Termination of Employment in China

1) What types of employment termination are there?

Termination by Mutual Agreement; Employee-Initiated Termination (Resignation); Employer-Initiated Termination for Cause or for Economic Layoffs; Contract Expiration; Retirement; Force Majeure; Criminal Punishment; Death or Loss of Capacity.

2) What are the legal grounds for termination initiated by the employer?

1. The employer may terminate for the employee's fault. 

2. The employer may terminate with 30 days’ notice (or pay in lieu) and severance if:

• the employee is medically unfit for work after expiration of statutory medical leave.
• the employee is incompetent and remains so after training or reassignment.
• objective circumstances (e.g., restructuring, technological changes) render the contract unfulfillable, and no agreement is reached after negotiation.

3. The employer may terminate for economic reasons (e.g., bankruptcy, production difficulties) with severance.

4. Termination due to Contract Expiration.

3) What are the legal procedures required for terminating an employee?

The employer may terminate with 30 days’ notice (or pay in lieu) and pay severance for the grounds not caused by the employee’s fault.

4) What are the mandatory notice periods for termination?

30 days.

5) What severance pay and compensation are employees entitled to?

1. Statutory severance pay 

- Applicable cases: lawful termination (e.g., mutual agreement, layoffs, incompetence).  

- Calculation standard: 1 month's wage per year of service;  

Over 6 months but less than 1 year = 1 year;  

Less than 6 months = 0.5 month's wage.  

Cap: 3x local average monthly wage.  

2. Unlawful termination compensation

- Applicable cases: The employer illegally terminates the contract.  

- Calculation: Double of the above statutory severance pay.  

3. Payment in Lieu of Notice (+1)

- Applicable cases: lawful termination without 30-day notice.  

- Calculation: additional 1 month's wage.  

Note: Monthly wage = average wage of the last 12 months (including bonuses, allowances, etc.).

6) How should employers handle termination due to poor performance or misconduct?

Employers may terminate without notice or pay severance if the employee:

• fails to meet probationary standards (after assessment);
• seriously violates company rules (e.g., theft, fraud, repeated absenteeism);
• commits gross dereliction of duty or corruption, causing significant harm to the employer;
• engages in concurrent employment that materially affects their current job or refuses to correct the issue;
• frauded (e.g., fake credentials) to enter into the labor contract;
• commits crime.

7) What legal recourse is available to employees in case of unlawful termination?

Article 48 of the Labor Contract Law of the People’s Republic of China is the key legal resource. It prescribes that “If an employer terminates or ends a labor contract in violation of this Law, and the employee demands continued performance of the labor contract, the employer shall continue to perform the contract. If the employee does not demand continued performance or if continued performance of the labor contract has become impossible, the employer shall pay compensation in accordance with the provisions of Article 87 of this Law. (note: Article 87 prescribes the unlawful termination compensation)

8) What is the procedure for terminating an employment contract with foreign nationals?

When terminating an employment contract with a foreign employee, in addition to the general regulations applicable to terminating contracts with Chinese employees, the employer must apply to the local Human Resources and Social Security Bureau to cancel the employee's"Foreigner's Work Permit" within10 days of termination and notify the Exit-Entry Administration Bureau to cancel the residence permit.

Author: Mingzhu Zhao