INTRODUCTION

Many international firms coming to China quickly realize that the Labor Contract Law here places a higher priority on employee job security than in other countries, making employee termination significantly more difficult. While national recommendations are provided, it is vital to remember that regional labor administrations may have supplementary guidelines, as rules differ considerably between jurisdictions.

The Labor Contract Law sets forth a complete but limited list of circumstances where an employer may legitimately fire an employee. Therefore, if severance pay is necessary, it is determined by the circumstances. Severance pays (also known as termination pay) is the amount a company must pay to an employee who has been legitimately terminated.

EMPLOYEE TERMINATION IN CHINA

Chinese labor law permits an employer to impose a probationary period during which the contract can be easily terminated if the employee fails to satisfy the position's criteria. If the employee is clearly incapable of the job, the employer may cancel the contract without paying severance. Nonetheless, the person is still employed under contract and is not an at-will employee. Furthermore, the only substantial difference between probation and post-probation in terms of termination is the simplicity with which a contract can be terminated if an employee cannot perform the tasks of the position or is declared incompetent. The company may provide an extra payment of any amount to gain the employee's consent.

OTHER CAUSES OF TERMINATION

There are a few situations in which an employer can fire an employee without providing severance or any other compensation other than the pay owed up to that point:

• The employee breaks one or more of the company's rules and regulations - if the contract is terminated for these reasons, the employer is responsible for providing proof that the employee committed the infraction.

• The person abandons the position's responsibilities, resulting in a significant financial loss for the company.

• As a result of developing a relationship with another employer, the employee cannot execute their duties.

MISTAKES TO AVOID IN THE TERMINATION PROCESS

Because China is not an at-will employment country, mutual termination is usually the safest choice for employers in China.

Nonetheless, mutual termination of a China employee requires extreme caution, and it is common to see the following mistakes.

• Using a non-Chinese style settlement agreement - An employer who employs a non-Chinese style settlement agreement will often have no trouble persuading their employee to sign it since the employee knows it will not be enforced. If you are planning to pay someone money to resolve a dispute with one of your employees, make sure they sign a legally binding contract.

• Surprising the employee with a mutual termination agreement - If you choose mutual termination, it usually means you don't have a sufficient legal basis for terminating your employee, and your employee is fully aware of this. Simply presenting a mutual termination agreement for signature to an employee usually results in the employee rejecting it or the company having to pay significantly more than it would have otherwise.

• Sending the employee a mutual termination agreement to sign - It's preferable if the employee signs it in front of you on or before their last day of work. Instead, provide a paper copy of the agreement to the employee to sign. You should make every effort to obtain an original of the completely executed agreement because failing to do so is effectively the same as not having a written agreement at all.

THE SEVERANCE PAY PROCESS IN CHINA

The amount of severance compensation is determined by the number of years the person has worked for the company. For each full year worked, the rate equals one month's salary. A year is defined as not less than six months but not more than one year. Therefore, for any term of fewer than six months, the employee is entitled to one-half of his monthly income as severance compensation.

You should compel the employee to sign a release that releases you from any future legal action in exchange for severance money.

CONCLUSION

When it comes to recruiting, it's crucial to think long-term because terminating employment contracts isn't always easy. Moreover, because local labor ministries frequently favor the employee, it's critical to prevent typical blunders like attempting to pay only the minimal statutory severance when the employee will very likely object and dig in their heels to fight.

Expand into China without setting up a company, by employing or relocating key staff to take a first step in exploring the market. A professional employer organization (PEO) service can act as the official employer of record (EOR) for your staff in China while you expand your business. With the support of our trusted partner network, we can facilitate local hiring and employment without the time and cost of setting up a legal entity in country.

Contact us for more information at inquiries@ChinaLawSolutions.com