China Employee Terminations: End of Year Planning is Key

Pretty much every January/February our China employment law team gets a bump in its “crisis” work, mostly stemming from angry employees terminated at the end of the year or at the beginning of the year. The crisis comes when their foreign employers contact us after the employees have made their complaints. With China making life miserable for so many foreign companies these days, we are expecting an even bigger influx of termination complaint work than in years past. See How to Do Business in China Without Going to Prison. With China more likely than ever to side with Chinese employees against foreign employers, we are also expecting these termination cases to be more contentious than ever before as well.

With employee disputes becoming considerably more common and government enforcement getting significantly more stringent, you should think long and hard BEFORE you proceed with an employee employee termination in China these days.

Consider this hypothetical based on a recent case in Shenzhen. On January 1, Employer sends an email to Employee providing Employee with advance notice that it intends to terminate her employment contract effective January 31. Right after she receives the email, Employee objects to the proposed termination. Upon receiving Employee’s written objection, Employer sends another letter to Employee asking her to report to the HR department for work assignments. After Employee does not show up at work on the required date, Employer sends several written notices to Employee requiring again that she return to work. Employee fails to respond and never comes back. How will this turn out for Employer?

In the actual case, Employer won the legal battle in the end but had to go through labor arbitration, trial, appeal and reconsideration. The main issue was whether Employer needed to pay statutory severance for the termination.

The provincial High People’s Court ruled that Employee’s failure to report to work after Employer’s notification of her need to report constituted an Employee resignation and therefore no statutory severance was owed to Employee. The rationale is that Employer was clear in its first email that the termination would not become effective until the specified termination date. Therefore, before that date, the parties’ employment relationship remained in existence and Employer was permitted to withdraw its termination notice and upon that withdrawal, Employee should have continued to perform pursuant to her employment contract. The court went on to note that Employee’s refusal to come to work after being required to so by Employer constituted her voluntary resignation and Employer was therefore not required to pay Employee any statutory severance.

The primary takeaways from this case are as follows. First, it is not easy to back out of a termination decision already in motion. Before you as an employer go ahead with a termination, you really should have a clear plan in place. At minimum, you need to be clear with your employee regarding the ground(s) for the termination, how much you need to pay the employee in severance, and what you can/should do if the termination does not go as planned. Also, in sensitive situations, it makes sense to make sure other employees do not reveal the proposed termination to the employee being terminated (whether inadvertently or intentionally) so as to avoid making the termination more complicated and difficult than it needs to be.

Second, if for some reason you need to back out of a termination decision, you need to clearly communicate that to the employee and make sure the parties are on the same page moving forward. In addition, you need to document every aspect of the termination with a clear writing (preferably in Chinese) and execute any necessary agreement to reflect the situation so there are no disputes about the parties’ relationship.

Finally, it may not be so obvious from the case, but China’s employment authorities encourage employees to come forward when they believe there has been any employer wrongdoing and this is doubly true when that potential wrongdoing is by a foreign company. It is relatively easy and inexpensive for employees in China to pursue claims against employers so employees have every incentive to bring legal action in the event of any dispute. Also, be extra careful with unilateral terminations as they are often nearly always challenged by the terminated employees even when the employer pays severance. Three years ago, when jobs were more plentiful, this was less true, but today is not three years ago either in terms of China’s economy or in terms of a foreign company’s status within it.

Yes, employees may still technically pursue claims against their employers after they sign a mutual termination agreement, but in our experience, this virtually never happens and this is why it is all the more important that you use a well-crafted mutual termination agreement to memorialize your employee terminations, if at all possible.  In any event, if you are going to terminate an employee in China, plan ahead no matter the employee’s status and characteristics (e.g., full time or part-time, Chinese or non-Chinese), and no matter the reason for the termination and whether or not you pay severance.

Otherwise, we’ll see you in soon.

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