China employee termination rules
China employment law: know the rules

Terminating a China-based employee usually requires good cause. A serious breach of employer rules and regulations can be a basis for an employer’s unilateral termination of an employee, but China employers have other options as well.

A China-based employer may terminate an employment contract if the economic circumstances which formed the basis for the parties’ having signed the employment contract in the first place have changed, causing the employer to be unable to perform under the contract. This sort of termination is permitted only after negotiations between the employer and employee have proven they are unable to reach an agreement on amending the contract. But does this sort of termination really work? As with just about everything related to China employment law that will depend on whether the employer handled the termination 100% correctly and a bit on the locale as well. See China Employment Law: Simple Questions and Complex Answers.

 Let’s look at an actual case out of Zhejiang province. The employer and employee signed an open-term employment contract in 2010 for the employee to work in a managerial position in Hangzhou. During the term of employment, the employer decided it needed to shut down the department this employee managed so as to cut costs. The employer provided its shut-down plan to its labor union for comments. The employer then notified the managerial employee in writing of its decision to close down his department and directed the employee to report to a new position, with pay and performance standards essentially the same as the managerial employee’s existing position. The employer’s notice clearly informed the employee that if he failed to report to his new position within a specified period, the employer would not be able to assign him to a similar position and would instead have to terminate his contract.
The employee refused to cooperate as directed and the employer then prepared a notice to terminate the employee’s contract and it provided notice to the company’s labor union for comments. The notice made clear the basis for the employee’s termination was the employee’s failure to abide by the employer’s new position assignment coupled with the employer’s inability to accommodate this employee with another similar position. These circumstances caused the parties to be unable to perform under the existing employment contract and after negotiations, the parties were unable to reach agreement on amending the original contract. The employer tried to serve the employee with his termination notice in person, but the employee refused to accept it, so the employer sent notice to the employee’s last known contact address by mail. The employer also published the termination notice in the daily newspaper and paid the employee an additional month’s wage as severance based on his years of service.
The employee sued for unlawful termination and demanded reinstatement of his position.

The courts sided with the employer and ruled as follows. After the employer decided to shut down the employee’s department and eliminate the employee’s original position, the employer provided the employee with notice specifying (1) his new position, (2) the new payment standard (which would not reduce his take-home pay one Yuan) and (3) the requirement that he report to his new position or be terminated for failing to cooperate. The employer also repeatedly asked the employee to report to the new position. The court held that the employer had handled the termination correctly and ruled entirely in the employer’s favor.

This case almost certainly would have turned out very differently had this employer not been so punctilious in following all the procedural requirements for a termination due to economic circumstances. This employer did not go full speed ahead and unilaterally terminate the employee right after it made the decision to eliminate his position. It instead got its labor union to sign off on its plan and then it sought to give the employee a similar position with similar pay.

Keep in mind that terminations because of economic circumstances require the employer pay their terminated employees statutory severance. And as always, it is important to check the local requirements before you terminate an employee.