I got a really common email recently from a client for which our China employment law team is working on employer rules and regulations and employment contracts. The email stated that all of the company’s new hires will have a 6 month probation period and then asked us to explain how the company should track the performance of these probationary employees so they would be legally covered in case they do not want to retain one or all of them at the end of their probation period.
My response was something like this:
The first thing you should do is communicate to them the sort of requirements/conditions they must meet to pass the probation period. For example, some employers provide their employees with a list of tasks they must complete before the end of the probation period. These conditions of employment need to be specified in a clear writing either in the employment contract or in a separate document provided to the employee and signed by the employee. You may also specify in the employment contract or in the employer rules and regulations what sort of work errors will lead to the employee being considered to have failed to meet the recruitment requirements. If any employee does fail to meet any requirement, you should document in writing how the employee failed to meet the applicable employment conditions. The key is to document everything in writing. For example, if you meet with an employee regarding his or her work performance, make sure you have someone else present at that meeting who can attest to what transpired at that meeting in the event of a dispute and be sure to document the content of the meeting in writing.
Employee probation is one of the most misunderstood issues in China employment law. See Six Common Myths About China Employment Laws. Companies frequently assume their probationary employees are “at will” employees who can be fired at any time, for good reason or for no reason at all. This is not correct. The probation period is part of the normal employment term, and therefore probationary employees have pretty much any and all protections afforded to regular employees. I often say that the probationary period should really not even be called that because it really isn’t. It was truly a probationary period five and ten years ago, but it no longer is, and companies that fail to realize this do so at their peril. But like I said, many companies fail to realize this.
Our China employment lawyers often see a situation like this: China Employer hires an employee on January 1 with a two-month probation period. Employer then contacts us in late February to say it will be terminating the employee before the employee’s probation period expires so it can avoid paying statutory severance. The employer wishes to terminate the employee because “he is just not very good.” The employee did follow employer directions and the employee did possess the qualifications required for his position. The employer simply believes it can do better. The thing is, this employer does not have any legal grounds for unilaterally terminating this employee without severance.
The employer is usually surprised when we explain that if it unilaterally terminates the employee without severance it will probably be sued for unlawful termination. China is not an employment-at-will jurisdiction, and the probation period is not an exception to this. An employee termination during the probation period requires a legally permissible basis, and except for the limited number of grounds permitted under the law, an employee on probation cannot be unilaterally terminated.
An employer can terminate an employee on probation only for one of the following eight reasons:
- The employee failed to satisfy the conditions of employment during the probation period;
- The employee materially breached labor disciplines or the employer’s rules and regulations;
- The employee committed a serious dereliction of duty or engaged in graft that caused substantial damage to the employer;
- The employee established an employment relationship with another employer which materially affected the completion of the employee’s tasks with the employer or the employee refused to terminate his or her employment relationship with the other employer after the employer required he or she do so;
- The employee used deception or coercion or took advantage of the employer’s difficulties to cause the employer to conclude or amend the contract in a way contrary to the employer’s true intent;
- The employee had criminal liability imposed in accordance with the law;
- The employee fell ill or sustained a non-work related injury and at the end of his or her medical treatment period could not engage in the original work or in other work arranged by the employer; or
- The employee was incompetent and remained incompetent after training or assignment to another post.
These above eight reasons are all there is. Note that for the last two grounds, statutory severance is required. There is no law that allows an employer in China to terminate a probationary employee for whatever reason the employer wishes (or for no reason at all) simply because the employee is on probation. There is no law that allows an employer to terminate a probationary employee in the hopes of getting a better employee on the next go round.
And if you are going to terminate a probationary employee on any of the eight grounds listed above it is important that you convincingly document in writing (in Chinese) the grounds for the termination. If this termination is not convincing under Chinese employment law, you will be giving your terminated employee incentive to challenge the termination and a good chance of prevailing against you in a labor arbitration proceeding if it does. This is especially true as against foreign companies — even more true as against a foreign company from a country with which China is angry, such as the United States, Canada, Australia, Sweden, South Korea, Finland, etc. Foreign employers have lost countless cases because they did not understand employee probation periods. Chinese employees know this, and they are quick to sue when terminated during their probation period.
So what then is the difference in China as between a probationary period and a normal employment term? Very little. If an employer can prove that its termination of a probationary employee was for any of the above eight reasons it can terminate that employee during the probation period but not necessarily without having to pay severance.
What then should you as an employer in China do? If you as an employer want to be able to take advantage of the probation period, you should set out the conditions of employment in writing (in Chinese!) and provide those to the probationary employee for review and sign off before the employment relationship begins. And if you end up wanting to terminate that employee, you should give him or her a clear reason for the termination. Telling that employee that “you are fired because you are still on probation” (as is so common) is just about the worst explanation of all.
As is true with respect to pretty much any employee termination in China, the safest way to terminate a probationary employees is almost always with a Chinese language mutual termination agreement and a small severance payment in exchange for the employee’s voluntary departure.