In China, terminating an employee is more diﬃcult and often more expensive than in other countries. The Chinese Labor Contract Law protects worker’s rights and job security, making the dismissal of an employee a complicated process.
In general, an employer is not allowed to dismiss an employee without cause, and it must give a 30 days prior notice or one month’s salary in lieu of such notice in certain circumstances. The Labor Contract Law (LCL) clarifies a few exceptions in which an employer may terminate a worker without prior notice.
An employer may dismiss an employee with 30 days prior notice or one month’s salary if the worker is unable to perform his or her original job or any other work position due to illness or non-work-related injury.
Other circumstances when the dismissal is permitted include if the employee is incompetent and fails to make any improvement after training, and if material changes have made the employment contract no longer executable, and the employer and the employee cannot reach an agreement on a change to the employment contract.
During the probation period, the employee can resign at will by giving three days’ notice. However, the employer can only terminate the employee with admissible grounds and must prove that an employee has not been able to meet the requirements of the position they were hired to fill.
To terminate an employee on probation period, the company is not required by law to pay severance payment if the termination is based on admissible grounds.
According to the LCL, an employer may terminate a worker without notice if the employee fails to meet the conditions set out for the probationary period; violates the employer’s internal rules and policies; is corrupt or neglectful, causing severe damage to the employer’s interests; fraudulently induced the employer to employ him or her through means such as fraud, deception or coercion; is convicted of a crime or employed by another company.
Employment may also be terminated through mutual agreement. In this case, the employer and employee mutually agree to end the relationship. If the termination is put forward by the employer, then the employee is entitled to severance payment. In many cases, the employer will provide additional money to obtain the employee’s consent on separation, and there is no mandatory limit on how much can be paid.
The end of a fixed-term contract provides an opportunity for the employer to evaluate the contribution of the employee and decide if the document will be renewed or not. It is relatively easy for an employer to terminate an employee at this stage. The employer does not need to give the employee a reason for the company’s decision.
According to the LCL, an employer must pay severance upon termination of employment if the employee ends the contract due to the employer’s fault or the employer does not renew the contract; the employer terminates a contract with 30 days’ notice or payment of one month’s salary in lieu of notice; or a mass layoff due to restructuring.
Where an employer needs to reduce 20 or more employees or where the number of employees to be reduced is less than 20 but comprises 10 percent or more of the total number of employees, it is considered a mass layoff. Due to the potential negative social effects, the law imposes higher requirements and stricter procedures on mass layoffs.
Also, severance must be paid if a fixed-term labor contract expires, and the employee has refused to renew the employment contract on the lesser terms proposed by the employer; the employer is declared bankrupt under the law, has its business license revoked, is subject to a lawful order to shut down, or is closed down or decides to go into liquidation; or any other circumstances prescribed by law.
The severance payment amount is calculated based on the employee’s monthly salary for each completed year of service. A period longer than six months but less than one year will be rounded up to a full year of service, and for less than six months the employee receives half a month’s salary.
The monthly salary used to calculate the severance payment may be capped at three times the average monthly salary announced by the government. In such a scenario, the number of service years for calculating the severance amount may also be limited to 12 years.
Nevertheless, if an employee’s service started before 1 January 2008 (effective date of the LCL), the calculation may vary significantly depending on the reason for the termination, the work location, the location where the employer is registered (if different from the work location) and the circumstances involved.
There are specific procedures to terminate employment. The employer must notify prior the trade union, even if the employee does not have a union. If the employer violates any laws, regulations or contract, the union may ask for corrective measures. The employer must consider the union’s opinions and notify the union in writing of the outcome.
In general, there is no need for a government approval to terminate an employee’s contract, but such permission is required in the event of a mass layoff.
Under certain situations, an employee is protected from dismissal, such as when employees engaged in positions at risk of occupational diseases who have not undergone proper health examinations before leaving the position, or employees who are suspected of having occupational diseases.
Employees who have lost or partially lost the ability to work because of a work-related injury or disease; employees who have Covid-19; employees within the statutory period for medical treatment owing to non-work-related medical conditions; pregnant employees, on maternity leave or in the ‘nursing’ period, employees who have worked for 15 consecutive years and are within five years of the retirement age; and employees otherwise protected by the relevant laws, may not be terminated.
The mandatory retirement age is 60 for males, 55 for females who hold desk jobs or positions not requiring manual labor and 50 for all other female workers. This law applies to employees of state-owned enterprises, as well as other businesses, private and foreign owned.
Employers are allowed to hire retirees using a labor service contract. Retired employees are not entitled to termination protections and some other benefits under the LCL, and their work may be limited to one to two years. In general, foreign employees are not permitted to work beyond the legal retirement age.
To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at firstname.lastname@example.org.
DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.