How to Legally Terminate Employees in China

Terminating employees in China is notoriously difficult. Chinese labor law strongly favors employees, and improper terminations frequently result in costly disputes. Understanding the rules before you act is essential.

Legal Grounds for Termination

Immediate Termination (No Severance)

You can terminate without severance only if the employee:

• Fails probation period requirements (must be documented)
• Seriously violates company rules (rules must be properly established)
• Causes major damage through serious dereliction of duty
• Has employment relationships with other employers affecting work
• Uses fraud or coercion to induce the employment contract
• Is criminally prosecuted

Termination With Notice/Severance

With 30 days' notice (or payment in lieu) plus severance, you can terminate if:

• Employee cannot perform job after medical treatment period
• Employee is incompetent and remains so after training or reassignment
• Circumstances have materially changed making the contract unperformable

Economic Layoffs

Mass layoffs (20+ employees or 10%+ of workforce) require:

• Valid business reasons (restructuring, serious difficulties, etc.)
• 30 days' advance explanation to union/employees
• Report to labor bureau
• Priority retention and rehiring rules

Protected Employees

Certain employees cannot be terminated (except for serious misconduct):

• Employees with occupational diseases or work injuries
• Employees during medical treatment period
• Female employees during pregnancy, maternity leave, or nursing period
• Employees who have worked 15+ years and are within 5 years of retirement

Severance Calculation

When severance is required:

• Formula: One month's salary × years of service
• Partial years: 6+ months = 1 year; less than 6 months = 0.5 month
• Salary cap: 3× local average salary (for high earners)
• Service cap: Maximum 12 months for high earners

Common Mistakes

1. Inadequate Documentation

"Poor performance" terminations fail because employers cannot prove:

• Clear performance standards were communicated
• Employee was given opportunity to improve
• Training or reassignment was attempted

2. Invalid Company Rules

Rules must be:

• Lawful in content
• Adopted through democratic procedures (employee input)
• Communicated to employees (with proof)

3. Procedural Failures

• Not notifying the union before termination
• Not providing written termination notice
• Not following internal procedures

The Termination Process

1. Review grounds: Confirm you have valid legal basis
2. Check protections: Ensure employee isn't in a protected category
3. Gather documentation: Compile evidence supporting termination
4. Union notification: Inform union of intended termination
5. Written notice: Provide formal termination letter
6. Exit procedures: Handle handover, final pay, social insurance

Negotiated Termination

Often the safest approach is mutual agreement:

• Negotiate a separation package
• Get signed release agreement
• Typically costs more than statutory severance
• But avoids litigation risk

If the Employee Disputes

Employees can file labor arbitration claims within one year. If you lose:

• Reinstatement: Employee can demand their job back
• Double severance: If reinstatement isn't practical, you pay 2× normal severance
• Back pay: Wages from termination to ruling