frequently Asked Questions About Employee Termination in China
Q: Can I terminate an employee in China without cause?
A: No. China does not have employment-at-will. Every termination requires a specific legal basis under Chinese Labor Contract Law, such as serious misconduct, incompetence after training, or qualifying economic layoffs.
Q: How much severance pay is required for China employee terminations?
A: Standard severance is generally one month's average salary per year of service. However, unlawful terminations trigger a penalty of double severance, plus potential reinstatement and back pay.
Q: What's the difference between individual and mass layoffs in China?
A: Mass layoffs (typically 20+ employees or certain workforce percentages) require formal consultation with a labor union/employees, government filing, 30-day advance notice, and specific economic justification. Individual terminations have different, albeit strict, procedural requirements.
Q: Can I terminate a pregnant employee in China?
A: Generally no. China provides strong protections against termination for pregnant employees, those on maternity leave, or those recovering from work-related injuries or certain illnesses.
Q: How long do I have to address employee misconduct before it's too late?
A: You should act promptly once misconduct is discovered. Chinese courts expect reasonable timing; waiting months or years while continuing employment significantly weakens your case.
Q: Is mutual termination always better than unilateral termination?
A: Generally, yes. Mutual termination agreements with negotiated severance avoid litigation risk, double severance penalties, and lengthy disputes, making them a safer, though often costlier upfront, option.
Q: What happens if I get the termination process wrong?
A: Unlawful termination can result in double statutory severance, orders for employee reinstatement, payment of back wages, and increased government scrutiny of your operations in China.
Q: Do I need a lawyer for every China employee termination?
A: For any complex case, protected employees, or multiple terminations, yes. Given the high risks and strict compliance requirements under Chinese law, consulting local legal counsel is always recommended to ensure a lawful and strategic approach.
Employee Terminations in China: Why It's Tougher Than Ever and How to Get It Right
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.
