China is the second-largest global economy and one of the countries with the most stringent employee protection laws. Terminating an employee contract requires a comprehensive review of underlying labor laws. Employers must demonstrate and justify they terminated a worker according to national laws.
China Labor Contract Law of 2008 was the first ever nationwide legislation governing the termination, formation, and execution of employment contractors. Workers enjoy superior protection under the Labor Contract Law.
An employer who seeks to justify a worker's termination should employ the following structured approach.
1. Proper Performance Evaluation and Documentation
Underperformance threatens long-term growth and profitability. Chinese contractors should routinely evaluate and measure employee performance to identify workers who are lazy around. Establishing clear and measurable performance standards provides the foundation for determining how best workers perform. Outline the standards of your company’s internal guidelines, employment contracts, and company policies. Annual or quarterly assessments help employers to track progress and offer formal feedback.
Employers should offer written warnings to prevent deficiencies when employees underperform. Observe laws about overtime in China and set clear improvements to allow a reasonable timeframe for corrections. Employees who fail to make noticeable milestones after the first warning can be reassigned to more suitable roles or offered robust training.
An employer terminates an employee who underperforms even after reassignment or training attempts. You ought to maintain clear records of evaluations, training sessions, warnings, and employee responses to use when filing claims.
2. Seek a Mutual Termination Agreement
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The legal employee contract termination process takes time and expenses. Many employers seek alternative, cheaper, and quicker solutions. A mutual termination agreement offers a lawful background for ending a worker contract on agreed terms. Create an agreement that outlines termination dates, benefits, severance package, and acceptable conditions. Mutual terminations have no stringent legal requirements, but employers can use the one-month salary per year of service formula.
A document written and signed by involved parties boosts the validity and usability of a mutual termination agreement. The terms included in the termination agreement should comply with China’s local regulations and labor contract law. Allow the employee adequate time to review the agreement and seek legal advice before signing. A duly signed agreement carries substantial legal value, preventing employees from making future claims.
3. Comply With Regulations to Avoid Related Risks
An employer cannot just fire and terminate an employee’s contract on unfounded grounds. Employers guilty of terminating a worker's contract outside stipulated legal grounds experience substantial reputational damage, penalties, and expensive legal battles. In some circumstances, you may reinstate the dismissed employee and draft a new contract. Employers should use China’s Labor Contract Law as the framework for handling employee dismissals. It provides the guidelines for writing off an employee and the steps to do things right.
The legal framework guides you into the proper way to document underperformance, issue formal warnings, and offer rational opportunities for growth. Where there is sufficient evidence and data to initiate a dismissal, employers should offer a legally signed termination letter specifying the grounds for dismissal, severance payment, and last working day.
4. Severance Pay and Compensation
Workers have the right to know why and when their work contract ends. They deserve adequate compensation for the inconvenience and service delivered over the years. Employers must understand severance pay and the legal guidelines backing the process. You should compensate workers enough money when you terminate a contract. Labor laws require employers to calculate severance pay based on the length of service.
The law requires paying your dismissed employees a remuneration equaling one month's salary for the years they served in your establishment. The pay amount here depends on the number of years served. The pro-rata calculation method is valuable when calculating the severance pay for workers who served for less than a year. High-income employees might receive more severance pay because laws require capping it at three times the local average salary. Some establishments offer superior severance packages as part of mutual termination agreements.
5. The Initiator of the Termination
The complexity and length of an employee dismissal process depend on the brain behind the termination instigation. Employees who feel their employer seldom offers them peace of mind due to underperformance complaints can file for contract termination. The process takes less time because the initiator is the victim. They already gave their rights to have a dismissal letter initiated against them. Employee-initiated termination has clear procedures and cost-effective solutions. However, some companies might not approve the termination instantly when the employee holds a valuable position.
Employer-initiated terminations are the most popular. They occur when employers want to introduce fresh and more capacitated hands into their operations. Employers have the right to terminate a work contract on varied grounds. Underperformance is the most popular reason many employers fire an employee. However, dismissing an employee is never a one-step or one-size-fits-all solution, where every company can make decisions based on a particular program or framework.
China labor law gives complex and detailed specifications on when an employer can initiate and implement a termination. An employee who continues to underperform even after several warnings can get dismissed legally and without a tussle. Underperforming employees guilty of unethical behaviors or fraud are easier to fire with minimal legal intervention. You can transfer your underperforming workers to other positions similar to or lower than the ones they are serving. Watch their performance in the new positions. If they fail to make positive changes, you can fire them legally.
Whichever termination route you take, you must have documented a series of events that instigated the need to fire an employee. Ensure your evidence holds solid grounds to ease the termination process. Employees who have undergone training but fail to perform are candidates for legal termination. Always know your rights and limitations when initiating a process to dismiss an employee.
Wrapping Up
Employee dismissal requires a legally compliant approach and systematic structure to ensure fairness and reduce risks. Review worker performance accordingly to know who has maintained a downward trajectory. Give them chances to change, including engaging them in advanced training and transferring them to other positions.
Keep accurate documents of every step you make towards building high-performance workers. Use these legal documents to initiate a termination. They can speed up the process and reduce the legal work. Dismissals should follow the legal procedures in China Labor Contract Law. Terminating workers based on statutory regulations can minimize labor disputes, enhance your reputation, and strengthen your position.
