Last week, in Terminating a China Employee: Why Mutual Termination is so Often the Key, I wrote of how getting your China employee to agree to a mutual termination (with a settlement agreement) greatly minimizes employer risk. But sometimes, a mutual termination is not possible. Though China is not an employment-at-will jurisdiction, its laws do permit employers to unilaterally terminate a China employee that has committed a serious breach of the employer’s rules and regulations.
If you are going to unilaterally terminate an employee for violating your rules and regulations, it is important your rules and regulations have written provisions explicitly justifying the termination. And just moving a list of forbidden behaviors from your oversees employee handbook to your China employer rules and regulations rarely cuts it.
Suppose your employee does X and you think X is terrible and you now want to terminate that employee. You check your rules and regulations and X is listed as a basis for termination and so you terminate the employee. The employee then sues you for unlawful termination.
Let me digress a minute to discuss something our China lawyers are getting more often these days, especially on the employment law front. As China’s laws get more complicated, our China attorneys are getting more calls from companies contacting that have been sued or are being threatened with lawsuits. They are calling for our help because they “did exactly what we told them to do on China Law Blog,” and so they believe we can easily win these lawsuits for them. Sadly, they are nearly always mistaken. They failed to realize that the information we provide on this blog is information; it is not legal advice specific to their situation and it is the “specific to your situation” part that matters most. On the employment front, the applicable laws will vary depending on the size of your company, the type of employees at issue, the exact language (in Chinese) in your employment contracts and in your rules and regulations, your location, and potentially a hundred other things as well. See China Employment Law: Local and Not So Simple. Our goal with this blog is NOT to tell you exactly how to do things in your specific situation, but rather to alert you to various key issues so you can know when you need to seek out proper help for dealing with them.
This advice is particularly true with China contracts and legal documents, including your employer rules and regulations. My law firm has been drafting China contracts for so long that we — and I am not kidding about this — have at least twice been contacted by companies given one of our contracts by “friends” and now want us to help them deal with their Chinese counterpart that has “breached” the contract. Interestingly, in both instances, the contracts were so far off the mark for what these two companies needed that we declined to help them as we thought it would be pointless. In China Contract Templates: the Cons and the Cons, we wrote about why any contract not tailored to your specific situation is a really bad idea:
We don’t use “templates” for our agreements. After a lot of analysis, IF we find what the foreign buyer is trying to do fits into a pattern from a previous transaction, then we will, of course, use an agreement from a previous transaction as a model. But even in the most basic transactions, what we do is to customize it for the current transaction.
In drafting pretty much any contract for China there are literally dozens of variables that can, in turn, be combined in a nearly infinite number of configurations. So the final contract from one transaction may have no application to any other transaction. This is why providing a contract from a past transaction will have no benefit to the Western side and would likely only harm it.
As you note, our clients also need at least one of our China lawyers involved in dealing with the Chinese response. Did the Chinese side change the Chinese and not the English as they so often do? Did they redline in a way that the changes to the Chinese portion are even apparent? More important is whether their changes are the normal technical changes that are part of normal business practice (45 days to deliver a product instead of 30 days) or are their changes destructive to the whole approach, such as: “no, you do not own the technology, we do.” Or, “no, we won’t provide any warranty at all.” Or, “no, we own the molds, not you.” I do not see how anyone without a deep understanding of Chinese law and Chinese business could even begin to deal with these sorts things.
In drafting our contracts, we do of course usually pull some language from other contracts, such as confidential information language. However, the core agreement is almost always completely unique to the specific client before us and when we do use prior language, we nearly always revise it to customize it for the specific client and the specific transaction.
From our having written thousands of China agreements we know there are certain issues that need to be resolved pretty much every time. So we work with our clients to identify those issues and then we work them on how they want to deal with those issues and then we put the agreement together to achieve the goals our client has told us it has. Of course, for some of these components, we use as a base some of the language that has worked in the past in China. This is the benefit of working with us: we know what works and we know what fails. But the resulting contract in each case is unique.
So in that sense, there is no template. There is just decades of experience in drafting agreements for doing business in China or for doing business with China. This is why whenever someone asks me to send them a “template” agreement I tell them I cannot because I have no way to know which of the nearly infinite number of alternatives they should follow. How will they pick and choose from a dozen options for a relatively simple provision? What is unique about their situation? Will the most common solution we have used in the past even make sense for them? Does it make sense for their industry? Their business? Their product? Their location? What if the law has changed? What if the law changes two days after we start drafting?
I usually propose to each client three options for every important issue and I usually come up with those three from about a dozen possible. Say there are ten critical issues for their contract. Each selection of an option affects all of the other options, often in ways we have previously encountered. Before the client answers the questions, we don’t know even what structure to use. After they answer the questions, the agreement that meets all their needs does not exist.
It is also true that in-house counsel cannot write an agreement that can serve as a basis for what our client wants us to craft. Our approach to China contracts is based on three supports: 1) Decades of China experience, 2) A deep understanding of the Chinese civil law system and the Chinese court system, 3) A deep understanding of how contracts actually work in China. Any company with an in-house lawyer who combines all three does not need to come to us for a contract and they don’t. It is not helpful to us to have a common law contract [China is a civil law system] based on a highly idealized and impractical American/European practice that has no applicability or use in China.
Our China employment lawyers are seeing an increase in employers contacting us believing they have nothing to worry about because they followed “our advice” to the letter. Some employers even send us proof of the employee’s written acknowledgment of having received the employer rules and regulations prior to their misconduct and that leads them to believe they (the employer) will for sure prevail in any unlawful termination lawsuit. Our initial response to these companies is usually something like the following:
Whether your employee termination was lawful is incredibly fact specific. Among other things, it depends on what the employee did. It also depends on exactly what your rules and regulations say (in Chinese) and how they say it. It also depends on where you are located as it is critical that your rules and regulations fully accord with the reality on the ground in your specific locale in China. If the rule on which you relied in terminating this employee is not reasonable for your locale, your termination likely will be deemed to have been unlawful. For example, your rules and regulations may say that your employees cannot date a supervisor and anyone who does so will be subject to immediate dismissal. This rule is unenforceable in most of China because China’s labor authorities and courts do not want employers restricting their employee’s freedom to date and marry. So even if your rules and regulations prohibit inter-office dating, your terminating an employee for dating probably will mean you will need to pay your employee damages and also immediately reinstate him or her.
We often see employers list grounds for termination in their rules and regulations that do not work in most China. For example, employers in China typically can only govern their employees’ behavior during work time. So though you as an employer can in most locales prohibit your employees from being a “WeChat merchant” during normal working hours, you typically cannot prohibit your employees from doing that in their spare time. Unless what an employee does in his or her personal time leads to criminal liability you typically cannot unilaterally terminate them for what happens outside the office.
Consider this hypothetical. You as an employer host an after-hours holiday party to celebrate the Chinese New Year. One of your employees attends after getting off work that day. This employee gets into an altercation with a supervisor and hits the supervisor. Your employee and your supervisor go to the police station and your supervisor decides not to press charges and no administrative or criminal charges are ever brought against your employee. You then fire the employee because you think what he did “checks the box” in your rules and regulations prohibiting any fighting at work.
How will this be resolved? In a real case in Beijing with similar facts, the employer lost. The court held that the holiday party did not count as work time and because the employee was never criminally charged the employer had no legal basis for the unilateral termination.
Bottom line: Without well-crafted rules and regulations that work for your specific business and your specific locale it is usually impossible to justify a unilateral employee termination.