Employee Termination in China: Reasons, Notice Periods, and Severance Pay

In China, terminating an employee’s contract must follow specific regulations outlined according to the governing labor law. The employers have to give a valid reason for dismissal, hence it’s crucial to document any performance issues. Before termination, the employer should give written notice and try to resolve the issue through mutual agreement or consultation. Most importantly, severance pay must be provided based on the duration of employment.

1. Preparation & General Process
2. Chinese Labor Laws on Employee Termination
   1. Reasons for Termination
   2. Notice Periods
   3. Severance Pay
3. Process for Resolving Disputes

Preparation & General Process

Before you go ahead and sack someone, it’s super important to get ready. Being prepared will help you handle the legal and cultural aspects of this delicate situation.

• review the employee’s contract to understand the termination procedures and any relevant clauses.
• Seeking legal advice from a specialized professional in Chinese labor law can offer valuable insights.
• Carefully assess the potential impact on team dynamics and employee morale. You need to develop a comprehensive and respectful communication plan for the termination meeting.

Chinese Labor Laws on Employee Termination

Chinese labor law on employee termination is mainly governed by the PRC Employment Contract Law. The law and relevant regulations outlined the procedures and requirements for terminating an employment contract. It’s important for both employers and employees to be aware of their rights and obligations under these laws.

Find below are some important provisions for your reference:

Reasons for Termination

There are several valid reasons for the employer to terminate an employment relationship by following due process, including but not limited to:

1. the employee’s failure to fulfill job responsibilities despite receiving training or being reassigned.
2. where the objective circumstances for which the conclusion of the labor contract is based upon have undergone significant changes. As a result, the labor contract can no longer be performed. Upon negotiation, both parties are unable to reach an agreement on variation of the contents of the labor contract.
3. serious breaches of the company’s internal rules and regulations.
4. the concurrent pursuit of the employee’s own business that seriously affects the employer’s interests.
5. commitment of a crime that led to criminal liability.

Terminating under reasons as listed above 1-4, the employer undertake heavy burden of proof. Specific regulations and procedures must be followed by the employer to ensure compliance with Chinese labor laws.

Notice Periods

Subject to the following mandatory requirements of the law, specific notice periods may be outlined in the employment contract.

Under any of the following circumstances, the employer may terminate the labor contract by giving the employee a written notice 30 days in advance or by making an additional payment of one month’s wage to the employee:

1. where the employee suffers from an illness or a non-work-related injury and is unable to undertake the original job duties or other job duties arranged by the employer following completion of the stipulated medical treatment period;
2. where the employee cannot perform his/her duties and remains to be incapable of performing the job duties after training or job transfer;
3. where the objective circumstances for which the conclusion of the labor contract is based upon have undergone significant changes and as a result thereof, the labor contract can no longer be performed and upon negotiation between the employer and the worker, both parties are unable to reach an agreement on variation of the contents of the labour contract.

Severance Pay

In China, the calculation of severance pay when terminating employment is based on the employee’s monthly salary. It also depends on the number of years they have worked for the employer.

The basic formula for calculating severance pay is:

1. For each full year of employment, the employee is entitled to one month’s salary.
2. If the period of employment is less than one year, the employee is entitled to one month’s salary. The salary will be prorated based on the actual months worked.

It’s important to note that there are specific local regulations or individual employment contracts. These affect the calculation especially there is caps. Hence, it’s advisable to seek legal or professional advice for precise information.

Process for Resolving Disputes

In China, employment disputes can be resolved through several processes, including mediation, arbitration, and litigation. Initially, parties are encouraged to seek resolution through mediation, which can be facilitated by labor dispute mediation committees. If mediation is unsuccessful, the dispute can be submitted to arbitration through labor arbitration committees. If either party is dissatisfied with the arbitration decision, they can appeal to the people’s court and initiate litigation.

The entire process is governed by the PRC Labor Law and related regulations. They aim to provide fair resolutions for both employers and employees.

For legal assistance in employment termination in China, contact us now!