What you need to know before hiring in China: A guide to terminations
As you hire your first employees in China, termination may be far from your mind. After all, you’re probably buzzing from the excitement of expanding your team. However, while hiring in the People’s Republic of China (PRC) presents exciting opportunities, navigating the country's complex employment laws and regulations can be daunting, especially when it comes to employee terminations.
Chinese employees have strong protections against terminations. Understanding the intricacies of terminating employees is crucial to ensure compliance, mitigate legal risks, and maintain positive employer-employee relationships. Read on to learn about legal requirements and implementing best practices to equip yourself as an employer. Plus, learn about how hiring through an employer of record (EOR) can take care of terminations for you.
5 essential things to know before hiring in China
- Employees are highly protected from termination under the Chinese Labor Contract Law. Because of this, firing employees in China can be more complicated, expensive, and legally onerous than in other countries.
- You must establish terms of dismissal in your employment agreement.
Include a termination clause in your written employment contract (a document that is legally required for all hires in China) which outlines notice periods for termination, severance payment, and other policies. Make sure you’re complying with minimum notice periods per Chinese law, or else you may face disputes, compensation payouts, or extended notice periods. - Chinese law doesn’t allow for at-will employment. Under Chinese law, you can only immediately terminate employees for just cause, such as violence in the workplace, fraud, or violation of company regulations.
- In some cases, you can dismiss employees if you give notice or pay in lieu of notice. You can only dismiss employees if they can’t work due to non-work related illness or injury, are incompetent in their role despite training and other interventions, or if their labor contract can’t be fulfilled due to an unforeseen change. Per labor law, you should give at least 30 days’ notice or a month of pay in lieu of notice, plus severance payment.
- Certain employees are protected from termination. This includes pregnant or nursing workers (including workers on maternity leave), those who have a 15+ year tenure with the employer and are less than five years from retirement, those who may have an occupational disease or have lost their ability to work due to a work-related injury or disease, and those who are in treatment for non-work related injuries or illnesses.
Termination rules in China: What are acceptable grounds for firing an employee?
While Chinese employees may leave their jobs voluntarily with notice (as stipulated in their employment contract), China does not allow for at-will terminations. Here are reasons why an employee may be terminated in China:
- Termination during probationary periods. In China, the maximum probationary period for a non-fixed-term contract is six months for non-managerial positions and 12 months for managerial positions. During probation periods, employees can quit with three days’ notice. However, employers need a reason for termination. Employees should get notice, though they are not owed severance. Employees can be terminated during probation if they don’t meet their job requirements or are incompetent even after a job transfer, violate company regulations, commit a crime, take a second job that harms the original employer’s interests, can’t work due to sickness/injury, or are found to have committed fraud to get their job (for example, lying about qualifications).
- Termination by mutual agreement, or bilateral termination. If the employee and employer agree to part ways, then the employment contract can be terminated. Employees are still owed severance.
- Unilateral termination with lawful cause due to misconduct or negligence. If an employee has violated employment terms or behaved inappropriately in the workplace, you can terminate them without severance. This is for employees who have seriously violated company rules, are convicted of a crime, cause the employer to suffer a serious loss, sign their contract under false assumptions or coercion, or take a second role that might damage their employer. Employers need to notify any labor unions or trade unions about this unilateral termination.
- Termination without fault is allowed if an employee can’t work due to being sick or hurt, is incompetent in their role, or if their labor contract can’t be fulfilled due to an unforeseen change. The employee would be owed 30 days of notice or a month of compensation in lieu of notice, plus severance.
- Mass layoffs occur when an employer needs to cut 20+ employees due to major shifts to their business. If fewer than 20 employees are being laid off, then that loss should comprise more than 10% of the company’s workforce. In China, mass layoffs are allowed when the employer undergoes restructuring, has serious business difficulties, or undergoes massive upheaval for production, technology, or operations.
- Automatic termination upon the employer’s bankruptcy, dissolution, or revocation of their license. Employees are still owed severance.
China’s termination requirements might differ from other countries where you hire or operate, and it’s crucial to keep your global hiring compliant with all local laws.
What are the mandatory notice periods and termination pay for Chinese employees?
For termination without fault or in the case of layoffs, employees are owed 30 days' notice. Employees who are dismissed for lawful causes are not owed severance. Otherwise, severance can be calculated by simply multiplying the monthly salary by the employee’s years of service. Here is an example of how severance pay is calculated:
- Service up to one year: one month of pay
- Service up to two years: two months of pay
- Service up to five years: five months of pay
- Service up to 10 years of pay: 10 months of pay
And so on. Note that severance is considered negotiable in China, and employees may negotiate for higher payouts as part of labor contract negotiations.
The easiest way to comply with Chinese termination requirements
If you employ a global workforce, keeping track of labor laws and termination requirements gets complicated. Employers must understand just-cause considerations, severance pay laws, and probationary and notice periods for everywhere they hire.
An alternative is to hire through an EOR, which can monitor termination requirements for you.
Frequently asked questions about terminating employees in China
Do you need a reason to terminate an employee in China?
Yes, you need a reason to dismiss employees in China. Termination without fault can only happen in the following circumstances:
- The employee can’t work due to being ill or injured (but is outside the treatment and observation period).
- The employee is incompetent, even after switching roles or being given additional training.
- Their labor contract can’t be fulfilled due to unforeseen changes.
In this case, employees can be terminated with 30 days’ notice or 30 days of pay, plus severance.
What is considered just cause for terminating an employee in China?
You can fire employees immediately if:
- They seriously violated company rules or were violent in the workplace.
- They are convicted of a crime while in your employment.
- They cause you to suffer serious losses.
- They signed their contract under false assumptions or coercion.
- They take another job which could be harmful to you.
Collect strong evidence of any serious breach of conduct before terminating an employee without the minimum required advance written notice.
What qualifies as wrongful dismissal in China?
If an employee is not fired for the above reasons or if they are in a protected group, then it is considered wrongful termination. It’s also considered wrongful dismissal if employees aren’t given proper notice, paid any owed salary, or paid severance.
If employees feel they’ve been wrongfully dismissed, they may choose to pursue arbitration, litigation, or a settlement. In such cases, employees can request reinstatement. If they’re granted reinstatement and the employer doesn’t wish to rehire them, then they must pay double the legal severance and may be required to pay out their salary for the time in which that terminated employee couldn’t work.
How should employers protect themselves when hiring in China?
Include your termination policy in your employment contracts. During onboarding, supply your worker with a detailed employee handbook, which employees should sign upon hiring—this is considered a legally binding document. Outline rules, regulations, disciplinary measures, and dispute resolution measures, plus benchmarks for evaluating employee competency in their role.
Throughout the employment journey, keep a detailed record of your employee's performance and, if their performance lags, offer training, alternative roles, or mentorship before you resort to firing them.
What is always required when an employer terminates an employee in China?
Upon termination, make sure you’ve paid out any unpaid wages, provided written explanations of the termination, and outlined what the employee should expect after termination. Pay out any other compensation, such as eligible time off or bonuses, and pay any statutory severance.
What is the law for dismissing a contractor in China?
It’s easier to terminate independent contractors under Chinese labor law. Clients can terminate freelancers with or without notice, whatever is set out in their contract agreement. Contractors aren’t owed severance unless their contract stipulates otherwise.
However, if terminated contractors are found to be misclassified employees, they may be entitled to pursue you under arbitration or a lawsuit and may be owed termination pay. Learn more about classifying workers in China.
What are layoffs in China?
Layoffs are periods where struggling companies dismiss employees without work or pay, but provide them the opportunity to get reinstated if the company can get normal business operations back up and running.
In China, mass layoffs are legal. This is when an employer needs to cut 20+ employees or, if they’re letting go fewer than 20 employees, then that loss constitutes more than 10% of their workforce. Mass layoffs are allowed for companies undergoing restructuring, experiencing serious business difficulties, or experiencing massive upheaval for production, technology, or operations.
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Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
