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Terminate an employee in China

From a boss’ point of view, it is always a headache to fire an employee for it seems that the Chinese government provides or intends to provide too much protection on the workers’ side.


The first option for an employer to terminate an employee is to terminate without severance which is permissible in certain circumstances, which are serious violations of the company rules, crime or fraud. A Company needs to have good company rules, outlining in great detail what circumstances constitutes a serious violation so as to have a basis for termination proceedings. The company rules need to be signed by your staff so that they are bound by its provisions. We normally suggest a 3 level discipline system, warning, fault record and termination, and that an accumulative record may result termination without severance.


Any employee who is determined to be engaged in crime and is sentenced by a criminal court, his/her employer shall have the right to terminate the employment without severance. However, during the criminal investigation, the company can only suspend the employment. Fraud is another one. If you find that an employee provided a fake certificate of graduation, you may terminate their employment without severance. Furthermore, there will be no severance if the employer terminates employment within probation, under the condition that the employee is proved to be not suitably qualified for the position or employee resigns.


If an employer terminates employment but fails to prove a lawful reason as outlined above, it will result in damages/compensation to the employee. That is to say, your company shall pay a double severance as per normal calculation—the so called “one year one month” principle. This is a reminder that you must be very sure, when you terminate employment, that you have lawful reason to achieve a termination without compensation.


To pay severance is a very common occurrence. The normal circumstances are:


1. Termination after an unqualified employee is trained or transferred to a different position and is considered as still not qualified for his position. The training or transfer is mandatory under Chinese labour law.


2. A redundancy due to an economic situation such as liquidation, the company in economic crisis, a business requirement or a technical requirement.


3. Termination based on negotiation with the employee


4. Termination by the employee based on a lawful reason, such as inadequate salary or overtime salary payments, or other illegal behaviour by an employer.


 An employer shall pay N+1 which means one year one month, plus one month advanced notification expense for situations 1 and 2. For the others the Employer will only pay N, one year and one month.


There will be other factors that will influence the final amount of severance if the latter must be paid. First thing is the salary amount. If an employee’s wage is more than 3 times the social average salary, (RMB 15669 in Beijing , RMB 14076 in Shanghai, RMB 14752 in Shenzhen), his/her severance payment shall be calculated based on 3 times the social average salary of the city. Thus for an employee who has a high salary there will be severance “cap”.   There is also a limit on the number of years that contribute to severance pay, no more than 12 years. This regulation was provided by labour contract legislation in 2008.


In general it is very important to consider what strategy you will take and to be very careful when collecting evidence to have a low cost and smooth termination.  At the same time an employer also needs to know whether there will be risk of other claims against the company such as overtime salary, the penalty for non-signature of a labour contract and other items.

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