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Due to increasing market pressures and other situation-specific factors, employers are often required to terminate employees in China. This article briefly outlines some of the issues that must be addressed by employers before and after employee termination, including matters to consider during the hiring of prospective employees, from the perspective of the employer.
1. Grounds for Termination
a. Immediate Termination
An employer may terminate an employee without requirement for notice in the following situations:
(1) During the probation period, if the employee is determined to be unfit for the position;
(2) The employee materially breaches the rules and regulations provided by the employer;
(3) The employee is in serious dereliction of duty, graft or corruption causing substantial damage to the employer’s interests;
(4) The employee has established an employment relationship with another employer and that relationship affects the completion of his tasks and he refuses to appropriately remedy the situation after notification from the employer;
(5) The employee was fraudulent in concluding the labour contract; or,
(6)The employee is subject to criminal investigation.
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b. Practical Considerations
As termination during the probationary period is virtually at the will of the employer (an employee is required to give a minimum of 3 days notice to the employer), a prudent employer will, in the employment agreement, select the longest probationary period under the law (labour contracts of less than 3 months: no probation period; 3 months to 1 year: 1 month; 1 year to 3 years: 2 months; and, 3 years or more or open-ended: 6 months).
Employers should clearly (in writing) define the rules and regulations of the workplace and what, both specifically and generally, constitutes a serious or material breach resulting in employer’s option to terminate (this can be accomplished through the distribution of employment handbooks or other more extensive policy guides); and employers should carefully document any breach of the rules and regulations and serve written notice thereof.
An employer must give 30 days’ prior written notice or payment in lieu thereof, if it terminates the labour contract under the following situations:
(1) The employee is unable to perform his original duties or re-assigned duties, after returning from medical leave or non-work-related injury;
(2) The employee is incompetent and remains incompetent after training or adjustment of position; or,
(3) There has been a major change in ‘objective’ circumstances which were relied upon in the signing of the labour contract, and the employee and employer are unable to agree upon the modified terms of the labour contract.
(4) Document any and all performance, particularly when the employee fails to perform or underperforms; and,
(5) Provide training to employees so as to ensure they are updated with the skills required of their position.
2. Severance Compensation
a. Severance compensation is due in a number of situations
(1) The employer terminates the employee under situations requiring 30 days’ prior written notice (as previously mentioned);
(2) The employee is terminated due to restructuring or difficulties in business operations;
(3) Termination of the labour contract is proposed by employer and there is mutual agreement with regards to the termination thereof;
(4) Expiration of a fixed-term labour contract (except where the employee refuses to renew the contract on terms equal to or better than that previously concluded);
(5) Termination of the labour contract is due to the revocation of the employer’s business license; or, bankruptcy.
If the employee earns more than 3 times the average monthly wage of the locality, then the compensation will be capped at 3 times the average monthly wage and up to a maximum of 12 months.
