Procedures For Terminating the Agreement
In general, all terminations, including termination by the employee, should be made by serving a written termination notice to the other party.
If the termination is initiated by the employer, the employer should specify the legal basis for the termination in the notice. In addition, the employer must give the trade union prior notice of the termination. The trade union has the right to provide its opinion regarding the grounds for the termination and be notified in writing of the employer’s action regarding the termination.
Prior approval from a government authority is not required by law. However, the required notification to the labour bureau for mass layoffs may in effect constitute an approval procedure.
An employer can instantly dismiss an employee if the employee:
- does not satisfy the required conditions for employment during the probationary period;
- materially breaches the employer’s rules or regulations;
- seriously neglects the employee’s work duties which causes substantial damage to the employer;
- works for another employer that materially affects the employee’s job, or the employee refuses to rectify the situation when it is brought to the employee’s attention by the employer;
- commits fraud when entering the contract; or
- has been found guilty of a criminal offence.
An employee may resign by serving 30 days’ prior written notice to the employer, provided that only three days’ notice is required for resignation during a probation period.
Termination On Notice
An employer may dismiss an employee by giving 30 days’ prior written notice to the employee for the following reasons:
- after the statutory period of medical treatment for a non-work-related illness or injury, an employee cannot return to work, either to the employee’s original job or to an alternative position arranged for the employee by the employer;
- the employee is incompetent and is still incompetent after training or adjustment of the employee’s position by the employer; or
- a material change in the objective circumstances at the time of the conclusion of the employment contract which makes performance of the contract impossible and, after consultations, the employer and the employee are unable to reach agreement on amendment of the employment contract.
Termination By Reason Of The Employee's Age
An employment contract will automatically end when the employee reaches statutory retirement age or starts to enjoy statutory pension insurance benefits. The retirement age for males is 60 years old. The retirement age for females is 50 years old (or 55 years old for certain management positions).
Automatic Termination In Cases Of Force Majeure
An employment contract automatically ends when: (i) the employee dies, or is declared dead or missing by a People’s Court; (ii) the employer is declared bankrupt; or (iii) the employer’s business licence is revoked, the employer is ordered to close down or dissolved, or the employer decides to dissolve itself.
The Labor Contract Law defines a collective dismissal when an employer terminates 20 or more employees or where the number of employees to be terminated is less than 20 but comprises 10% or more of the total number of employees of the enterprise. In order to effect a dismissal, the employer must first explain the situation to the labour union or all staff 30 days in advance and seek the opinion of the labour union or the employees. The employer may carry out the dismissal after reporting the dismissal plan to the labour administrative authorities.
Permitted grounds for a collective dismissal include the following:
- the employer undergoes restructuring pursuant to the provisions of the Enterprise Bankruptcy Law;
- the employer has serious production and business difficulties;
- the enterprise undergoes a change of production, significant technological reform or change of mode of operation and upon variation of labour contracts, there is still a need for retrenchment; or
- the objective circumstances for which the conclusion of a labour contract is based upon have undergone significant changes and as a result thereof, the labour contract can no longer be performed.
The following personnel shall be given priority to be retained in a collective dismissal:
- a worker who has entered into a fixed-term labour contract of a long period with the employer;
- a worker who has entered into a non-fixed-term labour contract with the employer; or
- a worker whose family members are not employed or who needs to support aged or under-aged family members.
Where an employer that carries out a collective dismissal exercise is re-hiring employees within six months, the employer must notify the terminated personnel and they must be given priority for employment under the same conditions.
Termination By Parties’ Agreement
An employer and an employee may agree to terminate an employment contract.
Directors Or Other Senior Officers
There are no specific rules relating to the dismissal of directors or other senior officers. Senior officers and directors with managerial positions will be subject to the labour laws. Termination of employment does not automatically bring to an end the directorship or corporate governance. Separate steps will be required to bring the directorship or corporate governance to an end (pursuant to the company’s articles of association).
Directors that do not assume managerial positions are not treated as employees and accordingly are not subject to labour laws.
Special Rules For Categories Of Employee
Certain categories of employees may be afforded greater protection from dismissal. In general, unless an employee seriously violates the rules and regulations of the employer, the employee cannot be dismissed if the employee: (i) contracts an occupational injury or illness and has lost partial or full work capability; (ii) is in statutory medical treatment leave; (iii) is pregnant, on maternity leave, or in the statutory nursing period; or (iv) has been working for the employer for more than 15 years on a consecutive basis and is less than 5 years away from his/her legal retirement age.
The terms of the employment contract will extend upon the expiration for employees in the above categories until the specific circumstance disappears.
Employees on a part-time basis may be terminated at any time without cause.
Specific Rules For Companies in Financial Difficulties
There is no explicit legal basis for an employer to terminate employees because the employer is experiencing financial difficulties. Instead, financial difficulties could be grounds for a mass layoff if the employer can show that the employer has (i) “serious difficulties in production and/or business operations”; (ii) the employer undergoes a change of production, significant technological reform or change of mode of operation and upon amending the employment contracts, there is still redundancies; or (iii) there exists a “major change in the object economic circumstances relied upon at the time of conclusion of the employment contracts, rendering them unperformable”.
Mass layoffs apply to terminations of at least 20 employees or less than 20 employees if the employees terminated account for at least 10 percent of the workforce. In order to effect a mass layoff, the employer must discuss the situation with its trade union or all employees at least 30 days prior to the proposed layoff. The employer is also required to provide a workforce reduction plan to the labour bureau.
In a mass layoff, the employer is required to give priority to retaining the following employees: (i) those who have entered into fixed-term contracts with relatively long terms or entered into open-term contracts; or (ii) those who are the only ones in their families to be employed and whose families have an elderly person or a minor for whom they need to provide for.
As a practical matter, mass layoffs are rare. Employees are generally terminated by mutual agreement.
Restricting Future Activities
PRC law permits post-termination non-compete restrictions to be applied to employees who are senior managers or senior technicians, or who otherwise have access to confidential information. A post-termination non-competition period may not exceed two years. Monthly non-compete compensation must be paid to the employee during the term of the non-compete obligation. The default national compensation standard is 30% of the employee’s prior salary. Some local jurisdictions set down higher compensation standards than the national level. An employer is permitted to waive enforcement during the noncompete term with the payment of three months’ compensation. Some local jurisdictions permit employers during employment to waive non-compete obligations (and thus avoid paying any compensation).
PRC law does not prohibit non-solicitation or non-disparagement clauses effective after termination of employment.
There are no special regulations relating to Whistleblower laws.
Special Rules For Garden Leave
There are no special regulations for garden leave.
In general, an employee is entitled to severance if terminated by notice, terminated by mutual agreement, terminated upon the expiration of the contract term, or terminated in a mass layoff. An employee is also entitled to severance if the employee terminates employment due to the fault of the employer.
Severance is based on the number of years that the employee worked with an employer. The rate is one month’s “average compensation” for each full year worked. Employment of more than six months but less than one year is counted as one year.
The severance pay payable to an employee for any period of less than six months is one-half of the employee’s average monthly compensation. The average monthly compensation is determined by taking the total amount of salary, bonuses, allowances, and subsides from the final 12 months of employment, and dividing the total by 12. The amount of severance is subject to a statutory cap which will be various among different local jurisdictions.
If the employee is terminated on notice after completion of the statutory period for medical treatment, the employee in some cities may be entitled to a medical subsidy amounting to six months’ salary. Employees suffering from severe diseases or terminal diseases will be entitled to additional medical subsidies.
Special Tax Provisions And Severance Payments
The portion of a severance payment that is less than three times the average local annual salary will be tax-free. Payments above this level will be subject to reduced tax in accordance with special rules.
Allowances Payable To Employees After Termination
Employers are not required to pay allowances to employees after termination.
Time Limits For Claims Following Termination
The time limit to file an application for arbitration of a labour dispute is one year from the date when the party knew or should have known that there was a dispute. However, if the dispute arises from a delayed payment of labour compensation, the time limit to file a claim is one year from the date of termination of the labour relationship.