When the employment relationship ends between a China employer and employee, there are always a few things the China employer should do. One of the most important things you as an employer must do is provide your soon to be ex-employee with a Proof of Termination of Employment Relationship document, transferring the employee’s files and social insurance, and completing any relevant other procedures required under the law. Failing to provide such a document gives your ex-employee a near-perfect basis for suing you.
What does this document do? It evidences the termination of your employment relationship. Why do you have to provide this document? Because your employee probably needs it to prove his or her employability. On the flip side, you should require all your new employees provide you with such a document before you hire them. China employees also need this document to claim unemployment benefits and if your delay in getting them this document causes them delay in collecting their unemployment benefits, you are legally responsible for those damages.
Regardless of why the employment relationship has ended, you must perform your legal obligations by providing your former employee with a proof of termination document. It is not relevant that the termination was amicable. Under China’s Labor Contract Law, failing to provide this document subjects the employer to both administrative corrective orders and to having to pay the ex-employee any damages suffered because of your failure to follow the law. If you don’t want an employee suing you for his or her inability to get a new job, you should provide this document to all of your leaving employees as soon as you possibly can.
This document typically must specify the term of the employment contract, the date when the employment contract was terminated or ended, the position the employee held, and the number of years of service the employee put in for the employer. It is important to be careful not to go much beyond this because the more you put in, the more likely what you wrote could “backfire” on you. By way of just one example: your ex-employee who is leaving voluntarily asks you to do them a “favor,” by stating in that document that you unilaterally terminated the employment contract, with the excuse being that they do not want to look like a job-hopper. You go along with this and then he or she flips around and sues you for unlawful termination.
Because a well-crafted Proof of Termination of Employment Document is and should be brief, it will not include enough to protect you as the employer. It does not address why the employee left employment. It does not address any statutory severance the employer may owe. Finally, it does not address any future claim the employee might bring, which claims are being brought more and more often, particularly as against foreign employers. See China Employment Arbitration: Good Luck With That.
A proof of termination document is primarily done for the benefit of the ex-employee and the next employer, not for the employer. For this reason, it usually makes sense for you as the employer to get your departing employees to sign a settlement/severance agreement. Though this agreement can also serve as proof of termination of employment relationship, it goes beyond that. It should ensure that you will not get sued by your ex-employee one week, one month or one year down the road. Such an agreement should make explicitly clear that the employee is releasing the employer and any of its affiliates from any future claims that could be brought by the employee. This agreement should be in Chinese (the official language) as well as in English (for your reference). You should not submit this agreement to China’s labor authorities, and, in fact, we usually recommend that it contain hard-hitting confidentiality provisions. You must follow all your internal procedures in having this severance document executed by both parties and it should also comply with and work under China’s employment and contract laws. I will write more about this in future posts.
Bottom Line: When your China employee walks out your door for the last time — no matter what the circumstances, you as the employer need to do a whole host of things to make sure that you do not see that same employee walking through a court door a few months later.