China Employee Mutual Terminations: The Dos and Don’ts

Mutual terminations are usually the safest path for China employers to terminate a China employee. In a mutual termination, it is critical the employer gets a termination agreement that resolves all outstanding matters with the relevant employee and that explicitly releases the employer from all employee claims. If used correctly, mutual terminations can be a useful tool when dealing with a China employee. In this post, I discuss a few dos and don’ts you should keep in mind during a mutual termination process.

First, do take control of the discussion and do not turn it into an endless negotiation. Usually the employee will accept a quick payout when you initiate the termination process. But occasionally a disgruntled or difficult employee who has NO intention of settling may want to drag you into an endless discussion regarding termination. For example, our China employment lawyers have seen instances where after reviewing a proposed mutual termination agreement the employee comes back with a few requests for minor modifications to the agreement but then refuses to sign the agreement and also refuses to give a reason for not signing the agreement. Then when the employer follows up, the employee says: “wait a minute, you should pay me an additional month’s salary for not giving me sufficient notice of my termination.” Generally speaking, with a mutual termination, the employer is not obligated to pay an additional month’s salary in lieu of notice so the employer is not required to grant such a request. But suppose the employer is okay with paying a little extra to try to cleanly end the employment relationship and the employee in response to this says “I need more time to review.” At this point (or even before this), you know the employee is not going to accept the mutual termination and you also know the employee is not acting in a reasonable manner. You should not expect the employee to change and you should forget about terminating on mutually agreed terms and you should start thinking about other options. Must you terminate this employee? And if yes, what legal grounds do you have for a unilateral termination?

Our employment lawyers also sometimes have to deal with an employee who is willing to leave but sees his or her termination as a great way to “make” a lot of money. This employee often will ask for more in severance but not specify how much more they want. How should you negotiate with this sort of employee? The short answer is you don’t. Unless you are willing to pay more, the severance amount you initially proposed to the employee should be your only offer. In other words, you as the employer should be prepared to say “take it or leave it” when the moment comes.

But do listen to legitimate concerns or comments from your employee. Taking control is not playing hard ball. The goal of a mutual termination is to end things with the employee in a way that is reasonable and fair to both sides. Even though we craft our employee termination agreements in a clear, concise and reasonable fashion, it is not uncommon for employees to raise legitimate concerns that should be addressed. For example, an employee may want her employer to make the severance payment sooner than the employer has initially proposed. As long as it’s feasible for the employer to pay by the date requested by the employee and as long as this will get the employee to execute the mutual termination agreement right away, the employer should accept. Sometimes the employee may propose some minor revisions to the Chinese text which will make them feel good, for instance, adding a few words to emphasize that the employer initiated the termination process. As long as the employee’s proposed revision does not change the meaning of the terms and is otherwise harmless, you should accept. It is up to you and your China employment attorneys to distinguish between an employee’s genuine, good-faith concerns and stalling or revenge tactics.

Next, do not get bogged down on the reasons for the mutual termination. Employees are human beings and it is hard to predict exactly how they will react to their termination. They may get upset or disappointed or they may be happy to move on with their lives with a generous severance payment. You should avoid “touchy” subjects as much as you can.  For example, if you anticipate the employee will dispute their having performed unsatisfactorily (and most do), don’t mention it. “It was not a good match” often works well in this scenario. Do not indicate to the employee that there may be something she can do to make you change your mind about her termination. To put it another way, do not start the process unless and until you are certain about terminating the employee and unless and until you know pretty much exactly what you are going to tell them.

Much of the time our China employment lawyers rehearse with our employer clients how to handle the termination. It is that important.