Termination of employment

Grounds for termination

May an employer dismiss an employee for any reason or must there be ‘cause’? How is cause defined under the applicable statute or regulation?

An employer may dismiss an employee only for ‘cause’; however, an employer may dismiss an employee with 30 days’ prior notice or one month’s salary in lieu of such notice in certain circumstances. The Labour Contract Law also provides for circumstances where an employer may dismiss an employee without prior notice.

Notice

Must notice of termination be given prior to dismissal? May an employer provide pay in lieu of notice?

Under some circumstances, prior notice or one month’s salary in lieu of such notice will be required.

An employer may dismiss an employee with 30 days’ prior notice or one month’s salary in lieu of such notice if:

  • after the completion of medical treatment for an illness or non-work-related injury, the employee is unable to perform his or her original job or any other work position arranged for him or her by the employer;
  • the employee is incompetent in his or her job and fails to make any improvement after training or adjustment of his or her position; or
  • material changes of the objective circumstances have made the employment contract no longer executable, and the employer and the employee cannot reach an agreement on a change to the employment contract.

 

The Labour Contract Law provides for circumstances where an employer may dismiss an employee without prior notice.

In which circumstances may an employer dismiss an employee without notice or payment in lieu of notice?

The Labour Contract Law provides that an employer may dismiss an employee without prior notice if the employee:

  • fails to meet the conditions set out for the probationary period;
  • severely violates the employer’s internal rules and policies;
  • is corrupt or neglectful in performing his or her duties, causing severe damage to the employer’s interests;
  • fraudulently induced the employer to employ him or her through means such as fraud, deception or coercion;
  • is simultaneously employed by another employer, severely affecting the performance of his or her duties, or he or she refuses to rectify the situation after receiving the employer’s request; or
  • is convicted of a crime.
Severance pay

Is there any legislation establishing the right to severance pay upon termination of employment? How is severance pay calculated?

Yes. According to the Labour Contract Law, an employer must make a severance payment upon termination of employment if:

  • the employee terminates the labour contract owing to the employer’s fault (eg, not paying the employee in full or timely);
  • the employer does not renew the employee’s fixed-term labour contract;
  • the employer initiates the termination discussion, and the employer and employee reach a mutual agreement to terminate the labour contract;
  • the employer terminates an employment contract with 30 days’ notice or payment of one month’s salary in lieu of notice;
  • the employer carries out collective dismissals, or a mass layoff, owing to the need to restructure the enterprise under the applicable laws and regulations;
  • a fixed-term labour contract expires, and the employee has refused to renew the employment contract on the lesser terms proposed by the employer (severance pay is not due if the employer proposes to renew the labour contract on the same or more favourable terms);
  • the employer is declared bankrupt under the law, has its business licence revoked, is subject to a lawful order to shut down, or is closed down or decides to go into liquidation; or
  • any other circumstances prescribed by law and administrative regulations.

 

The aggregate amount of severance payment is calculated primarily based on the employee’s monthly salary for each completed year of service with the employer. A period longer than six months but less than one year will be rounded up to a full year of service, and less than six months gives rise to an entitlement to half a month’s salary.

In calculating the severance payment, the monthly salary used is the employee’s average monthly salary in the 12-month period immediately preceding the termination. If the monthly salary of an employee is higher than three times the average monthly salary for the relevant year as announced by the Central People’s Government at the municipal level directly under the central government or at the district level where the employer is situated, the monthly salary used to calculate the severance payment may be capped at three times the average monthly salary announced by the government. In such a scenario, the number of service years for calculating the severance amount of the concerned employee may also be capped at 12 years. However, if an employee’s service commenced before 1 January 2008 (the effective date of the Labour Contract Law), the calculation may vary significantly depending on the reason for the termination, the work location of the employee, the location where the employer is registered (if different from the work location of the employee) and the circumstances involved.

Procedure

Are there any procedural requirements for dismissing an employee?

Yes. The Labour Contract Law prescribes certain procedures to dismiss employees. If an employer plans to terminate a labour contract unilaterally, it must provide prior notice to the trade union, even if the employer does not have a trade union. In this case, the local or municipal union may be notified. If the employer violates any laws, regulations or labour contract, the union may ask the employer to take corrective measures. The employer must consider the union’s opinions and notify the union in writing of the outcome. Usually, no prior government approval is required to terminate an employee’s contract, but such approval will be necessary in practice in the event of a mass layoff.

Employee protections

In what circumstances are employees protected from dismissal?

Certain employees are protected from dismissal with prior notice and collective dismissal (but not summary dismissal) of their employment contracts under the following circumstances:

  • employees engaged in positions at risk of occupational diseases who have not undergone proper health examinations before leaving the position, or employees who are suspected of having occupational diseases, are being diagnosed for such diseases or are under medical observation;
  • employees who have lost or partially lost the ability to work owing to a work-related injury or disease;
  • employees who have or are suspected of having covid-19;
  • employees within the statutory period for medical treatment owing to non-work-related medical conditions;
  • employees who are pregnant, on maternity leave or in the ‘nursing’ period, which is the period from the child’s birth until the child’s first birthday;
  • employees who have worked for 15 consecutive years with the same employer and are within five years of the statutory retirement age; and
  • employees otherwise protected by the relevant laws and administrative regulations.
Mass terminations and collective dismissals

Are there special rules for mass terminations or collective dismissals?

Yes. If an employer intends to dismiss 20 or more employees, or fewer than 20 employees when this number represents 10 per cent or more of the total number of its employees, the dismissals must be based on statutory reasons, including restructuring according to the Enterprise Bankruptcy Law or serious difficulties in production or business operations. Also, the employer must consult with the employees by giving 30 days’ advance notice of the background and reasons for the dismissals to the trade union or all of its employees. The employer should consider the opinions of the union or the employees, and file the mass layoff plan with the labour administrative authorities. While government approval is not legally required to implement a mass layoff, such approval is necessary in practice.

Class and collective actions

Are class or collective actions allowed or may employees only assert labour and employment claims on an individual basis?

In theory, class actions are allowed in China. According to the Civil Procedure Law, where the subject matter of an action is of the same category and one of the parties has numerous litigants but the exact number of the litigants is uncertain when the lawsuit is filed, the people’s court may issue a public notice to explain the nature of the case and the claims, as well as notify interested persons who are also entitled to claims to register their claims with the people’s court within a specified period. In practice, however, no such class actions have been brought; in most cases, an employee will file a claim on an individual basis.

While multiple employees may bring the same claim and the hearings may be held concurrently, the adjudications are made on an individual basis. When there is a breach of a collective bargaining agreement, as authorised by the Labour Contract Law, a trade union may apply for arbitration or bring a lawsuit against the employer. However, labour disputes filed in the name of the trade union are not common.

Mandatory retirement age

Does the law in your jurisdiction allow employers to impose a mandatory retirement age? If so, at what age and under what limitations?

Yes. Under the current law, the mandatory retirement age is generally 60 for males, 55 for females who hold ‘desk jobs’ or positions not requiring manual labour and 50 for other female workers. When this law was promulgated several decades ago, it applied only to employees of state-owned enterprises; however, it now also applies to other businesses, private and foreign-owned. Employees who work underground, at high altitudes or in extreme temperatures, or whose work is especially physically taxing or otherwise harmful to their health, are entitled to an early retirement age (ie, 55 for males and 45 for females). Employers, however, are allowed to hire retirees using a labour service contract. Retired employees hired under labour service contracts are not entitled to termination protections and some other benefits provided under the Labour Contract Law, and their engagement in this manner may be limited to one to two years. Generally, foreign employees are not permitted to work in China beyond the legal retirement age.