Why terminating China-based employees is so difficult

A leading industry lawyer says employers should try and make terminations mutual when possible.

Why terminating China-based employees is so difficult
Terminating employees based in China can be arduous task but it is possible – here, a leading industry lawyer explains how HR can get it right.

“Terminating China-based employees is difficult,” admits Grace Yang, a senior attorney with international law firm Harris Bricken.

Technically, China’s Labor Contract Law permits an employer to terminate an employee, with severance, if they’re incompetent and remains incompetent after training or reassignment – however, Yang says it’s rarely so simple.

“Chinese courts tend to be very strict in applying this law and employers that fail to have ‘checked all the boxes’ before the termination almost always face adverse consequences,” she warns.

To communicate her message effectively, Yang lays out three hypotheticals for employers.

Hypothetical 1
The employer and employee enter into a written employment contract which includes a statement explaining the employer’s expectations and performance requirements for the employee’s position

The employee signs the statement but their performance perpetually fails to meet the employer’s expectations. They are eventually terminated for “poor performance” and paid statutory severance: three months’ salary plus one additional month’s salary in lieu of advance notice.

However, the employee sues on the basis of unlawful termination.

Yang, who divides her time between Beijing and Seattle, says employers may be surprised to learn the outcome of a case like this.

“This termination will almost every time be deemed unlawful because the employer failed to generate good contemporaneous evidence of its employee’s failure to meet the job requirements,” explains Yang.

Hypothetical 2
Same situation as above, with the exception that the employer carried out annual performance reviews and documented the results. The reviews show the employee was not meeting expectations, had been informed of their lacklustre performance but had done nothing to improve things over the succeeding six months.

The termination notice – blamed again on “poor performance” – came three years after they were first taken on and they received the same amount of severance.

“In this scenario, the employer did a better job documenting the employee’s incompetence but it will still almost certainly lose,” says Yang.
“The employer will lose because it did not follow the law in making the termination decision as it did not provide the employee with any training so she might improve at her job nor did it ever assign her to a different position.

“For these reasons, the employer will lose for failing to meet its burden of proof regarding the need to provide a failing employee with training or a different position.”

Hypothetical 3
Again, the same situation with the exception that during the six-month period before termination, the employer and employee worked together to create a corrective plan for improvement.

The employer worked with the employee on correcting errors, on monitoring progress and on providing ample training – all of which was documented clearly in writing.

“Will this employer prevail in a legal proceeding initiated by the employee?” asks Yang. “Probably yes. “

Yang says she chose the word “probably” for two reasons:

“First, generally speaking, if there is a workers union, the union needs to be consulted before a unilateral termination decision can be made final. Failing to go through this step may subject to the employer to liabilities for unlawful termination,” she warns.

“Second, even assuming there is no workers union, there may still be additional requirements imposed by the local authorities and those will need to be followed as well.”

Essentially, Yang says the outcome of any China-based termination will ultimately depend on the facts of each individual case.

“Even in the last hypothetical the multiple hoops with which employers must jump through to satisfy their burden of proof oftentimes makes sense even for employers that have followed all termination steps to come to a mutual termination agreement with their terminated employee to avoid the legal battles altogether,” says Yang. “The more you do right, the less you will usually need to pay.”

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