Not entirely sure what is happening, but it feels like about half of our law firm’s China employment matters these days involve botched employee terminations. Terminating a China employee is never easy, but the following fairly easily remedied mistakes by China employers just keep showing up.
Failing to Pay Statutory Severance: China employers far too often just assume that they do not need to pay their terminated employee any severance, especially when the termination happens at the end date of a fixed term employment contract. Many think that if their employment contracts are silent about severance, they need not pay. The mindset that an employment contract is an agreement made by two completely equal parties does not work for China. Whether you owe statutory severance depends not so much on your contracts, but on the rules in your locale and on the circumstances of the termination. For example, if the employee wishes to renew their contract, and the employer refuses, the employer is usually required to pay statutory severance. If the employer wants to renew on terms not as good as the employee’s previous terms and the employee refuses the renewal, the employer is usually required to pay statutory severance. These are just general rules. Some places (Beijing being one) require the employer notify the employee in writing thirty days before the expiration of the current contract of its intent to end or renew the employment contract or pay in lieu of notice.
Failing to Get your Terminated Employee to Sign an Appropriate Settlement and Release Agreement. Think there is no need to enter into a termination/settlement agreement because your employee resigned (and thus no statutory severance is owed)? It is true that the employee quit, but what made her do so? Did she leave for a better job or because you failed in some way to comply with Chinese labor laws and felt compelled to leave? If the latter is the case, and if you don’t address the issues via a settlement, you could end up having to answer in front of a judge or an arbitrator. If your employee’s departure has nothing to do with your wrongdoing, you should document that and even then, you may want a signed agreement that releases you from any future claims. I cannot tell you how many times we have seen instances where an employer would have saved big money by paying an “unnecessary” severance to avoid the completely “unexpected” and costly litigation that followed.
Failing to Formally Execute Key Employment Documents. As a China employer you should have most of your employee-related documents formally chopped. Your legal representative’s signature alone is not enough. Your legal representative’s signature and your company chop is not enough if the employee’s signature is not there. Along the same lines, your employee agreements should specify their date of execution. If the document is long, it may be a good idea to fan out the pages and stamp your company chop across all the pages. Better yet— have your employee sign their name across all the pages.
Bottom line: I know this sounds harsh, but you should plan for your employee terminations pretty much the day you hire.