How to Terminate Employees in China: A Practical HR Guide

Wrongful Dismissal Avoidance

Wrongful dismissal claims in China can arise when an employer fails to follow legal procedures or terminates an employee without a valid reason. These claims can lead to significant legal consequences, including compensation payments to the employee or reinstatement. Employers must take the following steps to avoid wrongful dismissal claims:

1. Maintain Detailed Documentation

It is essential to document every step of the termination process, including reasons for dismissal, any performance reviews, warnings, or investigations that support the decision. This documentation serves as evidence in the event of a dispute.

2. Follow the Correct Legal Procedures

Termination in China requires strict adherence to the legal procedures outlined in the Labor Contract Law. This includes conducting investigations, issuing formal warnings, and providing the employee with an opportunity to respond to allegations, especially in cases of misconduct.

3. Comply with Notice Periods

Providing the appropriate notice period or offering pay in lieu is essential to ensuring a lawful termination. Failing to provide sufficient notice or compensation can expose employers to legal challenges.

By following these guidelines, employers can significantly reduce the risk of wrongful dismissal claims.

Notice Periods and Pay in Lieu

The Labor Contract Law in China requires employers to provide notice before terminating an employee. The standard notice period is typically 30 days, but this may vary depending on the specifics of the employment contract. In some cases, such as immediate terminations for gross misconduct, the notice period can be waived, but employers must still ensure they comply with all other legal requirements.

Pay in Lieu of Notice:

If an employer wishes to terminate an employee without requiring them to work during the notice period, they may offer pay in lieu of notice. This payment compensates the employee for the notice period they would have otherwise received. The amount should be equal to the employee’s salary for the entire notice period.

Providing proper notice or pay in lieu ensures compliance with labor laws and helps avoid disputes over wrongful termination.

Severance Pay and Long Service Payment

In China, severance pay is mandatory for most terminations, including those due to redundancy, incapacity, or the expiration of a labor contract that the employer chooses not to renew. The amount of severance pay is based on the employee’s years of service and their average salary over the 12 months preceding termination.

Severance Pay Calculation:

• 1 month’s salary for each full year of service.
• Pro-rated payment for employees with less than one full year of service.

Long service payments may also apply to employees who have worked for a company for an extended period. These payments are designed to compensate long-serving employees for their years of dedication to the company.

Accurate calculation of severance pay is critical to ensuring compliance with the Labor Contract Law and avoiding legal disputes.

Steps in the Termination Process

To ensure compliance with Chinese labor laws, employers must follow a structured process when terminating an employee. The steps below outline the proper termination process in China:

1. Document the Reason for Termination

Employers must clearly document the reason for termination, whether it’s due to redundancy, misconduct, or incapacity. This documentation is crucial for protecting the company in the event of a dispute.

2. Provide Formal Notice

The employer must issue formal written notice of termination, adhering to the required notice period. If immediate termination is required, pay in lieu of notice must be provided.

3. Calculate Severance and Final Compensation

Employers must calculate any outstanding wages, unused leave, and severance pay according to Chinese labor laws. These payments should be made promptly to avoid legal challenges.

4. Ensure Legal Compliance

Throughout the termination process, employers must ensure compliance with the Labor Contract Law. This includes adhering to the notice period, providing severance pay, and documenting the entire process.

How AYP Can Help

Navigating the employee termination process in China can be complex due to the various legal requirements involved. AYP’s Professional Employer Organisation (PEO) and Employer of Record (EOR) services are designed to help businesses manage employee terminations in full compliance with the Labor Contract Law. Our services include:

• Managing Terminations: From issuing formal notice to calculating severance, AYP ensures that the termination process is handled in accordance with Chinese labor laws.
• Minimizing Legal Risks: We ensure that terminations follow proper legal procedures, helping businesses avoid wrongful dismissal claims and other legal disputes.
• Handling Employment Contracts: AYP assists with ensuring that employment contracts are compliant with Chinese labor laws and clearly outline termination procedures.

With AYP’s expert support, employers can manage employee terminations in China confidently and legally. Contact us today to learn how we can assist with your HR and compliance needs.