Terminating employment contracts in China is a delicate matter that requires a thorough understanding of Chinese labor laws and hiring practices in China. Termination in China can occur through various channels, each governed by specific rules and regulations. Let’s delve into the different scenarios of employment termination in China and the corresponding procedures.

1. Employment Termination in China: Mutual Agreement.

When both the employer and employee reach a consensus to terminate the employment contract in China, it can be executed smoothly through mutual agreement. This type of termination generally involves open communication and negotiation between the two parties.

2. Employment Termination in China: Termination Initiated by Employee.

a. Termination during the Probation Period.

An employee in China may terminate the employment contract during the probation period by providing the employer with a 3-day notice.

b. Employee-Initiated Termination Conditions: Severance payment applied.

Employees can terminate the contract in China under specific circumstances, including but not limited to:

  • Employer failure to provide a safe work environment as per the employment contract.
  • Employer delay or non-payment of salary.
  • Employer failure to pay social insurance premiums.
  • Employer violation of laws or regulations harming the employee’s rights.
  • Employer coercion or deception in the formation or modification of the employment contract.
  • Employer use of violence, intimidation, or endangering personal safety.

3. Employment Termination in China: Termination Initiated by the Employer.

a. Non-Wrongful Termination.

The employer can terminate the employment contract by providing 30 days’ written notice or one month’s salary in lieu of notice under certain circumstances, such as:

  • Employee inability to perform original or newly assigned work due to illness or non-work-related injury after sick leave.
  • Employee incompetence after training or adjustments.
  • Employee unresolved disagreements after a major change in circumstances.
b. Termination Due to Employee Wrongful Activity.

The employer may terminate the contract if the employee:

  • Fails to meet employment requirements during the probation period.
  • Violates entity policies significantly.
  • Causes severe damage due to neglect of duties or seeking personal benefits.
  • Engages in concurrent employment affecting tasks for the current employer.
  • Engages in deceptive practices during contract formation.
  • Faces criminal liabilities as per the law.
c. Employment Termination in China: Economic Layoff: Severance payment applied.

Economic layoffs can occur under specific circumstances, such as restructuring, production difficulties, downsizing after contract alteration, or other major economic changes.

4. Employment Termination in China: Employment Contract Expiration.

a. Severance Payment Situations:

Severance payments are required when:

  • A fixed-term or project-based employment contract expires.
  • The employer goes bankrupt or faces business closure.
b. No Severance Payment Required:

Severance payment is not required if:

  • The employer offers to renew the contract, but the employee refuses.
  • The employee enjoys basic pension insurance benefits.
  • The employee reaches the statutory retirement age.
  • The employee is deceased or declared dead or missing by the court.
  • The employee fails to conclude a written employment contract within one month after notification.

Employment Termination in China: Severance Payment

The severance payment shall be based on the number of years the employee has worked for the employer at the rate of one month salary for each full year worked. Any period of no less than six months but less than one year shall be counted as one year. The severance payment payable to an employee for any period of less than six months shall be one-half of his/her monthly salary.

If the monthly salary of an employee is higher than 3 times local average monthly salary where the employer is located, the rate for the severance payment to be paid shall be 3 times local average monthly salary and shall be for no more than 12 years.

Understanding the nuances of termination scenarios in China is crucial for both employers and employees in China. It is recommended to seek legal advice or HR expert and adhere to the latest China labor laws and regulations to ensure a fair and lawful termination process.

Termination under China EOR/Employer of Record hiring mode

In the China EOR (Employer of Record) hiring mode, employee termination follows specific procedures dictated by Chinese labor laws. Client shall inform the China EOR service provider immediately when there might be a termination happened. China EOR service provider will guide client the China labour laws, cost of termination, process of the termination to ensure the termination can be processed smoothly based on the local laws and regulations in China.

About JSC – China PEO & Employment Expert.

JSC is a professional service company that assists foreign-invested companies in doing businesses in China.

Our core services China PEO and employment solution enables foreign investors to hire employees in China without setting up any company which allow them to expand into China market in days, not months. Our in-country local experts are also experienced in assisting businesses to compliantly establish their own legal entity in China.

Please contact us if you require any other information on China PEO.


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