Guide to Employment Law in China – 2008 (Part II)
By Gregory Sy, Grandall Legal Group
V. Termination and ‘Layoffs’
1. Under what circumstances can an employee be terminated without notice?
An employer may terminate an employee without requirement for notice in the following situations:
- during the probation period, if the employee is determined to be unfit for the position;
- employee materially breaches employer’s rules and regulations;
- employee engages in serious dereliction of duty, graft or corruption causing substantial damages to the employer’s interests;
- employee has established an employment relationship with another employer and that relationship affects the completion of his tasks and he refuses to appropriately remedy the situation after employer notification;
- employee used fraud in concluding the labour contract; or
- employee is subject to criminal investigation.
2. Under what circumstances must an employee be given notice of termination?
An employer must give 30 days’ prior written notice or payment in lieu thereof, if it terminates the labour contract under the following situations:
- the employee is unable to perform his original duties or re-assigned duties, after returning from medical leave or non-work-related injury;
- the employee is incompetent and remains incompetent after training or adjustment of position; or
- the occurrence of a major change of objective circumstances which were relied upon when signing the labour contract, and the employee and employer are unable to agreed on modified terms of the labour contract.
3. Under what circumstances may an employee terminate the labour contract without notice?
An employee may unilaterally terminate the employment contract without requirement for notice in the following instances:
- employer fails to provide labour protections and working conditions in accordance with the labour contract;
- employer fails to pay remuneration in full and on time;
- employer fails to pay social security payments in accordance with the law;
- employer’s rules and regulations violate laws and regulations, harming the employee’s rights and interests;
- employer uses fraud, coercion or the employee’s unfavorable position to conclude the contract; or
- other situations set out in laws and regulations.
4. In what instances is compensation required and how much?
Severance compensation is due in a number of situations, which are summarized below:
- termination by employee under situations which result in his right to terminate the contract immediately (Item 3, discussed previously);
- termination by employer under situations which require 30 days’ prior written notice (Item 2, discussed previously);
- the employee is terminated due to restructuring or difficulties in business operations;
- the labour contract is terminated after being proposed by employer and there is mutual agreement on termination;
- a fixed-term labour contract expires (except where employee refuses to renew the contract on terms equal to or better than previously concluded);
- termination of labour contract due to revocation of employer’s business license; and
- termination of labour contract due to bankruptcy.
Employers must pay severance in the amount of one month’s salary for each year of service, with half a month’s salary for each partial year.
If the employee earns more than 3 times the average monthly wage of the locality, then the compensation will be capped at 3 times the average monthly wage, up to a maximum of 12 months.
5. Can employees be ‘laid off’?
Under the following circumstances, labour contracts may be terminated due to business difficulties:
- restructuring due to the Enterprise Bankruptcy Law;
- serious difficulties in production or operations;
- a staff reduction is necessary due to changes in production, technical innovation or adjustment of management operation style; or
- other major changes in economic circumstances relied upon at the time of conclusion of the labour contract, rendering them non-performable.
For large-scale layoffs (20 or more employees, or in smaller organizations where employee layoffs are less than 20 employees but this accounts for 10% or more of the total employees), the employer must first explain the circumstances to the trade union or all employees (where there is no trade union) 30 days in advance, and may reduce the workforce only after consideration of the opinions of the trade union or employees and reporting the restructuring plan to the labour administration.
VI. Labour Arbitration and Dispute Resolution
1. How are labour disputes resolved in China?
Like most jurisdictions, mediation is the preferred method of dispute resolution, however, this is a voluntary process. The Labour Arbitration Law provides that mediated settlement agreements for salaries, medical fees for job-related injuries, severance and penalties may be entered into court for enforcement.
Labour dispute claims, according to the Labour Law and the Labour Arbitration Law, must first be submitted to the local labour arbitration committee located in the jurisdiction of the employer. The labour arbitration committee must then render its award within 45 days after the dispute has been accepted.
Arbitration decisions are final for employers in the following instances: salaries, medical fees for job-related injuries, severance, and penalties, where the disputed amount does not exceed an amount equal to 12 months’ local minimum wage.
Employees and employers (with the exception of those instances set out previously) may within 15 days of the arbitration award submit the dispute to the people’s court for hearing.
2. What is the statute of limitations for bringing a labour dispute claim?
The limitation period is 1 year after the employee knew or should have known that their rights have been infringed, however, if the dispute occurs under an existing labour contract, the limitation period does not start until the labour contract has expired or has been terminated.
This is the second part of the Grandall Legal Group Guide to Employment Law in China, last week we published the first part.
Gregory M. Sy is a partner / foreign counsel with Grandall Legal Group. His practice includes general business advisory for SME’s in China, particularly in the areas of international corporate structuring and transactions. Representative clients include the Consulate of the United States of America in China (Shenyang), Embassy of Brazil, various publicly listed companies (NYSE, LSE, DAX, and BSE), along with numerous other SME’s operating in a wide range of industries. Mr. Sy obtained an LL.B. from the University of Victoria, and is admitted to the New York bar. Gregory publishes extensively on a variety of China legal issues for international and local publications, and has recently acted as chief editor for Martindale’s China Law Digest. You can contact Gregory at gregsy@grandall.com.cn or learn more about the firm at www.grandall-profile.com.
April 23rd, 2008 at 4:31 am
Lets say a company has a reason for dismissing an employee, for example the employee stole something, slept on the job, cursed the manager etc.
Question: would the company be required to present any PROOF? Otherwise the employee would claim the company is lying and most likely will be backed by the courts.
Joel
April 25th, 2008 at 5:35 pm
Joel,
Labor disputes will usually first be submitted to labor arbitration. And indeed, if the dismissed employee files for arbitration against the employer for illegal termination, then the employer will have to prove that its reason for dismissal was a legal one.
This is quite reasonable - if one could dismiss someone without any evidence, then there is no need for laws on dismissal. Do note that in many such cases, even if you do not have any documentary evidence, then witness statements may also be helpful.
April 26th, 2008 at 12:57 am
What is the standard judgment award by a court if the guidelines above aren’t followed? Sixty days’ salary? Ninety days?
My impression is that some firms may be awarding their discharged employees with severance packages that are just outsized enough to discourage that employee from bringing a claim. If the employee threatens suit, the employer threatens to withdraw the offer. Since this raises the risk and the cost of disputing the circumstances of dismissal, the employee meekly accepts the severance.
April 26th, 2008 at 5:32 pm
With regards to Joel post and Maarten reply ;
Recently I had 2 cases whereby we had to pay a huge sum of compensation to the employee or face going to court simply beause the employee do not wish to back down on the counter offer by my company. Here is what I think …
Case 1.
Employee A actually resigned from the company after working for us for 9 months. His sudden departure was that the company was unfair to him by not giving bonuses where other technical guys in his team had gotten them plus he was also not allocated his yearly bonus where other team mates had them. In this instant we were asked to pay him 1/2 month salary for the month he had worked for us *eventhough he had not completed his task timely + 2 months salary being his year of service in the company - 97 and 98. He did also claim for his bonuses but this we managed to cancell it during mediation.
Case 2 - Beijing Branch.
Employee B was not supportive in his work in the office at all. He delays his work schedule given and never able to complete task given on time. The company felt he was delaying the entire team and therefore terminated his contract with the company by giving him 30days notice but asked him to leave immediately.
However he went to the labour office and initiated a case. In the end we had to pay him another month salary as compensation simply because he started working for us in July 2007. The labour office can not accept our argument that he did not produce what was expected as its hard to prove even if the other team mates were to sign a letter. His reasoning was that his capability was up till that particular limit and that the company had given too much work that cant be accomplished.
At the end of the day this is how I look at the mediation between employer and employee in disputes - what if the employees do not wish to back down ? Most employers especially foreign employers like me dont have the time and energy to play with these people in courts and hiring a lawyer would be an even more expensive scenario. So what do we do ? In the end we just simply PAY to get less “ma fan”.
April 29th, 2008 at 4:24 pm
Dear Calvin,
While I cannot comment substantively on the issues you outline in your two cases, I can understand your reluctance to go to arbitration (then possibly court) over relatively small sums of money.
However, in order to minimize the chances of the matter proceeding this far, it might be prudent to consider utilizing a more carefully drafted Employment Agreement, along with several other contracts which may include an Employee Handbook and Code of Conduct.
By clearly laying out specific job requirements in the Employment Agreement and further setting out general workplace rules/requirements in the Employee Handbook, you can objectively establish the minimum standards for the particular position, which should be useful in the event of dispute.
If you have any other questions, please let me know if I can be of assistance.
Regards,
Gregory Sy
April 30th, 2008 at 2:04 am
Gregory,
Employee Handbook and Code of Conduct are a must, for sure, however it’s not that helpful for work load that you cannot quantify, like office work.
Again, I will repeat my question on the practical side, on how to get the PROOF. What sort of proof is valid in Chinese courts?
Joel
April 30th, 2008 at 1:35 pm
Joel,
As referenced in Mr. Roos’ response to your question, proof or evidence will be required to substantiate and establish grounds for terminating the employee, either during labour arbitration and/or court.
Disputes with employees are not completely unlike other civil disputes, one side files a claim and the other must respond. Both sides (employer AND employee) must then provide evidence to support their respective claims (the employer must provide evidence for terminating employment and the employee must provide evidence to refute the employer’s claim, simply stating that the employer is lying should not be sufficient proof to rule against the employer).
As you say, Employment Agreements and Employee Handbooks and Codes of Conduct are very important in terms of establishing a minimum objective standard for employees. That being said, office work involves a certain degree of subjectivity.
This is where evidence is important. Similar to courts in other countries, Chinese arbitration panels and courts allow, broadly, documents and testimony/witness statements. Although ‘office work’ is relatively subjective, failure to meet job requirements can still be established through written documentation/witness statements. For example, documents/witness statements can establish work assignments given to the terminated employee, with the employee’s work product or lack thereof used to establish the grounds for termination.
In the more extreme instances of employee misconduct such as stealing, sleeping on the job, or cursing management, certain clauses in the Employee Handbook and Code of Conduct should state that such behaviour is a serious violation of workplace rules and violation will result in immediate dismissal. This, in addition to testimony of a witness (or even video), should provide sufficient proof for dismissal.
If you have any particular matters which you would like to discuss, please contact me at gregsy@grandall.com.cn.
May 2nd, 2008 at 5:16 pm
Dear All,
The labour office in Shanghai do not accept other employee eye withness as proof of misconduct. I had spoken with them and that’s what I was told. So this makes it hard for employers to get real eveidence that they did misconduct.
This site is really helpful certainly and I shall urge all expats to continue their support towards your site.
Calvin.
May 6th, 2008 at 3:21 am
Calvin,
Exactly - both on the shanghai labour office and how this site is fantastic.
Gregory, thank you for your elaborate reply - I think it is clear that evidence/proof is required.
Joel
May 7th, 2008 at 5:06 am
Greg and others,
Along this line I have a question in a related sensitive area.
A female employee’s fixed term labor contract expires in the middle of her pregnancy leave. The company does not wish to renew the contract. What should the company do?
Thanks
Jacky
June 8th, 2008 at 12:31 am
Does employment law apply equally to foreign and Chinese nationals?
What about social insurance. What use is this to foreign nationals who have private healthcare as part of their contract? Can social insurance payments be excluded if this is the case?
What about income tax does this apply equally to foreign and Chinese nationals.
July 16th, 2008 at 6:14 pm
Dear Gregory,
I´ve been reading on some blogs about the Implementation Regulations (Draft) of the new Labor Contract Law.
Although I´ve found the text in chinese, I would like to know if there is an English version.
Thank you very much.
September 9th, 2008 at 12:41 pm
I am wondering if the employer and employee signed a labor contract with a longer notice period, is it enforeable or is the employee still only subject to 1 month notice when he/she resigned?
September 10th, 2008 at 1:58 am
Hi there,
I find this site very helpfull and very informative. Being a foreigner myself, working in China, i have some issues with my current company. I have only signed a chinese contract, and therefor I have no clue what is written in that contract. Untill now, I have complained to the employer several times about having an English contract. But still I have no english contract and therefor I do not understand what is written in the chinese contract that I signed. I also do not have my FEC in my posession. The employer said that I am not allowed to have that with me. But what I understand froim the chinese labour/employment law, it states that no employer have the right to keep any documentation of his/her employee. Am I right?
What is the following: 1. Employee Handbook
2. Code of Conduct
3. Employment Agreement
I also want to know if Saturdays & Sundays is rest days. And what hours should be worked for a week period.
Hope to hear from other people that have had the same problems as me. Any information will be much appreciated.
Regards
September 15th, 2008 at 3:31 am
WOW! Chinese Contract can be very tricky, always playing by words. I’d advise you have a lawyer run through your contract. Fighting a loosing battle against Chinese in Chinese Court. Are you signed by FESCO (http://www.fesco.com.cn/english/), a governmental manpower service. With the new labour law, 40hrs work week, with 1 rest day. Again here, employers are allowed to play with the hours and spread out the whole week. Max.36hrs overtime. In int’l std practice, no document is legal if signee does not understand the language, but it does not apply here. Watch your back. Good Luck!
September 15th, 2008 at 4:22 pm
Hi Brenda,
Thanks forthe reply.
I really appreciate your feedback.
How can I get in contact with you?
Regards
September 16th, 2008 at 2:28 am
This is an excellent overview of the key articles in the legislation. Can someone explain the concerns that several ‘big name’ multinationals had with the new laws?
September 17th, 2008 at 4:01 pm
GABRIEL, no one should ever sign anything unless they fully understand the contract! You should have been given a copy of the contract, even if it was in Chinese. I am sure there are many reputable translation companies or people in your area where you can get it translated in less than a day for a reasonable cost. I would do so immediately.
The list of reasons why an employee can terminate a labor contract seems incomplete. Included should be:
- Death
- Health Reason
- Family/Personal reasons.
Obviously if one dies, the labor contract is terminated.
Health should also be a valid reason. If you are not physically capable to perform your work duties, you should be allowed to terminate the work contract immediately.
Family/Personal reasons should also be valid. If a family member dies, and you need to return to your home town for various reasons, you should be allowed to terminate your contract honorably.
Long DaGe
www.LongDaGe.com - The Dragon Information Network
WE work harder - so YOU don’t have to!
September 17th, 2008 at 4:24 pm
Hi Long DaGe,
Thanks for the reply friend. I really appreciate this very much.
How can I get in contact with you?
Regards
September 18th, 2008 at 2:28 pm
hi Gabriel,
I am traveling often, you can post a note using the contact us form on our website and I will receive it. (I do not want to post my email address here due to spam issues)
Long DaGe
www.LongDaGe.com - The Dragon Information Network
WE work harder - so YOU don’t have to!