Terminating Employees in China: All You Need to Know
September 15, 2022
Terminating Employees in China: All You Need to Know

Terminating Employees in China: All You Need to Know

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Employees in China have certain employment rights when an employer wishes to conduct layoffs, restructure or liquidate a company, according to local labor regulations. The rights attributed to employees do not entitle them to keep their jobs but do require a notice period prior to the termination as well as certain procedures to be followed. Here we discuss when an employee termination in China can occur, the circumstances and grounds for mass termination.

When Can Employee Termination Occur

Employee termination in China can occur in 1 of 2 primary ways, either upon expiration of the labor contract or through early termination. An employer is still liable to pay severance to an employee upon expiration of the labor contract or if an early termination is made. For many companies labor issues arise in cases of early termination.

In China, an employer is unable to unilaterally terminate an employment contract without fault or at will, unless certain statutory grounds exist. An employment contract is generally terminated on one of the following grounds:

  1. Termination by mutual agreement between the parties.
  2. Termination due to fault or misconduct by the employee.
  3. Termination without fault
  4. Wrongful termination.

Termination by mutual agreement between the parties

This occurs when an employer and employee mutually agree to terminate the relationship. In such cases it is common for an employer to make severance payment to the employee being terminated, in order to get their consent.

Termination caused by fault or misconduct by the employee

When an employer terminates the employment contract due to a material breach which has been caused by fault or misconduct by the employee. In the case of termination due to fault or misconduct, an employer is not required to make severance payment to an employee. This includes cases where:

  • The minimum requirements of the job have not been met during the employee’s probation period.
  • An employee has seriously neglected their duties or has received benefits at the expense of the company, which has resulted in the damage of a company’s interests.
  • Internal rules and procedures have been violated by the employee.
  • An employment relationship with another employer which effects the employee’s current employer and the employee refuses to rectify the situation after it has been brought to the employee’s attention.
  • An employee has coerced, deceived or taken advantage of an employer which acts in contravention with the employer’s interests.
  • An employee has committed a crime.

Termination without fault

This occurs when an employer terminates the employment contract for reasons which are not related to misconduct or any other causes. If a termination without fault is made, the employer is required to provide at least 30 days advanced written notice or pay a 1-month additional salary in lieu of the notice. In addition to the notice or payment in lieu of notice, an employer is also required to pay severance pay, according to regulation, to an employee.

Can Any Employee be Terminated?

Not all employees can be terminated with fault. Particular groups of employees are exempt from this general rule, which include pregnant woman and employees who have lost the capacity to work due to injury or disease contracted during employment. Additional circumstances where termination without fault occurs, include:

  • if an employee has been sick or incurred a non-work-related injury and after the conclusion of the prescribed medical treatment they are still unable to engage in the original work as per the employment contract.
  • if an employee is considered to be incompetent and remains incompetent after further training and they have been reassigned to another position and still remain incompetent.
  • if the performance of work stated under the original contract becomes impossible due to a material change in circumstances, from the time the employment contract was entered into, and an agreement has not been reached after negotiation between the parties.

What is Considered wrongful termination

Any other type of unilateral termination by an employer will be constituted as wrongful termination. If an employee is terminated wrongfully, the dispute can be settled through a settlement payment, arbitration, or litigation.

In cases of wrongful termination, it is possible for an employee to seek reinstatement. If an employee does not wish to be reinstated or if the conditions for reinstatement are not possible, the employer will be required to pay double the amount of severance that would ordinarily be paid if the employee was terminated in a lawful manner. During the time period where an employee has been wrongfully terminated and is not working, an employer may also be required to make salary payments.

Mass Terminations of employment

In the context of an employer terminating the employment relationship with either 20 or more employees or 10% of their workforce this would be considered a mass termination. In such cases an employer is required to provide notice to a labor union before any unilateral termination is made.

Where a material change in circumstances exists, which requires a business to terminate the employment contracts of either 20 or more staff or 10% of their workforce, an employer is required to provide at least 30 days’ notice of the layoff plan to the labor union and to all employees, which must then be submitted to the local labor Bureau.

In the case of companies releasing employees with long fixed term contracts, when it comes to retention, all who are considered the breadwinners of their family should prioritized by an employer.

Grounds for Mass Layoffs in China

Once an employer has submitted the plan to the local labor Bureau, they may terminate the employment relationship on the following grounds:

  • The company is being restructured according to enterprise bankruptcy law.
  • The company experiences severe difficulties in its operations.
  • Where the objective economic situation upon which the employment relationship is based has materially changed, and as such the employer is unable to perform according to the employment contract.
  • The company’s product line has changed, or a new technological component has been introduced which results in the amendment of business processes or methods, and after adjusting employment contracts the company still needs to downsize or reduce staff.

Companies have a duty to ensure that they maintain compliance with laws and regulations in their HR practices. As such, companies should know the grounds for an employee to be laid off in China, when it is in contravention of the law and what to do in Circumstances of mass layoffs.

Get in touch with us right away to ensure your business is compliant with employment laws or if you wish for a free consultation with one of our experts who can assist you with layoffs, company restructuring and company liquidation.

Disclaimer: all articles and its related content are the property of Moore Stephens Consulting Company Limited and may not be reproduced either in part or in full without prior consent.
Terminating Employees in China: All You Need to Know

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