China’s labor law and courts greatly favor employees. But the good news is that, companies that maintain all the regulations and rules properly can have the upper-hand to their employees. They can reduce the severance they need to pay to the employees who are departing their organization.
In order to skip the expensive labor disputes as the outcome of the termination, foreign companies must properly understand the key issues and governing framework of China while terminating an employee.
Along with the national law, the foreign enterprises must also have in-depth knowledge of the local laws and regulation from where they are operating. You need to keep in mind that the labor law in different places of China varies and there is no uniformity in it. For example, an employee handbook for Beijing may be treated as invalid or incomplete in Shanghai.
According to the Labor Contract Law of China, an employer can terminate an employee on the following grounds.
Termination through mutual agreement-
This type of termination occurs when the employer and employee mutually agree to terminate the relationship, but the employer generally provides severance payment to the employee in order to obtain employee consent on separation. The employer and the employee have to reach agreement on the termination as well as on the amount of severance payment by the employer.
It is normal that such an agreement can only be reached after several rounds of negotiation, depending on the specific circumstances of the case, the bargaining power of each side as well as the negotiation tactics of the two parties. As the Chinese labor law sets the maximum compensation at twice of the legal severance payment in case of wrongful termination, the finally agreed severance payment will normally fall somewhere between the minimum legal severance and the maximum compensation allowed by the law.
If the termination is deemed unlawful dismissal by a labor arbitration tribunal or a PRC court, the employee is entitled either to be reinstated or he/she can demand double statutory severance pay.
Termination due to fault or misconduct-
An overseas company can sack a Chinese employee because of his/her misconduct or fault. But he has to convince the court that the termination is justified and does not breach any sort of law.
In the case where the employee has failed to properly satisfy employment conditions while serving probation
Circumstances where it has been proved that the employee has intentionally infringed rules and regulations of the company’s
Dereliction of duty from the employee’s side or in the case he/she works for personal interest and causes serious damage to the company’s reputation
If the employee has committed any type of punishable offense and crime
If the employee has additionally established an employment relationship with another employer which materially affects completion of his tasks with the first employer, or refuses to rectify the matter after the employer points out the problem
Termination without cause-
When an employee has committed none of the above mentioned faults or types of misconduct, the employer is still permitted to unilaterally terminate the employee under the following circumstances:
In circumstances the employee suffers an illness or non-work-related injury and is unable to perform the assigned work or an alternative task at the end of his/her statutory medical leave
If the employee is incompetent and remains incompetent after training or assignment to another post
There has occurred a major change to the objective circumstances under which the employment contract was concluded and consultations between the parties fail to produce agreement on amendment of the contract
Conclusion- Foreign employees need to fulfill a specific requirement upon getting severance pay. As their employment depends on their work permit, foreign enterprises are only entitled to severance pay for the period they have a work permit. Therefore it is vital for overseas companies to ensure the local employers timely apply for and renew their work permits in order to get full protection of local labor laws.