30 days’ notice to terminate doesn’t mean much in China
China’s recently updated employee terminations landscape is complex and requires foreign companies to fastidiously maintain a compliant HR system to ensure they do not face costly legal actions.
Employers must ensure, for example, that termination clauses are carefully worded in written employment contracts and are agreed to by both employer and employee. Generally, employers must inform employees in writing of termination at least 30 days in advance. Otherwise, they must pay severance equal to one month’s income except in the case of termination due to evidenced employee misconduct.
Terminations may be agreed to mutually — or unilaterally
Termination by mutual consent
Employers may offer severance in a letter of dismal, contingent upon employees not filing a legal action. This is frequently useful to avoid labor court proceedings. However, it’s difficult for an employer to terminate unilaterally. Hence, most terminations are done via mutual negotiation. When the employee accepts the proposed compensation from the employer, both parties sign a termination agreement ending the employment by mutual consent. In these circumstances, employers need not prove the reason for termination.
An employer may not terminate an employment contract if the employee is:
- Receiving medical treatment for an occupation-related illness
- Not working due to an occupation illness
- Sick with a non-work-related illness, or giving birth to or nursing a child (These conditions apply where the employer provides leave for these circumstances)
- Employed for at least 15 years and is within 5 years of statutory retirement age.
- Operational reasons. For example, employer insolvencies, mergers, or business strategy changes.
- Personal reasons. For example, when the employee is unable to provide the services agreed to in the employment contract.
- Misconduct. For example, when an employee seriously violates employment obligations that cause serious harm, including financial misappropriation, conflicting employment obligations, and criminal activity, and when the employer has sufficient evidence of this misconduct. Termination here may be without compensation.
Terminations in China pose real risks to foreign companies
A case of employment discrimination from 2018 exemplifies how contentious dismissals can become in China. In early 2018, a Beijing court ruled in favor of a female employee who was fired in 2017 when she was pregnant.
The employee had signed an employment contract during her pregnancy with a Beijing investment consulting company. The contract included a six-month probation period. The employee did not inform the company of her pregnancy at the time she was hired, however.
As outlined above, Chinese labor law does not permit companies to dismiss female employees who are pregnant or on maternity leave or if they are breast-feeding. Three months into her new job, the employee was demoted, and her salary lowered after she did not find any new clients. Eight days later, she was fired. The company claimed she was unable to meet the high standards of the job.
The employee then filed a case with Beijing’s Chaoyang District arbitration office – which ruled that her contract should be upheld – however it did not grant her request for 5,371 yuan ($850) in compensation for unpaid salary. The consulting firm then took the employee to court, arguing she’d been terminated for underperforming, not for being pregnant. The Chaoyang District People’s Court upheld the arbitration result when it ruled in favor of the employee – who proved evidence via an ultrasound test result – that she has been pregnant when employed.
The presiding judge ruled employees cannot be terminated for being pregnant – that employers can only adjust the work content of pregnant employees. The court found that the company could not prove it had negotiated with the employee on adjusting her work content. One noted labor lawyer in China observed in media coverage of the case that even if the employee had not been pregnant – the court would likely still have ruled in her favor because the consulting firm failed to properly communicate during demotion and firing.
The takeaway is that even if you think you’re right, it’s still best to negotiate a separation.
A local China expert EOR (Employer of Record) can help you avoid costly problems
If you’re considering entering the Chinese market, working with an EOR will ensure you have local team members on the ground that are capable of navigating through China’s complex and recently updated HR landscape.