China Employee Separations in the COVID-19 Era

International due diligence checklist

If you as a China employer are not documenting your employee separations in writing, you are not doing it correctly. And with China’s pandemic-induced economic downtown, it is more important than ever that you handle your China employee separations correctly.

Regardless of the type of employee termination, you should clearly and correctly document it in writing. Among other things, this means that you need to be sure all of your separation-related documents comply with all applicable national and local laws and fully protect your interests. Our employer audits often reveal that employers regularly fail in correctly documenting their employee terminations. Some employers wrongly believe they need to document their terminations only under certain circumstances, such as when they need an employee release to prevent the employee from bringing legal action against them. China employees must clearly and correctly document every employee departure simply because that documentation will be your evidence in any employment dispute.

Suppose your recently resigned employee sues you (their employer) for statutory severance, something which happens all the time in China. If you can produce a resignation document signed by your former employee in which he acknowledges that you do not need to pay any statutory severance for his voluntary departure, he is not likely to prevail on his claim. But without such a document, your chances of prevailing will be considerably less and your litigation costs will likely be considerably higher.

The right termination documents depend on the type of termination you are facing. For example, a unilateral termination initiated by the employer will require much different paperwork than an employee resignation (a unilateral termination initiated by the employee). A mutual termination (our China employment lawyers often encourage these when our employer-client does not have a good legal basis to unilaterally terminate an employee but is willing to pay the employee severance in return for the employee agreeing to leave) require their own special paperwork.

No matter the type of employee termination, your termination paperwork should be in Chinese (for the court) and in your native language (for you) and it should clearly specify the type of termination. This is true in most other parts of the world as well, but it bears repeating here: as an employer, you must be very careful with your words because words matter. China employers can and often do get in trouble for failing to specify the type of employee termination correctly in the termination documents.

Knowing the type of termination you are dealing with is crucial as this determines whether you are required to pay statutory severance and this is also determinative of other important issues as well, such as bonuses and vacation balance payouts. It is absolutely critical that your termination document covers all outstanding issues between you and your employee so there is final resolution of all such issues and so that any future court or arbitration tribunal knows this.

As part of the employee separation, you should also be sure to remind your departing employee in writing of his/her ongoing obligations to maintain the confidentiality of your confidential information and your trade secrets. Our employment lawyers usually like to see the writing refer to the specific document that mandates the employee’s confidentiality obligations, such as a signed Trade Secrecy and Intellectual Property Protection Agreement. You should also remind your departing employee of any other applicable obligations he/she may have, such as abiding by any non-compete provisions — if you plan to enforce those. On the other hand, if you do not plan to enforce the non-compete provisions, you should inform your departing employee in writing that he/she is released from the non-compete obligations, if this release is legal in your locale. You also should require your departing employee return all company property and confidential information and cut off their access to company data. Lastly, do not forget to perform all of your employer obligations, such as issuing a proof of termination of employment relationship document to your departing employee.

Documenting all of your employee separations also is a good way to keep track of how you are doing in terms of talent retention. When looking back, you can see why people left your company and then use that information to retain and attract more talent.

Though not all departing employees in China end up suing their employers enough do (and this is especially true for foreign company employers) that having a clear written record of how you handled the separation is a smart thing to do to be litigation ready. Even if you do not have an imminent employee separation, you should take the necessary time to check your termination-related documents to confirm they are in good shape and ready when you need them. With all that is happening in China and between China and the West these days, it helps to be ready.

If you want to know more about how to handle employment law matters in China, I urge you to attend my free webinar on June 23. For more about this webinar and on how to sign up, please go to FREE WEBINAR – China Employment Law: What Your Company Needs to Know.

Leave a Reply

Your email address will not be published. Required fields are marked *