China Employee Terminations: Always be Careful

With so many companies looking to reduce their China footprint, our China employment lawyers have been called in to assist with more complex employee termination matters involving China employees so far this year than all of last year.

Terminating a China employee is inherently difficult because China employees cannot be unilaterally terminated without cause. Terminating an employee during a probation period is usually difficult as well, as even this sort of termination requires a legally permissible basis. Terminating a female employee is often even more difficult still, especially if the female employee has a special status such as pregnancy.

Let’s consider a hypothetical that sort of combines all of the above — a surprisingly not uncommon situation. A female employee begins working for her employer with a 3-month probation period. Near the end of her probation period, she informs her employer that she has just learned she is pregnant. After learning about the pregnancy, and without giving a reason, the employer refuses to keep the employee beyond her probation period and then terminates her with two additional days’ salary as severance. Is this termination unlawful under Chinese law? It most certainly is.

In the actual case on which this hypothetical is based (a recent case out of Dalian), the employee exposed to the media what had happened to her, but she refused to identify her former employer. A reporter then contacted a local labor bureau officer who noted that the employer “committed a serious violation of the relevant provisions of the Labor Contract Law because after the employee informed the employer of her pregnancy status, the employer unilaterally terminated her without cause.” The officer then went on to say that “should this employee wish to file a complaint or report the employer to us, we will do everything in our power to resolve this as quickly as we can all in interest of protecting the employee’s rights.” In other words, the employer had committed a serious violation and would face serious consequences.

The employer committed additional legal violations by not entering into a written employment contract with this employee and by not making social insurance contributions on her behalf simply because she was on probation.

What are the employer takeaways from this story?

1. China employees cannot be unilaterally terminated without cause.

2. Employers must be able to prove the legal ground(s) for a unilateral termination even during an employee’s probation period. Employee probation periods — regardless of their length — are not an employment-at-will period.

3. There is no such thing as a “probation period contract” and if your company uses these contracts, rip them up and throw them away and do not use them ever again. Then replace them with a full-fledge China-centric employment contract.

4. Start paying into your employees’ social insurance accounts when the employment relationship commences. Be sure your company is in full compliance with local law requirements for mandatory social insurance payments.

5. Assume your local labor authorities are pro-employee and even more pro-female employee, because they virtually always are.

6. It is common in China for disgruntled employees to expose their employer’s actions via traditional and social media and when that happens, your company’s regulatory, liability and lawsuit risks skyrocket. If your employment practices are not in full compliance with all layers of China employment laws your company is at risk.