Generally speaking, China employees 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 an 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 their company without any penalty, simply by providing advance notice of the intent to leave. Furthermore, China employees may terminate their employment contract without 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.
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 or amend the labor contract; (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.
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. 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 its change was lawful.
An employer must usually be able to prove it fulfilled a number of conditions to be free from monetary punishment or from 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 recommend their employment contracts have a provision 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 (even slightly) will usually be deemed to have breached the labor conditions in its employment contract.
Let’s look at a recent case in Shenzhen. 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 employee 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 slightly modified, but the employee was still an engineer.
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 Rules and Regulations, which had been published and made accessible to all employees. After taking a number of disciplinary actions against the employee for non-attendance, 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 double statutory severance pay for illegal termination.
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.
The employer in this case won because it was able to prove: (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.
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 the change for the employee was of an insulting or punishing nature. Perhaps most importantly, the court noted that under the employment contract the parties agreed that the employer had 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 the above tests, it was able to terminate the employee without having to pay statutory severance even though the employee was on an open-term employment contract. This case shows that it is possible to win a lawsuit against an employee IF you have the proper employment contract, the proper employer Rules and Regulations, and you document in writing your actions every step of the way.
The main reason our China employment lawyers are such sticklers for having the right employment contract and Rules and Regulation is not so much so that our China clients can get sued and win, but so 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 less in time and money than being sued, even if you eventually prevail.
