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China – The View From Our Offices: Dismissal.

29 June, 2015

 

Legal News & Analysis – Asia Pacific – China – Labour & Employment

 

What Is The Minimum Notice Required To Terminate Employment?

 

Employees are entitled to terminate their employment by serving written notice to their employer:

 

  • Three days in advance during the probation period, and
  • 30 days in advance after completing their probation.

 

An employer is entitled to serve a written notice of termination to the employee 30 days in advance, or pay an extra one month’s salary to the employee to terminate the employment contract under any of the circumstances below:

 

  • Where the employee is ill or has a non-work related injury and cannot engage in the original work or other work arranged by the employer upon the conclusion of medical treatment;
  • Where the employee is incapable to do the job and remains incapable after receiving training, coaching or transfer of position; or
  • The employment contract becomes unenforceable because a ‘major situation’ has changed on which the employment contract relies (including changes in law or policy).

 

Dismissed employees are also entitled to “statutory economic compensation”, which is calculated as one month’s pay per year of service, up to a maximum of 12 months’ pay. The calculation of such “statutory economic compensation” for employees with service years of less than one year, is subject to the following rule:

 

  • Service year of less than six months’ service is entitled to half a month’s pay; and
  • Service year of at least six months’ but less than one year’s service is entitled to a full month’s pay.

 

Also, if the monthly pay of the dismissed employee is more than three times of the local average salary of that city/region where he/she works, then when calculating the “statutory economic compensation”, the basis of monthly pay (to be multiplied with the service year) should be subject to a cap of three times of the local average salary of that city/region. 

 

Is Dismissal Without Notice Possible, And If Yes, On What Grounds?

 

Dismissal without notice is possible under the following circumstances:

 

  • Where the employee has proved to be unqualified for the role during the probation period;
  • Where the employee commits a material breach of the employer’s rules or regulations;
  • Where the employee has made substantial mistakes or committed fraud for his/her private interest, resulting in material damage to the employer;
  • Where the employee has more than one concurrent labour relationship, which affects his/her ability to perform their job, of which he/she refuses to terminate despite the employer’s request;
  • Where the employee causes the employment contract to be invalid due to use of coercion, deception or taking advantage of the employer’s difficulties; or
  • Where the employee has been convicted for criminal liabilities.

 

Apart from circumstances where the employee has been convicted for criminal liabilities, dismissal without notice (but with payment in lieu of one month’s salary to the employee) is also applicable in the above circumstances.

 

What Are The Remedies For Dismissal In Breach Of Contract (“Wrongful Dismissal”)?

 

If the employer terminates the employment contract unlawfully or in breach of the employment contract, the employer is required to pay twice the amount of the ‘statutory economic compensation’ due to the employee.

 

The statutory economic compensation is calculated as one month’s pay per year of service with the employer, up to a maximum of 12 months’ pay. Employees who have less than one year’s service are entitled to the following:

 

  • Those with less than six months’ service are entitled to half a month’s pay; and
  • Those with at least six months’ but less than one year’s service are entitled to a full month’s pay.

 

What Are Considered “Fair” Grounds For Dismissal?

 

There is no legal concept of what constitutes a “fair” dismissal in China. However, the employer is entitled to terminate the employment contract either (i) due to employee’s fault and without notice (as discussed in the ” Is dismissal without notice possible, and if yes, on what grounds?” section); or (ii) under certain circumstances specified by law but serving a 30 day prior written notice or payment in lieu of notice (as discussed in the response to “What is the minimum notice required to terminate employment?”).

 

An employer is also permitted to make collective redundancies in certain circumstances and where there is a reduction of more than 20 employees, or more than 10% of the workforce if the employer has 200 or fewer employees.

 

An employer cannot dismiss certain categories of employee with 30 days prior written notice (or payment in lieu of notice) or in a collective redundancy. This includes:


  • Employees who have at least 15 years’ continuous service with the employer and are less than five years away from the statutory retirement age;
  • Employees who have been engaged in operations exposed to occupational disease hazards are not given pre-departure occupational health examinations, or employees who have been suspected of an occupational disease are in the process of being diagnosed or are under medical observation period;
  • Employees who are suffering from a disease or non-work-related injury, and are still in the statutory medical treatment period;
  • Employees who have an occupational disease or work-related injury during his/her employment with the employer and have lost all or part of their work capacity; and
  • Female employees during pregnancy and the year following childbirth.

 

What Minimum Dismissal Process Must Be Followed?

 

In the event of dismissal with notice, or payment in lieu of notice, the employer needs to serve a 30 day prior written notice on the employee, or pay one month’s salary in lieu of notice to terminate their employment contract.

 

There is no statutory requirement for the format or details of the written notice. The employer also needs to pay the “statutory economic compensation” to the employee.

 

Particular processes must also be followed in cases of collective redundancies, a detailed examination of which is outside the scope of this note.

 

What Are The Remedies For “Unfair Dismissal” (Or Its Equivalent?)

 

Where an employer terminates an employment contract unlawfully the employee involved may request continuation of the employment contract. If the employee does not request continuation of employment, or if it becomes impossible for continued performance of the contract, the employer is required to pay twice the amount of “statutory economic compensation” due.

 

What Statutory Protection Is There For Employees Against Dismissal Because Of Or Connected To The Sale Of A Business?

 

In accordance with Employment Contract Law of the PRC, the performance of an employment contract shall not be affected due to change of ownership.

 

In addition, where an employer is merged or divided, the existing employment contract shall remain valid and continue to be performed by the new employer which succeeds to its rights and obligations.

 

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For further information, please contact:

 

Jezamine Fewins, Partner, Stephenson Harwood

jezamine.fewins@shlegal.com

 

Chunfai Lui, Partner, Stephenson Harwood

cf.lui@shlegal.com

 

Paul Westover, Partner, Stephenson Harwood

paul.westover@shlegal.com

 

Yeeling Wan, Stephenson Harwood

yeeling.wan@shlegal.com

 

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