Quick Tips on Dealing with Employment Termination Issues in China

by K&L Gates LLP

On June 21, 2013, a United States medical supplies company executive was taken captive by Chinese employees in his Beijing factory. The employees have stated that the owner owes them two months’ back pay and expressed concern that he would close the factory without settling salaries or offering severance. While the takeover has not been violent, this incident illustrates one of the many contentious employment issues arising in the Chinese operations of multinational companies as labor costs in China rise.

Since 2008, a series of labor laws, regulations, and judicial interpretations have been implemented to better protect employees and their interests in the workplace. As a result, multinational companies operating in China are facing increasing challenges not only to protect the employees’ well-being, but also to maintain an effective workforce in light of the regulatory restrictions. Employment termination is one of the most difficult issues that multinational companies face in their China operations. To help avoid costly labor disputes, multinational companies should understand the framework and issues behind employment termination and consider taking preventative measures from the start of the employment relationship.

A. Legal Framework for Employment Termination
Employment termination occurs in two ways: either upon expiration of the employment contract or through early termination. Many termination issues faced by employers arise in the context of early termination. An employer typically cannot unilaterally terminate an employment contract at-will or without fault, unless the termination falls under certain statutory grounds. According to PRC Labor Contract Law, an employer may terminate the employment relationship early on the following grounds: 1) termination through mutual agreement between employer and employee; 2) termination due to fault or misconduct; 3) termination without fault; and 4) wrongful termination. Depending on the termination grounds, employers have different obligations with regard to both providing notice and severance. These obligations are summarized below:

1. Termination through mutual agreement: This type of termination occurs when the employer and employee mutually agree to terminate the relationship, but the employer generally provides severance payment to the employee in order to obtain employee consent on separation.

2. Termination due to fault or misconduct: Termination due to fault or misconduct occurs when the employer terminates the employment relationship based on the employee’s material breach or other stated causes. This may include:

  • if the employee has not satisfied employment conditions during probation period;
  • if the employee has severely violated the company’s rules or procedures;
  • if the employee has been seriously negligent in his duties or seeks private benefits, resulting in severe damage to the company’s interests;
  • if the employee has committed a crime;
  • if the employee has additionally established an employment relationship with another employer which materially affects completion of his tasks with the first employer, or refuses to rectify the matter after the employer points out the problem; or
  • if the employee has deceived, coerced, or taken advantage of the employer’s difficulties, to cause the employer to conclude an employment contract, or to make an amendment, contrary to the employer’s true intent.

When an employer terminates an employee for fault or misconduct, notice and severance are not required.

3. Termination without fault: Termination without fault occurs when the employer terminates the employment relationship for reasons not related to misconduct or for other stated causes. This includes:

  • if the employee is sick or has sustained a non-work related injury and, after conclusion of the statutory medical treatment period, cannot engage in the original work or in other arranged work;
  • if the employee is incompetent and remains incompetent after training or assignment to another post; or
  • if performance of the original employment contract becomes impossible due to a material change in the objective circumstances upon which the employment contract was based at the time it was entered, and consultations between the parties fail to produce agreement on amendment of the contract.

When termination is without fault, the employer must provide 30 days’ advance written notice or pay one month salary in lieu of the notice, in addition to the severance payment. The employer must also provide notice to the labor union before any unilateral termination. Certain groups of employees may not be terminated without fault, such as employees who are pregnant, and employees who have lost or partially lost the capacity to work due to occupational disease contracted during the employment period.

Where a material change in circumstances causes the economic layoff of either 20 or more employees, or 10% of the workforce , the employer must provide 30 days’ notice of the reduction plan to a labor union and to all employees and then submit the plan to the local labor bureau. Employees with long fixed-term contracts, open-term contracts, or who are the only breadwinners in the family should receive priority with regard to retention. As previously mentioned, certain groups, such as pregnant employees may not be terminated. Upon submitting the plan to the local bureau, the employer may terminate the employment relationship under the following circumstances:

  • where employer has severe difficulties in its production or operations;
  • where employer is restructuring according to Enterprise Bankruptcy Law;
  • if the employer changes products, introduces a major technological innovation, or adjusts its business operation methods, and after amendment of employment contracts, still needs to reduce employees;
  • where the objective economic situation upon which the labor contract is based has considerably changed, and the employer is unable to perform the labor contract.

4. Wrongful termination: Beside the above statutory grounds, any other types of unilateral termination would be considered wrongful. In the event of a wrongful termination, the employer may resolve the matter through arbitration / litigation, or through settlement, both of which may involve high legal costs and settlement fees. Employers should note that in the case of a wrongful termination, an employee can ask for reinstatement. If an employee does not wish to continue working for the employer or if reinstatement is not possible, then the employer must pay the employee double the amount of severance that would need to be paid if the employee had been lawfully terminated. Furthermore, the employer may be liable for salary payments during the period in which the terminated employee cannot work, which may result in higher settlement costs for the employer.

B. Practical Measures for Dealing with Employment Termination
Given the above framework, employers may take a number of practical and preventative measures to avoid costly labor disputes. Employers should be mindful of which types of termination situations where notice or severance payments are necessary. Employers should also note the statutory required amount for severance payments, such as providing a statutory severance payment of one month’s wage for each full year of service (except for termination during probation or for cause), one month’s wages for less than a full year but greater than six months of service, and half month’s wage for less than six months of service. When dealing with the employment termination process, employers should ask themselves the following questions:

During hiring and employment period:

  • Has our company created a detailed employee handbook for employees to sign and acknowledge?
  • Has our company properly defined standards of “materiality” and seriousness” in our disciplinary policy and handbook, as well as objective appraisal benchmarks for evaluating competency?
  • Has our company maintained detailed records of the employees’ performance?
  • Has our company provided proper alternatives, such as additional training or alternative positions, to employees prior to termination?
  • Has our company established proper employee consultation and dispute resolution procedures?

During termination and post-termination period:

  • Has our company drafted proper full releases for employees to sign in the event of a termination?
  • Has our company paid any unpaid wages and settled for the proper amount to prevent future disputes?
  • Has our company implemented proper post-termination procedures, such as providing written statements explaining termination and relaying important information regarding what to expect post-termination?

K&L Gates lawyers can assist companies in dealing with labor and employment law matters. If you have any questions regarding this alert, please contact the K&L Gates Beijing office.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.