Dismissals and Termination of Employment in China

Employees can only be dismissed if one of the statutory reasons for termination is fulfilled. This means that an employer cannot dismiss an employee at will.  An employer can conduct a unilateral dismissal in the following three ways: summary dismissal, dismissal with prior notice and collective redundancies. 

The reasons for dismissal with prior notice, which are not attributable to the faults of the employee, include incompetence even after training or a transfer of position, non-work-related illness, and a change in the objective circumstances on which the labour contract was originally concluded.  

Notification of dismissal must state the termination reason and date. The notification must be in written form and signed by a duly authorised representative of the employer or sealed with the official company seal of the employer. The notification must be duly served to the relevant employee. The employer bears the burden of proof that the employee has or should have received it.

The statutory minimum notice period is 30 days. Alternatively, one monthly salary can be paid in lieu of a prior notice period. If the employer has agreed upon a longer notice period with the employee, the employer must comply. In case of collective redundancies, a period of 30 days' prior notice is required. In case of summary dismissal, no prior notice period is statutorily required. These rules are also applicable to international employees who  are locally hired.

In case of collective redundancies, an employer shall have a workforce reduction plan and explain the plan to all of its employees or employee representatives, if there is no trade union, and consider the opinion of the employees for collective redundancies before having the workforce reduction plan filed at the competent labour administrative authority.

A trade union committee must be established at the company level if the company has more than 25 trade union members. The employer must inform the trade union of the reasons for termination if the employer unilaterally terminates the labour contract of an employee, but the trade union’s consent is not required. If the employer does not have a trade union, the trade union at the location of the employer will be informed.

Not required.

Collective redundancies are defined as dismissals of large numbers of employees  (i.e. 20 persons or more, or fewer than 20 persons when they account for 10% or more of the total workforce) due to restructuring proceedings undertaken in accordance with the law, serious operational difficulties, a change in the line of production or business mode, or other objective changes to the economic circumstances that were the basis for concluding the labour contract, thereby making the labour contract impossible to be continuously performed. Before collective redundancies are implemented, the employer must have a redundancy plan and explain the plan to the trade union, if any, or to all its employees or employee representatives, seek their opinions and then report the workforce reduction plan to the competent labour administration authority. 

Dismissal without notice is possible in the following cases:

• if it is proved that the employee fails to satisfy the recruitment requirements during the probation period;
• the employee has seriously breached the employer’s rules and regulations;
• the employer has committed serious dereliction of duty or practised graft and caused substantial damage to the employer’s interests;
• the employee has conducted a secondary occupation, which materially affects his or her performance of job duties at the employer or has refused to rectify this even after the employer has requested that he or she do so;
• the employee has concluded the labour contract against the true will of the employer through deception or coercion, or taking advantage of the employer, causing the labour contract to be invalid; or
• the employee has been held to bear criminal liability in accordance with the law.

A dismissed employee is entitled to apply for labour arbitration within one year. Upon the employee’s application, the labour arbitration commission may order the employer to reinstate the employee. If the employee does not ask for reinstatement but asks for financial compensation or reinstatement of the employee is not practicable, the employer must pay compensation of twice the statutory severance pay for the unjustified termination to the employee.

There is no severance pay for summary dismissals. As for other dismissals, statutory severance pay is required. The amount is subject to the duration for which the employee has worked for the employer and equals one month’s gross salary for each working year. For a working period of more than six months but less than one year, the amount of severance pay shall be one month’s salary; for a working period of less than six months, the amount of severance pay shall be half of one month’s salary. This one month's salary should equal the average monthly salary of the employee in the last twelve months prior to the dismissal, which shall include monthly salaries, bonuses, allowances and subsidies that were paid to the employee in cash during such period. For the working period after 1 January 2008, if the aforementioned average monthly salary of the employee exceeds three times the average monthly salary of employees for the previous year as stipulated by the local government, the severance payment is calculated with a cap of three times the average monthly salary of employees as stipulated by the local government and with a maximum of 12 months.

Post-contractual non-competition obligations can be agreed upon by the employer and an employee who is a member of senior management, a senior technician, or subject to confidentiality obligations in written form for a maximum of two years. As a consideration of such an obligation, the employer must pay compensation to the employee monthly. The compensation amount is subject to the agreement of the parties, but must not be lower than the minimum monthly salary of employees as announced by the local government. In some regions, local regulations exist that fix the minimum compensation level. In such a case, the employer shall comply. If the parties fail to agree on the compensation amount, local regulations may provide the higher compensation level. In the regions where there are no special local regulations, the employer may be required by the court to pay compensation in the amount of 30% of the average monthly salary of the employee before leaving the employer if the employee has performed non-competition obligations. If an employee breaches the non-competition obligations, the employer is entitled to request the employee to bear the liabilities for such a breach, including the employee's payment of the agreed liquidated damages and/or continuing to perform the non-competition obligations according to the agreement.

Unless subject to summary dismissal, an employee must not be dismissed in the following cases:

1. the employee was engaged in operations that exposed him/her to occupational hazards and has not undergone a pre-departure occupational health check-up, or is suspected of having contracted an occupational disease and is being diagnosed or undergoing a period of medical observation;
2. the employee suffers from an occupational disease or has sustained work-related injuries during employment with the employer, and has been confirmed to have fully or partially lost the capacity to work;
3. the employee is receiving medical treatment for an illness or injury within the period of time as stipulated by the law;
4. the employee is pregnant, on maternity leave, or nursing a baby;
5. the employee has been working for the employer continuously for 15 years or more and is less than five years away from legal retirement age; or
6. other circumstances stipulated by laws, administrative rules and regulations disallow the dismissal.

Other than by unilateral dismissal by the employer, the labour contract can also be terminated based on resignation of the employee, non-renewal of the fixed-term labour contract upon expiration, death and retirement of the employee, bankruptcy, de-registration, closure of the employer, etc. The employee can also terminate the contract at any time without prior notice in cases of fault by the employer, such as violence, threats or unlawful restriction of personal freedom by the employer, receiving instruction or peremptory order from the employer in violation of rules and regulations for performing dangerous operations, which threaten the  employee’s personal safety or failing to duly pay salary or social security or provide labour conditions, etc. The labour contract can also be terminated by agreement between the employer and the employee.  

A managing director can be removed from his/her corporate position at any time without prior notice by a relevant resolution subject to the articles of association of the employer. Removal from a corporate position has no effect on the labour relationship. 

As for his/her labour relationship, a managing director can only be dismissed if one of the statutory termination reasons is fulfilled. This means that an employer cannot dismiss a managing director at will. Unilateral dismissal by the employer can be conducted in the following ways: summary dismissal or dismissal with prior notice. 

The reasons for dismissal with prior notice, which are not attributable to the faults of the managing director,  include incompetence even after training or a transfer of position, non-work-related illness, and a change in the objective circumstances upon which the labour contract was concluded.

Notice of dismissal must state the termination reason and date and must be given in written form, and signed by a legal representative of the employer or sealed with the official company seal of the employer. For removal from a corporate position, a board resolution or decision by the shareholders is necessary that must comply with the articles of association of the employer. The notice of dismissal must be duly served to the managing director. The employer bears the burden of proof that the managing director has or should have received it.

If the managing director is also a member of the board of directors of the employer or is otherwise registered as management of the employer, the removal from the board or management must be registered with the competent Market Supervision Administration.

As for the labour relationship, the statutory minimum notice period is 30 days. Alternatively, the managing director may be paid one monthly salary in lieu of notice. If the employer has agreed upon a longer notice period with the managing director, the employer must comply. In case of summary dismissal, no prior notice period is statutorily required. These rules are applicable to international managing directors who are locally hired.

No involvement.

A trade union committee must be established at the company level if the company has more than 25 trade union members. The employer must inform the trade union of the termination reasons if the employer unilaterally terminates the labour contract of the managing director, but the trade union’s consent is not required. If the employer does not have a trade union, the trade union at the location of the employer will be informed.

Not required.

Not applicable.

Dismissal without notice is possible in the following cases:

1. if it is proved that the managing director does not satisfy recruitment requirements during a probationary period;
2. the managing director seriously breaches the employer’s rules and regulations;
3. the managing director commits a serious dereliction of duty, or practises graft and causes substantial damage to the employer’s interests;
4. the managing director conducts a secondary occupation, which materially affects his or her performance of job duties at the employer or refuses to rectify this after the employer requests that he or she do so;
5. the managing director concludes an employment contract against the true will of the employer through deception or coercion, or by taking advantage of the employer, causing the employment contract to be invalid; or
6. the managing director is held to bear criminal liability in accordance with the law.

A dismissed managing director is entitled to apply for labour arbitration within one year. Upon the application of the managing director, the labour arbitration commission can reinstate the managing director’s employment contract.

If the managing director does not ask for reinstatement but asks for financial compensation or the reinstatement is not practicable, the employer must pay compensation of double the statutory severance pay to the managing director for the unjustified termination.double the statutory severance pay to the managing director for the unjustified termination.

There is no severance pay for summary dismissal. As for other dismissals, statutory severance pay is required. The amount is subject to the duration for which the managing director has worked for the employer and equals one month’s gross salary for each working year. For the working period of  more than six months but less than one year, the amount of severance pay is one month's salary; for the working period of less than six months, the amount of severance pay is half of one month's salary. This one month's gross salary equals the average monthly salary over the last twelve months prior to the dismissal, which shall include monthly salaries, bonuses, allowances and subsidies that were paid in cash during such period. For the period after 1 January 2008, if the average monthly salary of the managing director exceeds three times the average monthly salary of employees for the previous year as stipulated by the local government, the amount of the severance payment is calculated with a cap of three times the average monthly salary of employees as stipulated by local government and with the maximum of 12 months.

The managing director owes a statutory duty of loyalty and diligence when performing his or her duties and shall serve the best interests of the employer, which includes but not limited to avoiding engagement in the same business as the employer. In addition, an employer and its managing director can also agree on post-contractual non-competition obligations.

Post-contractual non-competition obligations can be agreed between the employer and the managing director in written form with a maximum period of two years. As a consideration of such an obligation, the employer must pay compensation to the managing director monthly. The compensation amount is subject to the agreement of the parties, but must not be lower than the minimum monthly salary of employees as announced by the local government. In some regions, local regulations fix the minimum compensation level. In this case, the employer shall comply. If the parties fail to agree on the compensation amount, local regulations provide the higher compensation level. In the regions where there are no special local regulations, the employer may be required by the court to pay compensation in the amount of 30% of the average monthly salary of the employee before leaving the employer if the managing director has performed non-competition obligations. If a managing director breaches the non-competition obligations, the employer is entitled to request the managing director to bear the liabilities for such a breach, including the managing director's payment of the agreed liquidated damages and/or continuing to perform the non-competition obligations according to the agreement.

Unless subject to summary dismissal, a managing director must not be dismissed in the following cases:

1. the managing director was engaged in operations, which exposed him/her to occupational hazards and has not undergone a pre-departure occupational health check-up, or is suspected of having contracted an occupational disease and is being diagnosed or undergoing a period of medical observation;
2. the managing director suffers from an occupational disease or has sustained work-related injuries during employment with the employer, and has been confirmed to have fully or partially lost the capacity to work;
3. the managing director is receiving medical treatment for an illness or injury within the period of time as stipulated by the law;
4. the managing director is pregnant, on maternity leave, or nursing a baby;
5. the managing director has been working for the employer continuously for 15 years or more and is less than five years away from legal retirement age; or
6. other circumstances stipulated by laws, administrative rules and regulations disallow the dismissal.

Other than the unilateral dismissal by the employer, the labour contract can also be terminated based on resignation of the managing director, non-renewal of the fixed-term labour contract upon expiration, death and retirement of the managing director, bankruptcy, de-registration, closure of the employer, etc. The managing director can also terminate the contract at any time without prior notice in case of fault of the employer, such as violence, threats or unlawful restriction of personal freedom by the employer, instructions or peremptory orders by the employer in violation of rules and regulations for performing dangerous operations which threaten employee’s personal safety or employer's failure to duly pay the managing director salary or social security or provide labour conditions, etc. The labour contract can also be terminated by agreement between the employer and the managing director.