When Your China Employee Leaves. . . .

Generally speaking, a China employee must be employed under a written employment contract. Such a contract may be for a fixed or an indefinite term. When it comes to unilaterally terminating the employment contract, China employment law does not treat the employee and the employer as equal parties; the employee has much more power than the employer. An employee in China can usually leave his or her company without any penalty simply by providing an advance notice of the intent to leave. Furthermore, China employees may terminate their employment contract without even having to give advance notice under any of the following circumstances:

1. The employer fails to provide labor protection or labor conditions in accordance with the employment contract.

2. The employer fails to pay in full or on time.

3. The employer fails to pay social insurance.

4. The employer Rules and Regulations do not comply with relevant laws or regulations, damaging the employees’ rights and interests.

5. The employment contract is invalid because of any of the following: (a) the employer used deception or coercion, or took advantage of the employee’s difficulties, to cause the employee to conclude the labor contract, or to make an amendment thereto, that is contrary to the employee’s true intent; (b) the employer disclaims its statutory responsibilities and precludes the employee’s rights, or (c) the employment contract violates mandatory provisions of the laws or administrative regulations.

6. Other circumstances provided by China’s laws or administrative regulations that permit the employee to unilaterally terminate an employment contract.

China’s Labor Contract Law makes clear that if an employer forces an employee to work by resorting to violence, intimidation or illegal restriction of personal freedom, or if it gives instructions that violate China rules or regulations, or if it orders an employee to perform a hazardous operation that endangers the employee’s personal safety, the employee may unilaterally terminate the employment contract immediately without having to provide notice to the employer.

Note that if your employee terminates the employment contract under one of the circumstances above, (even though your employee initiated the termination) you as the employer must pay statutory severance according to Chinese law.

Number 1 above — “The employer fails to provide labor protection or labor conditions in accordance with the employment contract” — is broader than most foreign employers imagine and it is the one that most often gets foreign companies in trouble. For example, if you as an employer require one of your employees to stop working or to take a vacation, it may be treated as failing to provide labor conditions in accordance with the employment contract.

You may also be deemed to have failed to provide labor conditions under the employment contract if you unilaterally change your employee’s position, and yes even by a promotion. Our China lawyers often see something like the following: a foreign employer modifies an employee’s position and changes the employee’s salary to reflect this. The employee thinks the employer’s decision is unreasonable and refuses to take up the duties of the new position. Either the employee terminates the employment contract and demands statutory severance, claiming their resignation is due to employer abuse, or the employer terminates the employee for failing to follow the employer’s orders or for failing to abide by the employer’s Rules and Regulations.

In either of these situations, the employer must be able to answer this important question: Was the change lawful? The employer (and not the employee) has to answer this question because the employer (and not the employee) bears the burden of proof. In other words, the employer must prove that its change was lawful.

An employer must usually be able to prove that it fulfilled a number of conditions to “walk out free” from monetary punishment or being required to reinstate the terminated employee, and like just about everything related to China employment law, these conditions vary depending on the locale. For example, in Guangdong Province, the employer must be able to prove ALL of the following to be able to avoid sanction: (1) the employment change was necessary for the employer’s operations, (2) the employee’s salary remained roughly the same as his or her pre-adjustment salary (whatever that means!?), (3) the adjustment of the employee’s job status was not of an “insulting or punishing nature,” and (4) the employer did not otherwise violate any applicable law and regulations.

When we work with employers in Guangdong (and everywhere else in China, for that matter) we also recommend that their employment contracts have a provision clearly stating that the employer has the right to adjust the employee’s position according to the employer’s business needs.

An employer that unilaterally changes its employee’s position (oftentimes, even ever so slightly) will usually be deemed to have breached the labor conditions in its employment contract.

Let’s take at a recent case in Shenzhen (simplified a bit for this post). In this case, a Shenzhen employer executed an employment contract with one of its employees that provided that the employee’s initial position was engineering technologist and the nature of work was to provide engineering technology services and management. According to the employment contract, the work location was Shenzhen and the employer had the right to adjust the employee’s position, responsibilities and work location according to the employer’s business needs. A few years into employment, the employer decided to have the employee work in a different office building within walking distance from the employee’s previous work location, but still within Shenzhen. The employee’s position was also was slightly modified, but the employee was still an engineer.

The employer served written decision on the employee of the two above ultra-minor changes but the employee did not sign off in writing on the decision, but nor did the employee voice any objections. The employee’s salary did not change.

After these adjustments were made, the employee failed to show up to work for several days in a row and each time, the employer made a disciplinary action against the employee, all according to its employer Rules and Regulations, which had been previously published and which were accessible to all employees. After taking a number of disciplinary actions against the employee for non-attendance at work, the employer terminated the employee in accordance with its employer Rules and Regulations.

The employee then initiated a labor arbitration claim against the employer, demanding (among other things) double statutory severance pay for illegal termination. In situations like this, the employer bears the burden of proof to show the court that the change was lawful.

The employee lost at arbitration and then took the case to court, where he lost again. The employee then appealed to the intermediate court and lost, and then petitioned the Guangdong High People’s Court for retrial and lost yet again, making this one of the rare cases where a China employer won. See China Employment Arbitration: Good Luck With That Battle.

The employer in this case won because it was able to prove ALL of the following: (1) the employment change was necessary for the employer’s operations; (2) the employee’s salary remained roughly the same; (3) the adjustment of the employee’s states was not of an “insulting or punishing nature”; and (4) the employer did not otherwise violate any applicable law and regulations. Most importantly, the employer had written evidence in Chinese backing all of this up. In this particular case, the trial court focused on (2) and (3) above and on how the employee’s salary had not been reduced, on how the employer had not changed the employee’s title or primary responsibilities, on how the employer had followed all of the necessary formalities in giving the employee advance notice and on how nothing indicated that the change for the employee was of an insulting or punishing nature. Perhaps most importantly, the court noted that the employment contract clearly provided that the parties agreed to the employer’s having the right to adjust the employee’s position according to the employer’s needs and the employer had disciplined the employee in accordance with the employer’s written Rules and Regulations.

Because the employer satisfied all of the above tests, it was able to terminate the employee without having to pay any statutory severance even though the employee was on an open-term employment contract. This case shows that though it is anything but easy to terminate an employee in China without incurring a financial penalty, it is possible if you have the proper employment contract and the proper employer Rules and Regulations and you document in writing your actions every step of the way.

Truth be told though, the real reason we are such sticklers for having the right employment contract and Rules and Regulations and right termination actions is not so much so that our China clients can get sued and win, but so that they never get sued at all. If you do everything right with your China employees and you pay them a bit of severance you can almost always get them to sign a binding agreement not to sue and that will — 999 times out of 1,000 cost you way less and take up way less of your time and be way less disruptive for your business than being sued three or four times, even if you eventually prevail.

Either way, doing it right pays off.