Under China’s labor laws, terminating a China employee who has completed his or her probation period is virtually never easy. Termination usually requires good cause and a severance payment. Most importantly a China employer must be able to show that any unilateral termination was based on statutory grounds. In this post, I lay out some basic rules on terminating the labor contract with your China employees. Note that “China employees” essentially means any employee who works for your China-based company, whether that employee is actually a Chinese citizen or not.
The PRC Labor Contract Law permits employers to unilaterally terminate labor contracts without having to provide notice or economic compensation under one of the following circumstances:
- The employee does not satisfy the conditions for employment during the probation period.
- The employee materially breaches the employer’s rules and regulations.
- The employee commits a serious dereliction of duty or practices graft, causing substantial damage to the employer.
- 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
- The employee has criminal liability imposed against him or her.
Under one of the following circumstances, the employer may terminate the employee, but it must either give thirty days written notice or pay additional economic compensation equal to one month of the employee’s salary:
- The employee falls ill or is injured for a non-work-related reason, and is unable to handle his or her original position upon expiration of the medical treatment period as prescribed, nor can he or she assume any other position as arranged by the employer.
- The employee is incapable of doing his or her job and would remain so even with training or with adjustments to his or her position.
- A major change in the objective circumstances relied upon at the time of the signing of the labor contract hinders continued fulfillment of the original contract and, after consultations, the employer and employee are unable to reach agreement on amending the labor contract.
In addition, under the Labor Contract Law, an employer may terminate employees by initiating mass layoffs, provided conditions are met under the relevant laws and regulations.
If a China employee is wrongfully terminated (i.e., the employee is not terminated according to one of the statutory grounds), the employee may demand reinstatement of his or her position and the employer is required by law to give the employee his or her old job back. If the employee does not wish to continue working for the employer or if performance under the labor contract is not possible, then the employer must pay damages equal to double the economic compensation in the case of lawful termination. Note this is all very different from the U.S. employment law system.
Bottom line: Though your China employees can terminate the labor contract relatively easily (by providing thirty days written notice or three days notice during the probation period), you as the employer generally cannot terminate an employee without cause and a severance payment.