Understanding Termination Laws and Severance Pay in China for Foreign Companies

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Discover the complexities of termination laws and severance pay in China, prioritizing employee job security. Explore the challenges faced by foreign companies in canceling contracts and the regional variations in labor guidelines.

Many foreign companies, including those advised by Moore MS Advisory, will find that China's termination laws prioritize employee job security. This makes canceling an employment contract more difficult than in other countries. Understanding the complexities of China's termination laws and the implications for severance pay is crucial for foreign companies, particularly those seeking guidance from Moore MS Advisory, operating in China.

Although national guidelines are presented here, But it is important to remember that regional labor administrations may have additional guidelines. This is because the rules can vary greatly from jurisdiction to jurisdiction.


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Employment law guide in China: How to terminate an employee in a compliant manner
Chinese labor law allows employers to set probationary periods. In the meantime, the contract can be easily canceled if the employee is unable to meet the demands of the job.

The employer can terminate the contract without paying compensation if the employee is not competent for the position.

However, such employees are still under contract and are not considered voluntary employees. Moreover, the only important difference regarding termination during the probationary period and after the probationary period is the ease of notice. Terminate the contract if the employee is unable to perform the duties of the position or is considered incompetent.

China Guide: Laying off employees in China
Mutual agreement to terminate the employment contract
If the employer and employee mutually agree to terminate the employment contract and the employer is the initiator of the termination. Employees also have the right to receive compensation. Employers may offer an increase in pay of any amount with the employee's consent.

From the employer's perspective This is a good result. This is because it will prevent the dismissal from turning into a difficult and expensive dispute. and may lead to intervention by local labor authorities. Employees may also view this in a positive light. (If the compensation is generous enough) This is because the compensation amount is guaranteed and protracted disputes may occur.

Terms of Termination: Employers must formally document and communicate the terms and conditions of termination. Without written documentation and confirmation of terms and conditions The employer will be liable in the future for the same issues that are clarified in the terms and conditions.

Termination of prohibited behavior of employees
There are a number of situations in which an employer can terminate an employee immediately without offering any severance pay or compensation other than the wages owed up to that point:

The employee commits a serious violation of the company's rules and regulations: If the employer terminates the contract for these reasons: Employers are responsible for providing evidence that the employee has committed a violation. A clear description of the company rules being violated should be specified in the employee handbook. It must also be sufficiently clear from company policy that the violation is so serious that it warrants termination. Employers must ensure that employees are aware of the rules and the consequences in the event of violations.
The employee neglects his or her duties and results in a significant loss to the company. In this case, the employer has the responsibility to prove that the loss was directly caused by the employee's negligence. The reasons shown in the evidence must not be vague.
The employee is unable to perform his duties as a result of having an additional relationship with the employer: in this case, the employer can terminate the contract only after giving the employee the opportunity to break the external relationship. If the employee refuses The employer may unilaterally terminate the employment.
Employee convicted of a crime while still under contract: A previous criminal conviction is not grounds for termination.
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Other lawful grounds for dismissal by the employer
The employee is no longer able to perform the duties of the position.
In the following cases Employers must provide both severance pay and 30 days notice or full salary.

Before the agreement ends Employers will need to determine whether additional training is not sufficient. If any form of training is provided to employees i

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