How to Terminate a China Employee
How to terminate a China employee: make it mutual if you can

Terminating China-based employees is difficult. Article 40(2) of China’s Labor Contract Law permits an employer to unilaterally terminate an employee, with severance, if the employee is incompetent and remains incompetent after training or assignment to a different position. In practice though, Chinese courts tend to be very strict in applying this law and employers that fail to have “checked all the boxes” before the termination almost always face adverse consequences.

Consider hypothetical 1: The employer and the employee enter into a written employment contract in year 1. The employer also provides its employee with a written statement explaining its expectations and performance requirements for the employee’s position. The employee signs on that statement but the employee’s performance perpetually fails to meet the employer’s expectations. The employer unilaterally terminates the employee for “poor performance” and pays the employee statutory severance: three months salary, plus one additional month’s salary in lieu of advance notice. The employee sues on the basis of unlawful termination.

How will a Chinese court likely rule: This termination will almost every time be deemed unlawful because the employer failed to generate good contemporaneous evidence of its employee’s failure to meet the job requirements.

Now, let’s consider hypothetical 2. Same facts as above, except that the employer did yearly performance reviews and documented the results. These performance reviews indicated the employee was not cutting it and they were acknowledged and signed by the employee. Then during the next 6-month period, the employee did nothing to improve her job performance and it became clear the employee was not going to get better at her job. The termination notice in year three was the same: unilateral termination of the employee with the same amount of severance for “poor performance..”

In this scenario, the employer did a better job documenting the employee’s incompetence but it will still almost certainly lose. The employer will lose because it did not follow the law in making the termination decision as it did not provide the employee with any training so she might improve at her job nor did it ever assign her to a different position. For these reasons, the employer will lose for failing to meet its burden of proof regarding the need to provide a failing employee with training or a different position.

Hypothetical 3. Same facts as above, except: during the 6-month period before termination, the employer worked with the employee diligently to come up with a corrective plan for improvement. The employer worked with the failing employee on correcting her work errors, on monitoring her work progress and on providing her with ample training, all of which the employer documented clearly in writing.

Will this employer prevail in a legal proceeding initiated by the employee? Probably yes. I say “probably,” for two reasons. First, generally speaking, if there is a workers union, the union needs to be consulted before a unilateral termination decision can be made final. Failing to go through this step may subject to the employer to liabilities for unlawful termination. Second, even assuming there is no workers union, there may still be additional requirements imposed by the local authorities and those will need to be followed as well.

Your outcome from your termination decisions will, of course, depend on the facts, including where your company and your terminated employee are based. Note though that even in the last hypothetical the multiple hoops with which employers must jump through to satisfy their burden of proof oftentimes makes sense even for employers that have followed all termination steps to come to a mutual termination agreement with their terminated employee to avoid the legal battles altogether. The more you do right, the less you will usually need to pay.

 

 

We are always emphasizing on here how you need a China-centric contract when doing business in China or, in most cases, even with China. See China Contracts: Make Them Enforceable Or Don’t Bother. This holds doubly true for employment contracts with China employees because everything about such agreements is highly local. If you are having someone in China other than a company performing services for you, you need both your own entity in China (See Doing Business in China with Deportation or Worse Hanging Over Your Head) and a China specific written employment contract with each of those individuals.

China employment law
Don’t let your China employment agreement get lost in translation

And though I should not have to say this, translating your existing employment agreements into Chinese is not going to cut it — not even close. Yet just about every month some foreign company (almost invariably an American or Australian company for some reason) or an executive with such a company (again, almost invariably American or Australian) will come to one of our China employment lawyers with a problem involving a foreign country employment agreement that was translated into Chinese.

The below are some of the common examples we see where a foreign contract/foreign mindset does not jibe with the China employment law reality.

  1. The employment agreement makes clear the employee is being hired on an at-will basis, which means he or she may be fired for “good reason, bad reason, or no reason at all.” This generally works in the United States and in a few other countries around the world, but it absolutely positively does not work in China and putting such a provision in your employment contracts can and often is used as evidence to support a wrongful termination claim, so please just skip it. Terminating a China-based employee nearly always requires good cause and far too often companies that put these at-will provisions in their China employment contracts actually believe what they say and end up in big trouble for wrongful firings.
  2. The employee is expected to work whenever needed to get the job done. This can sometimes work for certain China employees provided various specific conditions have been clearly met, but putting this sort of provision in a contract is not a way to meet those conditions — it is yet another red flag for China judges when you get sued by one of your employees. For you to be able to use your China employees after hours without having to deal with overtime provisions, that employee must (1) have been cleared by the appropriate labor bureau authorities as eligible to work under an alternative working hours system, (2) have specifically agreed in his or her employment contract to work under such an arrangement. Note also that clearance for one of your employees being able to work under an alternative working hours system typically lasts for only a year, depending on the locality. Note also that the alternative working hours system cannot be used with most employees and that means they must work under the standard working hours system which requires overtime for anything beyond 8 hours a day and 40 hours a week. Getting an employee to consent to this without government approval does not work.
  3. The employee agrees to adjudicate all employment-related disputes through arbitration. This does not work if you try even to limit your employees to only labor arbitration and it certainly does not work if you try to require your employees to arbitrate disputes against you in your home country or really anywhere outside the jurisdiction where they are employed. I surprisingly often have to tell American companies that putting a provision in a contract with a China employee that United States law will apply and all disputes must be resolved in some U.S. city has the same likelihood of success in China as would a provision requiring an Omaha employee be bound by Chinese law and Chinese jurisdiction, which is exactly zero. Think about it. Is any American jurisdiction going to let you hire someone and pay them pursuant to China’s minimum wage requirements? Of course not, and the reverse is equally true.
  4. The employee agrees to a non-compete that comes into force after termination of employment and the consideration for this non-compete is the promise of employment. This generally works in the United States (though not in California), but in China, if you want one of your employees to be bound by a non-compete provision, you must pay them consideration for their not competing during the entire term of the post-termination non-compete period. For example, a sign-on bonus may not be consideration for a China non-compete; the (former) employee must receive compensation via bank transfer on a monthly basis after termination for your non-compete to hold.

Provisions like the above send strong signals to your employees, to China labor bureau authorities and to China’s courts that you do not understand how China’s employment laws and you are not willing to make the effort to comply with them. This increases both the odds of your having China employment law problems and the odds of your employees suing you when such problems arise. And as mentioned above, having these unenforceable and illegal provisions in your China employment contracts also tends to prejudice judges against you when you are actually sued.

Bottom Line. Use a China-centric employment agreement with all of your China employees.

Check your China employment contracts
Check your China employment contracts

Do you check your employment contracts? A company in Shenzhen wasn’t careful in checking theirs and it had to pay an employee nearly 150,000 RMB as contract damages for unpaid wages and an additional nearly 3,000 RMB for overtime compensation. In the end, this company had to pay this one employee nearly 50 times more than what was actually owed. Before I discuss this case and what you should do to prevent the same thing from happening to you, let’s quickly review relevant China employment laws.

An employee can demand its employer pay contract damages pursuant to the parties’ employment agreement. The law only imposes restrictions on employers imposing contract damages (similar to and called liquidated damages in some countries) on their employees, but an employee can collect contract damages from an employer under certain circumstances. At the time of termination, unless there is a law to the contrary, the employee can demand contract damages in addition to the applicable statutory severance. But again, be careful, this is just the general law in Guangdong tvince and there may be exceptions and, as is pretty much always true when dealing with China employment laws, there are local variances.

Now back to the case I mentioned above. In that case, the Shenzhen employer and the employee entered into an employment contract under which the employer agreed to pay its employee 50 times any missed/miscalculated base salary and overtime pay. In other words, for every Yuan the employer is short in wage payments, the employee must be paid 50 RMB as a penalty. When the employment relationship went awry, the employee sued and sought nearly 150,000 RMB in contract damages for having been shorted a bit under 3,000 RMB owed to him. The trial court — The People’s Court in Baoan District — sided with the employer on this claim, concluding that this damages provision did not comply with the employment law and the amount far exceeded the actual amount owed to the employee. It then applied a “fair” standard for damages and ordered the employer to pay the owed wages plus an additional 25% of those wages as damages.

The employee appealed, arguing that the Baoan court had no legal basis for its ruling. The employee argued that the employer intentionally included this damages clause in the employment contract to make the job look more enticing and it would not be fair to allow the employer to be released from a contractual obligation it had created. The employee also argued that China’s freedom of contract laws called for enforcing the contract.

The Shenzhen Intermediate People’s Court determined the damages clause did not violate any mandatory laws or social interests and it reflected the parties’ true intent. The employer was the more powerful party and the employee an ordinary worker with only minimal bargaining power. The contract damages provision was therefore enforceable against the employer and the employee was entitled to the full amount of contract damages.

If the Shenzhen employer had been careful about what it allowed into this employment contract it could have avoided this penalty altogether. Our China employment lawyers regularly audit the employment records of foreign employers in China and this means we frequently see employment contract provisions that heavily favor the employee. One of the most common things we see is for the English to say one thing (that’s good for the employer) and the Chinese to say another (that’s good for the employee). This is a problem because the Chinese language controls.

Do your employment contracts contain a “surprise” clause that would potentially expose you to unwanted liabilities? Now is the time to check to make sure.

 

China employment lawyers
China employee probation. Again.

If you want to set up a probationary period for your new China employee hires, it is important you get it right. If you do not understand how probation works both in China and where you will be doing your hiring, you are probably better off not even bothering.

Note that employers are not allowed to set a probation period for the following three types of employment arrangements:

  1. Employment of a part-time employee,
  2. Employment with a term of fewer than three months,
  3. Employment whose term is based solely on the employee completing a certain task.

There is a fourth prohibition/restriction: you may use only one probation period for the same employee. As straightforward as this may sound, this rule has caused much confusion to foreign employers (and many Chinese employers as well). For instance, one question that we often get asked is this: whether an employee who has left the company and returns after ten years, can be re-hired as a probationary employee? The answer to this is not quite clear, even in the same locale. A strict interpretation of the law dictates a “no” answer, as the parties are the same, and the law “clearly” states: one employee, one probation period. But many employers have argued that a lot can change in ten years (especially in high tech) and we should be able to test the employee out and not have to rely on what we knew about the employee a decade ago. As logical and reasonable as this may sound, most courts have not sided with employers on this issue.

In one fairly recent case in Zhongshan city, Guangdong Province, an employee worked for an employer from 1998 through early 2015 and then got re-hired for the same role by the same employer near the end of 2015 under a three-year employment contract with a 6-month probation period. The employee was then terminated during the 6-month probation period and he sued, alleging unlawful termination. After multiple proceedings and on appeal, the Zhongshan Intermediate People’s Court essentially ruled that the employer violated the Labor Contract Law for using another probation period for the same employee and awarded the employee damages for the employer’s illegal use of the probation period.

But what if an employee returns to the same employer, but at a different position? Even though the parties are not “strangers” to each other the employer would have little to no knowledge about how the employee is likely to perform in his or her new position. The Zhongshan case above does not answer this question, but it seems an increasing number of judges and China employment lawyers are of the view that an “exception” should exist for an employee rehired for a substantially different position.

Note though that in virtually all employment cases where an employee has sued over a second probation period, the employee signed an otherwise enforceable written employment contract agreeing to the second probation period. So if you will be doing your hiring in a place where the courts strictly interpret the one employee, one probation period law, it doesn’t matter what the employee agreed to, because a violation of the PRC Labor Contract Law violates the law and warrants an employer penalty.

As is true of just about everything related to China employment law, the best way for you to proceed is with caution. When working with our clients, we always check the written law AND confirm our interpretation of that law with the relevant employment authorities before proceeding and you should do the same. Have your employment contract checked before putting it in front of any of your employees for signing. And again, if you do not understand the ins and outs of probation in China, you will probably be better off just skipping it entirely.

What about using a probation period for an existing “employee” who has been working for you in some capacity before your WFOE was formed (see Doing Business in China with Deportation or Worse Hanging Over Your Head). In those situations, our advice is usually to just skip the probation period because you already know that the employee is working out, otherwise you would not be looking to bring him or her into your new WFOE’s fold.

 

China employee terminationsTerminating a China-based employee without severance is generally a difficult thing to do. Even terminating a probationary employee can be tricky. See China Employee Probation: All is NOT What it Seems. Mutual terminations with settlement agreements and claim releases are usually the safest route for employers to take.

For a mutual termination to work well you should put the terms and conditions surrounding such termination to writing even if both parties (employer and employee) have reached a mutual understanding through friendly consultation. Without a written agreement, the employer is at great risk of later legal action by the employee for the exact same issues you settled verbally.

How should you as the employer proceed to effectuate a mutual termination? You initiate the process by coming up with an initial severance amount and a list of any additional matters that need to be resolved with the employee. You then approach the employee and ask him or her if she would be agreeable to a mutual termination with your proposed terms, which will include among other things, a fair amount of severance. In our experience, Chinese employees usually will agree to a mutual termination as they prefer receiving a quick payout to many months of contentious litigation. We normally suggest our clients talk to the employee themselves during the initial stages (with our employment lawyers coaching them in the background). It can often be a mistake for an employer to bring its lawyers into employee termination negotiations too early as doing so can make things more confrontational and indicate to the employee that the amounts at stake may be higher than he or she initially realized.

As you are nearing the end of your negotiations with your employee, you should inform the employee that you will be providing a written agreement that contains all agreed-upon terms for the employee to review and sign.

You will next want to provide the employee with a hard copy of the mutual termination agreement and give him or her time to review it and ask any questions. We make our employee termination agreements clear, reasonable and concise, and China employees usually sign them with little to no fuss. Make sure your agreement covers all relevant issues regarding your specific employee. Sometimes, your employee may want you to leave out certain things for various reasons or put in something that is not true. For example, your employee may want to make it ambiguous about the mutual nature of the termination. You need to say no and inform him or her that the agreement must be clear about the termination being mutual. You need to proceed with extreme care. It is not uncommon for foreign companies to call our law firm after they have been sued by an employee a month or two after believing they just settled with that very same employee.

Do not issue the mutual termination agreement to your employee before you have communicated with the employee regarding the termination and have agreed on the issues. Nor should you make the employee sign an agreement on the spot that he or she has not previously reviewed; the mutual termination agreement should not come to the employee as a total surprise.

Finally, make sure both parties fully execute the agreement and then you should be sure to fulfill your obligations under the agreement, such as wiring the employee his or her full severance payment. Retain one original copy of the fully executed agreement for your records. You must also meet all your other obligations with respect to the employee departure, such as transferring the employee’s social insurance.

Do not treat the mutual termination agreement as a “mere formality” as this document is key to your protection. It should be in Chinese as the official language (preferably with English as well for you) and you as the employer need to know exactly what it says and agree with all of its terms. It is common for Chinese employees to draft Chinese-only agreements “merely as a formality” and try to get you to sign off on that. These employee-drafted termination agreements virtually never protect the employer and they often lead result in the employee coming back to the employer for more money a few weeks later.

Don’t skip the formal mutual termination agreement just because the employee you are terminating is in a “special” status. For example, even if the employee is on probation, so long as it’s a mutual termination, you should enter into a written mutual termination agreement with that employee. Just because the probation/employment period is short does not mean you should not handle the termination properly. You should document ALL employee terminations in writing

Did you handle your employee terminations properly? Now is the time to check to make sure.

 

China employment lawyerOne of the more important things you should know about China employment law is that employees have many rights they CANNOT contract away. An employment contract in China (and pretty much every other country as well) is not a regular commercial contract where the parties have significant freedom to agree on anything. In China employment contracts are not governed by China’s Contract Law; rather, they are governed by the Labor Contract Law (among other numerous employee-friendly labor and employment laws, regulations, rules, directives, etc.). This is a critical distinction often missed to the peril of foreign employers in China.

Because Chinese employees are rarely free to contract away the vast majority of their rights, you as an employer need to think long and hard before trying to contractually (or otherwise) impose an extra burden or penalty on your employee. Generally, employees in China may bear no more obligations beyond those stipulated by law. For example, consider this somewhat classic example: can you have an employment contract that mandates your employees will automatically pay you a certain amount of salary if they fail to give at least 30 days written notice before resigning? Say, you try to be fair by asking each employee to pay you one day’s salary for each day he or she fails to give notice up to 30 days. Will such an employment contract provision be enforceable under Chinese law?

It depends on your locale, but generally speaking, in most locales, unless an exception applies (which I will explain below), this sort of arrangement constitutes a penalty against the employee and is therefore unenforceable under Chinese law. China’s Labor Contract Law says that so long as an employee provides 30 days written notice, he or she can terminate their employment relationship, with or without cause. This is generally interpreted as meaning that an employer cannot legally make it more difficult by essentially imposing a penalty for an employee terminating the employment contract early.

In this situation employers commonly argue that since the law is silent on what happens when an employee fails to provide 30 days written notice the parties should be free to enter into their own agreement on this issue. In most locales, this argument has been stricken down for two reasons: (1) the law does NOT give an employer the right to penalize an employee for failing to give 30 days written notice; and (2) the employer already has the right to pursue the employee if the employer suffers actual damages as a result of the employee’s failure to give adequate notice. The burden is on the employer to show the damages and the causal connection between the employee’s behavior and such damages. So what if the employee gave only 20 days notice? If the employer suffers no harm, it would not be fair to penalize the employee for being 10 days short on giving resignation notice. Such an arrangement, without more, constitutes a penalty under Chinese laws and will not be deemed enforceable.

What are the exceptions? A penalty payable by the employee may be upheld under one of the following two circumstances:

  • Pursuant to an education reimbursement agreement (sometimes called a service period agreement), an employer can require its employees reimburse the company for the education expenses if the employer pays major expenses for an employee’s employment-related education or training, but soon after the training is complete, the employee quits.
  • Pursuant to a non-compete agreement, an employer can require an employee pay a penalty to the employer for violating non-compete terms by joining a competitor after leaving employment.

In jurisdictions that prohibit penalizing employees for shortened termination notice, it does not matter if the employer can prove it was the employee who insisted on this penalty arrangement. It also does not matter if the clause is in bold and in perfect Chinese.

If you have already invested a lot of time and money on one or more of your employees or you are planning to do so, you should consider adding a provision to your employment contract on education reimbursement. If your employee assures you not to worry because he or she will not leave you hanging and as proof of this offers to pay you for leaving without 30 days notice, you should know that what the employee is proposing will almost certainly not be enforceable. It’s just like when you present an unenforceable NDA (as opposed to a China-centric NNN) to your Chinese counterpart, and they are of course happy to sign it, knowing it will carry no legal force in China.

Trust me when I tell you our Chinese lawyers constantly see Chinese individuals and companies willingly and knowing propose and then sign agreements knowing full well they are not enforceable!

Do your China employment contracts pass legal muster? Now is the time to check to make sure.

By the way, my book on China employment law, The China Employment Law Guide: What You Need to Know to Protect Your Company, just came out in paperback and you can buy it for the low low price of only $19.95 on Amazon. I realize this is considerably more than the Kindle price, but my intention with the book is for foreign employers and for expat employees to have this book available to them as a ready reference and that will be much better accomplished on a bookshelf in paperback form than on a Kindle or your computer. 

 

Shenzhen employment law DongguanGuangdong Province (home to Shenzhen, Guangzhou, and Dongguan, among others) recently came out with new employment laws. The provincial High People’s Court recently released a document entitled the Answers to Difficult Questions regarding Adjudication of Labor Disputes Cases, with the primary goal of making the province’s labor adjudication more consistent. This post discusses a few of its key provisions and I will be writing more about this new law in future posts.

If during the course of the employment relationship, an employer suffers damages as a result of an employee’s gross negligence or intentional wrongdoing, the employer may pursue the employee for a single sum payment at the time of termination. However, the damages will be limited to direct economic losses suffered by the employer, and the court will consider the nature and degree of the employee’s conduct in determining the damages to the employer and it will not allow the employer to impose its own operational risks on the employee.

An employee leaving employment because of employer wrongdoing or abuse (such as failure to provide necessary labor protections or labor conditions), must clearly provide to the employer the reason why he or she was allegedly forced to terminate the employment contract. If the employee fails to notify the employer that he or she is terminating the employment relationship on grounds of employer wrongdoing or abuse, the employee cannot (in most cases) later demand statutory severance for employer abuse/wrongdoing. Though this new rule is employer-friendly, we still advise our employer clients to try to figure out why an employee is leaving. Even if the employee may be barred from suing for statutory severance, he or she may still sue for other issues, such as unresolved overtime pay or vacation penalties. Your goal as an employer is usually going to be to try to resolve all problems with a departing employee without getting sued.

When an employer moves its location, it constitutes major changes of the objective circumstances on which the employment contract was concluded, and for that reason, the employer must consult with the employee and reach an amendment to the parties’ contract. If the parties are unable to reach agreement, the employee can terminate the contract and demand the employer pay him or her statutory severance. However, if the employer’s move does not have any obvious (whatever that means) impact on the employee and the employer has taken reasonable measures to accommodate the employee (such as providing a company shuttle or paying the employee transportation subsidies), the employee’s demand for statutory severance may be denied as there is insufficient ground for the employee to unilaterally terminate the contract. This is not exactly new either, but it is worth repeating that it is virtually always safer to reach a written agreement (in Chinese!) with your employee before you change any clause of their employment contract.

An employee can demand its employer pay contract damages pursuant to the parties’ employment agreement. The applicable employment laws impose restrictions on employers imposing contract damages (similar to and called liquidated damages in some countries) on their employees, but they do not prevent an employee from collecting contract damages from the employer under certain circumstances. Unless there is a law to the contrary, the employee can demand contract damages in addition to statutory severance (or double statutory severance in the case of unlawful termination). If a contract is being proposed by the employee (which is rare but does happen from time to time), the employer should be careful in checking whether there is such a provision that specifies contract damages payable by the employer (note that we generally recommend our clients not use any contract presented to them by an employee). On the flip side, when an employee — especially an expat — gets to negotiate his or her own employment package, they should consider whether it makes sense to include a contract damages clause in their contract.

Stay tuned for more on the new employment law developments in Guangdong.

China employment law
Root out differences between your employee contracts and rules and regulations

A well-written employment contract, along with a set of China-centric employer’s rules and regulations are the starting point of what you must do if you have employees (or plan to have) in China. Though it is good thing to have both of these documents in place, it is even better when these two actually work together. Our employer audits often find a company’s employment contracts and employer rules and regulations to be in conflict with each other, with internal inconsistencies or discrepancies that confuse employees (and employers) and can work against the employer in a labor dispute.

Let’s look at a case in Shanghai for an example of this, with the facts simplified for this post. The parties entered into an employment contract for a fixed term under which the employee would be working as a cargo driver. The employee’s contract stated that if the employee is absent from work for five days without good reason, he will be unilaterally terminated without severance. But the employer’s rules and regulations say that an employee may be terminated for three days of absenteeism. The employee was designated to work flexible hours and the employer would give direct orders to the employee by phone regarding specific assignments, and absent such work orders, the employee would stand by at home.

It is undisputed that on August 11, 2015, the employee failed to dispatch per the employer’s direct order. On the very next day (the 12th), the employee was late in dispatching after having received an urgent work order from his employer. Then on August 19th, the employee received a work order and he then verbally notified his employer that he could not perform his duties because he was sick, but he did not provide a doctor’s note at that time. On August 20th, the employer issued a written notice to the employee giving him two days to provide a doctor’s note to prove he was indeed sick as he claimed to be. The employer also served a serious warning on the employee for being late on the 12th. Further, the notice required the employee to return his driver’s permit and operation permit to the company so someone else could operate his assigned vehicle. Then again on August 25th, the employer sent another notice to the employee requiring him to report to work by the following day (August 26th) or be treated as absent. The employer stated in its notice that because the employee had failed to return the relevant permits, the employer had suffered loss for not being able to operate the car assigned to this particular employee, and therefore this failure to return the permits constituted a serious violation of the employer’s labor disciplines. The employee returned the relevant permits and submitted a doctor’s note regarding his August 19th absence. The employer nonetheless terminated this employee for having violated the employer’s rules and regulations. The employee sued for unlawful termination.

The trial court sided with the employee and the employer appealed. On appeal, Shanghai’s First Intermediate People’s Court held as follows:

  1. The employee’s contract expressly gave the employer the right to terminate the employee for being absent from work for five days without justification while the employer’s rules and regulations say three days. The two documents contradict each other on this point. The court went on to hold that applicable judicial interpretations stipulate that when there is a discrepancy between an employer’s rules and regulations and the employment contract and the employee requests the contract prevail, the court will grant such a request. Therefore, the court applied the terms of the employment contract, so only absenteeism for five days or more would justify unilateral termination without severance.
  2. The employee produced a doctor’s note to show he was sick from August 19th through the 21st, so it does not make sense to say he was absent from work without a valid reason during that period.
  3. Even though the employee failed to submit a doctor’s note within the 2-day period required by the employer in its notice, because August 22nd and 23rd fell on a weekend, the employee was absent from work for only three days: the 11th, 24th and 25th. Because the employment contract (which allows for five days of absences before termination) is the governing document, being absent for three days does not justify unilateral termination.
  4. For the reasons stated above, the employer’s termination decision was unlawful.
  5. Because the employer had no right to terminate the employee, the employer had no right to demand the employee return all the permits for the company car, so the employee should not have been punished for returning those permits late nor can he be held liable for the alleged damages that allegedly arose from his failure to return the permit.

If the employer in this case had taken the necessary time to make its employee’s contract consistent with its rules and regulations on the number of days of absence, the employer’s termination decision would probably have been held lawful.

Bottom line: Make sure your employee agreements are consistent with your rules and regulations and make sure they work well together. In comparing these two internal employment documents, make sure that you focus on the Chinese language versions of each because that is the version that legally matters.

China employment lawyerI have recently been focusing on Beijing with my China employment law posts because Beijing recently came out with new employment laws. The new laws, entitled the Responses to Several Issues Regarding Application of Law in Trial of Labor Disputes (关于审理劳动争议案件法律适用问题的解答)(“the Responses”) were released earlier this year to clarify a number of key employment law issues and to ensure a fairer and more effective and consistent adjudication of labor disputes in Beijing. In this post, I focus on how the Responses lower the standards for terminating an employee during his or her probation period. A China employer is permitted to use “failure to meet the conditions of employment during the probation period” as a basis to unilaterally terminate an employee without having to pay him or her severance. But what exactly does this mean for Beijing employers today?

The Responses make clear that an employer must inform its probationary employee of the conditions of employment during the recruitment process, and must also inform the employee of the factual and legal basis for termination upon dismissal. For a unilateral termination of a probationary employee to be lawful, the employer must be able to prove how the employee failed to meet the applicable employment conditions. This is nothing new. However, the Responses go on to say that in determining whether an employee meets the conditions of employment, the standard may be lower, to the extent appropriate, for a probationary employee than for a regular employee. The Responses also then list the following circumstances under which an employee may be considered to have failed to meet the recruitment requirements:

  • The employee violates the principle of good faith, and conceals or makes up facts concerning himself or herself which will affect the performance of the employment contract, including providing fake diplomas or certificates, fake identification documentations (PRC national ID cards, passports, etc.), making statements regarding his or her experiences, expertise, skills, performances, heath or other pieces of information that are significantly contrary to the truth;
  • The employee commits work errors, which are defined in accordance with the relevant employment laws, the employer’s rules and regulations, or the employment contract;
  • The employee fails to fulfill the terms and conditions agreed by the parties which determine whether the employee passes the probation period.

Employee probation is one of the most often misunderstood China employment law issues. Many employers (and often to their detriment) wrongly believe terminating a probationary employee is much easier than terminating an employee who has completed the probation period. Though this is not the case, the Responses do provide that the standard of review on whether a probationary employee meets the conditions of employment can be reasonably (whatever that means?) lower than the standard of review for an employee during the “regular” term of employment. Our China employment lawyers always advise our clients to specify the conditions of employment in a clear writing (in Chinese!) so the employee understands the employer’s expectations from day one. In addition, employers should preserve good evidence that such conditions are communicated to their employees. None of this advice has changed despite Beijing’s new employment laws and in fact, Beijing-based employers should consider specifying in their rules and regulations and/or their employment contracts exactly what work errors can lead to termination during probation. But be careful in drafting such provisions because our employer audits often find employers that write these provisions in a way that violates applicable laws!

Notwithstanding Beijing’s new employer-friendly law on probationary employees, China employers who treat the probation period as an at-will employment period do so at their own peril. Note this law is applicable only in Beijing, and in practice, many arbitrators/judges in many places (including Beijing, no doubt) treat termination of an employee during the probation period no differently than termination during the regular employment term.

For more on Beijing’s new laws, check out my previous posts here on how to terminate an employee on the basis of there having been a “significant changes in objective circumstances, and here for on the new rule that permits Beijing employers to terminate an employee who seriously violates labor disciplines or professional ethics and here for the new rules on reinstating employees to their old jobs when an employer’s termination decision has been deemed unlawful. Oh, and once again, please check out my new book, The China Employment Law Guide, which will very soon be coming out in paperback format as well.

 

 

 

China employment law guide

As regular readers of this blog know, China’s employment laws are very much location based. See China Employment Law: Local and Not So Simple. For this reason, much of what I write about employment law focuses on Beijing and Shanghai and Shenzhen, as those three cities contain the bulk of foreign companies with Chinese employees.

I have of late been focusing on Beijing because it recently came out with new employment laws. Earlier this year I wrote my first piece about Beijing’s new labor laws, called the Responses to Several Issues Regarding Application of Law in Trial of Labor Disputes (关于审理劳动争议案件法律适用问题的解答)(“the Responses”). These new laws focus mostly on adjudicating labor disputes more fairly, effectively and consistently. That post focused on Beijing’s new rules on reinstating employees to their old jobs when an employer’s termination decision has been deemed unlawful. Those new rules essentially say that a Beijing employer that unlawfully terminates an employee must reinstate that employee to his or her previous position unless one of a limited number of circumstances exists that render the original employment contract no longer able to be performed.

In Beijing’s New Employment Laws, I wrote how these new laws indicate Beijing is inching closer to Shanghai by becoming more employer friendly. That post focused on how Article 13 of the Responses allows Beijing employers to terminate an employee who seriously violates labor disciplines or professional ethics, even if the employer’s rules and regulations and employment contracts are silent on the specific employee misconduct.

In this post, I focus on how the Responses reduce a Beijing employer’s ability to terminate an employee on the basis of there having been a “significant changes in objective circumstances.” Before I explain what this will likely mean for you as a Beijing employer, here is a quick summary of the law. The PRC Labor Contract Law allows employers to terminate an employee by providing either 30 days’ written notice or by paying the employee one additional month’s wage, where the “objective circumstances” that gave rise to the employment contract cannot be realized and, even after negotiations between the employer and the employee the parties cannot reach agreement on amending the contract. Employers in China often rely on this ground for terminating employees after a restructuring.

The Responses define “significant changes in the objective circumstances” as changes that cause an employment contract or its main terms to be unable to be performed or would make continued performance unfair (e.g., performance would be prohibitively expensive). These significant changes need to have occurred after the employment contract and have been unforeseeable when the employment contract was concluded. The Responses further provide that such changes include the following situations: (1) force majeure caused by natural disasters (e.g., earthquakes, fires or floods), (2) changes in laws, regulations or policies that result in major changes such as relocation, asset transfer or ending or switching production, or change of state or collective ownership of the employer, and (3) changes of the business scope of employer who is a franchisee.

As noted above China employers would offer fight unlawful employee termination claims by claiming the termination was justified due to significant changes in objective circumstances. Beijing’s Responses suggest this defense will be less likely to succeed in the future for terminations that do not stem from changes in laws, regulations or policies.

Even without Beijing’s new Responses, our China employment lawyers have never been big fans of this defense in Beijing (or in most other cities in China) because it is seldom successful and it is usually expensive to mount. It requires the employer both show  “significant changes in objective circumstances” and that “the parties were unable to reach an agreement on amending the contract” after negotiations. In one case in Shanghai, where the employer’s foreign parent company had sold certain assets and businesses which resulted in ceasing production in China and elimination of the employee’s position in, the court did find that the employer satisfied the first two elements of such a defense by finding that there had been (1) an occurrence of significant changes in the circumstances, and (2) the employment contract could no longer be performed as a result of such changes. But it then found that the employer had failed to produce sufficient evidence regarding the parties having tried to negotiate an agreement on amending the contract. Lacking this third element, the court held the employer’s termination decision was wrongful.

Termination on this ground has also always been limited and, for example, expressly not permitted in any of the following situations:

(1) Being engaged in operations exposed to occupational disease hazards, the employee is not given pre-departure occupational health examinations, or being suspected of an occupational disease, and is in the process of being diagnosed or is under medical observation;

(2) Having contracted an occupational disease or being injured at work, the employee is confirmed to have totally or partially lost the ability to work;

(3) The employee is on medical leave for medical treatment for illness, or for non-work related injury, and;

(4) The employee is pregnant, on maternity leave or nursing;

(5) The employee has worked for the employer continuously for 15 years and is less than 5 years away from the statutory retirement age; or

(6) any other circumstances provided by laws or administrative regulations.

Because it can be extremely difficult for an employer to ensure it meets all the legal requirements related to a “significant change” termination such that it can meet its burden of proof when sued, this termination route is rarely the most effective one to take. As is usually true of employment terminations across the board in China, mutual terminations with settlement agreements and claim releases are the safest route for employers to take.

For more on how best to handle your China employment law matters, I urge you to check out my recently published e-book (soon to come out in paper form) entitled, The China Employment Law Guide: What You Need to Know to Protect Your Company as  a quick and easy China employment law reference for companies with employees in China.