Employee Termination & Severance Pay in China

While national guidelines are presented here, it is important to remember that the regional labor administration may have additional guidelines, as rules can vary considerably between jurisdictions.

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China Labor Law Guide: How to Terminate an Employee Compliantly

Chinese employment law allows an employer to set a probation period, during which it is simple to terminate the contract if the employee is unable to meet the requirements of the position.

The employer may terminate the contract without paying severance if the employee is demonstrably incompetent for the position.

Nevertheless, the employee is still under contract and is, by no means, considered an at-will employee. Moreover, the only substantive difference regarding termination between probation period and post-probation is the ease of contract termination if the employee is unable to carry out the duties of the position or deemed incompetent.

Mutual Agreement to Terminate Employment Contract

If the employer and employee mutually agree to terminate the contract, and the employer initiates the termination, the employee is entitled to severance payment. The employer may offer additional payment of any amount, with the intention of obtaining consent from the employee.

From the employer’s perspective, this is a favorable outcome as it prevents the termination from becoming an onerous and costly dispute as well as possibly resulting in intervention from local labor authorities. For the employee, this will probably also be viewed favorably (if the compensation is generous enough) because the compensation amount is guaranteed and there is lengthy dispute anticipated.

Terms and conditions of termination: The employer should formally document and communicate the terms and conditions of the termination. Without written documentation and confirmation of the terms and conditions, the employer will be liable in the future for the same issues clarified in the terms and conditions.

Termination due to Prohibited Behavior of Employee

There are several circumstances in which an employer can immediately terminate the employee without offering severance or any other compensation apart from his/her wages owed until that point:

• The employee commits a serious offense against the company’s rules and regulations: If the employer terminates the contract on these grounds, the employer is responsible for providing evidence that the employee committed the offense. Explicit details of the broken company regulation must be outlined in the employee handbook. Additionally, the company policy must sufficiently indicate that the offense is a serious one with grounds for firing. The employer must ensure that the employee was made aware of the regulation and the consequences for violation.
• The employee abandons duties of the position, resulting in a substantial material loss for the company: In this case, the employer is responsible for demonstrating that the loss was directly caused by the employee’s negligence. The causality demonstrated in the evidence should be unambiguous.
• The employee is unable to complete duties as a result of establishing a relationship with an additional employer: In this case, the employer is only able to terminate the contract after first giving the employee the opportunity to sever the outside relationship. If the employee refuses to do so, the employer may unilaterally terminate.
• The employee is convicted of a crime while under the contract: Previous criminal convictions are not grounds for termination.