The following story, told by the China Leadership Blog, is absolutely typical:
I know a German factory in a first tier city here [in China] that hired the wrong Finance Director. When they let her go, she took them to arbitration. The factory had followed the law in how they hired her and in how they let her go. However, even after following the law, they still had to pay an extra three months salary beyond what they had already offered her. The decision shocked the German company. The arbitrator explained that though they followed the law correctly, the former finance director is very upset, so you still need to pay her. Ouch. The ruling was not based on a point of law, but rewarded the most upset person. And the big company had to pay the worker.
Every story I have ever heard of a foreign company going to arbitration in China against a terminated employee ends similarly (or much worse). The foreign company pretty much always loses. I think this is not so much because the foreign company is a foreign company but because China is still a communist country and workers’ rights are still (at least in theory) paramount.
Because the odds are so stacked against the employer, my firm always counsels our clients to try their utmost to work out a settlement with any employee they intend to terminate and to do so before the termination. We have been involved in countless of these settlements and in every instance the company has almost certainly paid less in settlement than it likely would have had to pay in arbitration. Settlement also meant that the company did not need to pay the attorneys fees and arbitration costs involved in the arbitration itself.
One caveat. If you are going to settle with your soon to be (or already) terminated employees in an effort to avoid arbitration, you must also be sure to make them sign a settlement agreement/release that ensures they will not sue you and also ensures that if they do sue you, their case will be dismissed.
I love a good fight as much (probably more actually) as the next guy, but fighting Chinese employees in arbitration just is not a good fight to undertake.
What do you think?