Terminating a China Employee: Why Mutual Termination is so Often THE Key

As I have previously written, mutual termination is usually the safest path to take when you have chosen to terminate one of your China employees. This is because anything other than a mutual termination is fraught with risks because China is not an employment-at-will jurisdiction. Even unilaterally terminating an employee who has engaged in misconduct can be difficult. And things get even more difficult if the employee you wish to terminate has a special status (e.g., pregnancy). Though you generally can unilaterally terminate an employee for good cause (for example, the employee has committed a serious breach of your rules and regulations), grounds for termination of Chinese employees are highly circumscribed and that is what makes mutual terminations so appealing.

Consider the following situations:

  • Your employee did something terrible, but you don’t have a set of China-centric rules and regulations, so you basically have no written basis to terminate your employee;
  • Your employee did something bad, but not terrible enough to trigger termination under your own rules and regulations. Maybe it was her first offense and your document provides for “three strikes;”
  • Your employee did something bad and it was not her first time, but you have no good proof she did all those things in the past;
  • Your employee never signed an acknowledgment form confirming she received a copy of your rules and regulations.

Under any of the above circumstances, it is usually best not to pursue a unilateral termination, but instead, seek to work out a mutual termination. The below hypothetical should prove helpful.

Suppose you have an employee who makes a mistake at work without causing significant damage. Nonetheless, you think this mistake causes you to want to terminate the employee and so you issue a termination notice to the offending employee, citing the mistake as the basis for your termination. You give the employee a small severance payment and the two of you execute a settlement agreement. The severance amount is much lower than the minimum statutory severance and your by now ex-employee sues you, claiming it is an unlawful termination.

How will this case be resolved? In a real case based on similar facts, the employee lost on his unlawful termination claim. The court noted that it would have been too harsh for the employer to have unilaterally terminated the employee for a one-time mistake, but went on to hold that because there was an agreement where the employer paid the employee a severance in exchange for the employee’s voluntary departure, the termination was mutual. The court then held that the mere fact that the agreed severance amount was much lower than the minimum statutory minimum did not change the outcome because the employee failed to show that the settlement agreement was a result of coercion or deceit by the employer. Because the termination was mutual and because the employer-employee settlement agreement was sound, the court upheld the settlement agreement and ruled against the employee’s unlawful termination claim.

The employer prevailed because it signed an enforceable settlement agreement with the employee, in a circumstance where it would not have prevailed had it terminated the employee unilaterally. However, please do not emulate what this employer did. Had this employer actually paid its terminated employee more, it likely would have avoided the lawsuit and ended up paying considerably less overall. How much to pay a mutually terminated employee is one part art and one part science. When one of our China employment lawyers is called upon to craft a mutual termination settlement, we look at all sorts of factors in determining the just-right amount, including our own experience.

Bottom line: An enforceable AND reasonable mutual termination agreement will not only help you prevail in any lawsuit, it will go a long way towards preventing you from getting sued in the first place.