Common Termination Practices in China: What Employers Need to Know

Navigating the termination of employment contracts in China requires a nuanced understanding of the country's labor laws and cultural considerations. Whether you're operating a representative office, Wholly Foreign-Owned Enterprise (WFOE), or Joint Venture, adhering to proper procedures is essential to avoid costly disputes and reputational damage.

Legal Framework for Termination

China's Labor Contract Law sets the foundation for termination procedures, emphasizing employee protection and encouraging stability in employment relationships. Terminations generally fall under three categories: mutual agreement, resignation, and unilateral termination by the employer. Among these, the latter is the most complex and strictly regulated.

Grounds for Unilateral Termination

Employers may only terminate an employee unilaterally under specific, legally permitted grounds, such as:

• Serious violation of company rules and regulations

• Dereliction of duty causing significant loss

• Criminal liability established by authorities

• Employee incompetence, even after training or reassignment

• Significant changes in objective circumstances making the contract unfulfillable

In these cases, documentation and procedural compliance are crucial. For example, terminations due to incompetence often require written evaluations and evidence of training or role reassignment.

Termination Procedures

Employers must follow proper steps to ensure lawful termination:

1. Document the Cause: Collect detailed records supporting the reason for termination.

2. Internal Review: Engage HR and legal departments to assess the case.

3. Notification and Consultation: Inform the employee formally, and if applicable, consult with the labor union.

4. Severance Calculation: Determine severance pay based on the employee’s length of service.

5. Formal Notice: Provide written termination notice or payment in lieu of notice.

Failure to adhere to these procedures can result in arbitration claims or reinstatement orders.

Severance and Compensation

Severance is generally mandatory in unilateral terminations and mutual agreements. The standard formula is one month’s salary for each full year of service, with partial years over six months rounded up. Special considerations may apply in cases involving fixed-term contracts or mass layoffs.

Risks of Improper Termination

Improper termination can lead to:

• Labor arbitration and litigation

• Reinstatement of the employee

• Penalty payments and double severance

• Reputational harm with local authorities and future hires

To mitigate these risks, proactive compliance, clear internal policies, and legal guidance are essential.

Cultural Considerations

Chinese workplace culture places a strong emphasis on harmony and face-saving. Even legally sound terminations can escalate if not handled with discretion and empathy. Transparent communication, respectful tone, and, when possible, mutual agreement can reduce conflict and preserve goodwill.

How Woodburn Global Can Help

At Woodburn Global, we specialize in helping foreign-invested companies navigate the complexities of hiring and terminating employees in China. From drafting compliant labor contracts to guiding employers through termination procedures, we ensure legal adherence while minimizing operational disruption. Contact us today to learn how our tailored HR and legal advisory services can support your business success in China.

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Woodburn Accountants & Advisors is one of China and Hong Kong’s most trusted business setup advisory firms.

Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

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