When can employers unilaterally terminate employees in China?

There are certain circumstances in which an employer cannot legally terminate an employee in China. These situations can arise, for example, when an employee:

• Is suspected of having an occupational disease(s) and awaiting diagnosis;
• Has completely or partially lost labor capability due to occupational diseases or work-related injury;
• Is in the legal medical treatment period for a non-work-related illness/injury;
• Is pregnant, on maternity leave, or in their nursing period; or
• Has continuously worked for the employer for more than 15 years and is less than five years away from retirement.

Under Chinese Contract Law, unilateral termination has strict requirements. In practice, most employers would negotiate with the employee and try to reach a mutual agreement. 

Based on our observations, to convince the employee to agree to termination, employers will offer a termination package higher than the amount that the employee would be strictly entitled to – often double the compensation for lawful termination.

To some extent, China’s labor law system encourages compromise and payment of severance, and in some cases, this can encourage employees to negotiate aggressively to force employers into uncomfortable concessions.

The worst case for the employer would be a situation where the employee is not happy with the proposed compensation, and the two parties fail to resolve the dispute. In such a case, the employee will proceed with formal arbitration.

Frequently, dismissed senior managers will proceed with arbitration because the compensation the employer offers is less than his or her salary. If the arbitrator rules in favor of the employee, by law, the employer is required to give the employee his or her old job back.

If the employee is dissatisfied with the result of an arbitration hearing, they can bring the case to the civil courts in 15 days. Vice versa, the employer also can access the courts if they are not happy with the result from arbitration. 

For further information, please contact Ines Liu.