Terminating Shanghai Employees

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As I have previously written, one of the best grounds for terminating a China-based employee without having to pay severance is for a serious breach of employer rules and regulations. I have also written how employers may have no remedy against an employee if they have no specific provisions in their rules and regulations justifying the termination of an employee for serious wrongdoing. But in Shanghai, employers may be able to terminate an employee who has acted in bad faith so long as they have reasonable grounds for doing so pursuant to their rules and regulations.

Let’s look at a recent Shanghai case whose facts I have simplified a bit for this post. The employee was hired to work as a sales assistant. The employee submitted a request to the employer to take 15 personal days because her mother-in-law was sick and she needed to attend to her. The employer approved this request but then learned that the employee went on vacation abroad for about 5 days during the 15-day period. The employer then issued a termination notice, citing a serious breach of labor disciplines based on the employee having deceived her employer to secure her personal days. The employer’s rules and regulations stated that employees could be terminated for dishonest behavior. The employee brought a claim against the employer for unlawful termination and won, but the arbitrators did not award the amount of damages the employee was hoping to get. So both parties were dissatisfied with the arbitral award and sued each other. The employee lost at trial and then lost again on appeal. The employee argued that she had planned to do some international traveling before she asked for the personal days but because her mother-in-law fell ill, she decided to postpone her trip. But when her mother-in-law got well about 5-6 days into her personal leave, she then decided to go on her trip as originally planned. She argued that because she was not getting paid during her personal days and because her employer had already approved her request to take those days off, she should have had the freedom to arrange her own time and basically do whatever she wanted during her personal days.

The court held that even though the employee rightfully went on personal days to take care of her sick mother-in-law, when that basis for her leave ceased to exist, the employee should have performed her duty of good faith and complied with basic professional ethics as an employee and reported her new situation to her employer. Her failure to inform her employer about her planned trip and her using her personal days to go on vacation violated the duty of good faith she owed to her employer. The employer terminated her according to its rules and regulations and there was nothing unlawful about such a termination. The court did not talk about how seemingly harsh the employer’s termination decision was.

Don’t read this case to mean that your rules and regulations do not need to be reasonably specific for it to be held enforceable. Shanghai courts — more so than probably anywhere else in China — dislike employees who act in bad faith. Nonetheless, if you don’t have a set of enforceable rules and regulations, you will still find it virtually impossible to terminate a problem employee.

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