How to dismiss employees in china

As several high profile labour disputes having arisen between foreign employers and local workers in 2010, now is the time to make sure that your company is following legal procedures before laying off workers. Local lawyer Erex Chen of V&T law firm in Shanghai explains how to handle this important HR process without risking legal trouble.

While well-prepared companies have human resources procedures in place for most situations, the rapid development of China’s labour regulations mean that you need to constantly update these procedures to ensure that they continue to conform to the latest government guidelines.

Regarding laying off of employees, on January 8, 2009, the Shanghai Human Resources and Social Security Bureau promulgated a “Notice on Implementation of Employee Layoff Report by Employers”, which provides legal guidance for companies which need to lay off employees because of economic difficulties. This notice, taken together with the Employment Contract Law of the PRC, means that companies considering laying off team members for economic reasons will need to first consider the following points:

Defining a Layoff Under Chinese Law

According to Article 41 of China’s Employment Contract Law, a layoff may be defined as follows:

If any of the following circumstances makes it necessary to reduce workforce by 20 persons or more or by a number of persons that is less than 20 but accounts for 10 percent or more of the total number of the enterprise’s employees, the Employer may reduce the workforce after it has explained the circumstances to its labour union or to all of its employees 30 days in advance, has considered the opinions of the labour union or the employees and has subsequently reported the workforce reduction plan to the labour bureau:

restructuring pursuant to the Enterprise Bankruptcy Law;

serious difficulties in production and/or business operations;

the enterprise switches production, introduces a major technological innovation or revises its business method, and after amendment of employment contracts, still needs to reduce its workforce; or
other major change in the objective economic circumstances relied upon at the time of conclusion of the employment contracts, rendering them unperformable.

Therefore, a layoff under China law refers to situations where the employer needs to reduce workforce by 20 person or more or by a number of persons that is less than 20 but accounts for 10 percent or more of the total number of the company’s employees.

Working With union s and Employees Before Layoffs

Based on Article 41 of the Employment Contract Law, if any of the above four conditions is satisfied, the employer has the option of laying off employees. For companies which are suffering economic difficulties, the second condition i.e. serious difficulties in production and/or business operations can apply.

However, it should be noted that, even in cases that meet the criteria above, the layoff process cannot be a unilateral action by the employer. The employer needs to confer with the labour union or announce to all of its employees 30 days in advance, consider their opinion and report the workforce reduction plan to the local labour bureau. Only after this condition is satisfied will the employer be allowed to lay off its employees.

Submitting a Workforce Reduction Plan to the Labour Bureau

According to the Notice, when an employer submits a workforce reduction plan to the labour bureau, the following documents are required:

The employer’s Business License and labour union Legal Person Certificate. If there is no labour union in the company, then the employer shall provide a list of employee representatives elected by all employees to represent them;

Personal data of the labour union representative or employee representatives, including name, ID number, position, and other employment information;

The Workforce Reduction Plan, which shall include the number of employee to be laid off, the proportion of laid-off employees, a list of employees to be laid-off (including name, ID number, and employment term), the standard of severance payment and any remedial measures taken by the employer.

Information regarding the employer’s explanation of the rationale for layoffs as presented to the labour union or all employees.

Strictly speaking, the labour bureau’s role is to examine the Workforce Reduction Plan and it has no right to approve or rejct the Plan. However, in actual practice, the labour bureau may use its influence to urge the employer to restructure the layoff plan or avoid the layoff altogether. With this in mind, it is imperative for the employer to prepare carefully before presenting the workforce reduction plan and to seek advice from professionals experienced in this process wherever possible.

Which People to Layoff

According to the law, the employer shall also realize the following issues in the process of layoff:

According to Chinese labour laws, when reducing the workforce, employers should place a priority on retaining the employees that meet the following criteria:

Persons who have concluded with the company fixed-term employment contracts with a relatively long term;

Persons who have concluded open-term employment contract with the employer;

Team members 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 support.

However, during the process of layoff, some companies may try to retain new employees with strong work ability but lay off old employees who have may have worked at the company for a long time but whose performance may be deemed lacking. This may cause dispute if it is not handled properly.

Paying Severance

Along with identifying the right people to lay off, perhaps the greatest risk for disputes regarding layoffs arises from paying severance according to legal regulations. Chinese labour law spells out the requirements for severance pay to laid off workers clearly, and employers will need to abide by these guidelines if they are avoid conflict.

Severance payment shall be based on the number of years that an employee has been working for the company at the rate of one month’s salary for each full year worked.
Any period of not 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 half of his monthly salary.

Rehiring After a Layoff

If an employer should find that it needs to hire again within six months of reducing its workforce, the company is required to give notice of this hiring to any persons laid off and hire them back on a preferential basis over new employees.

Employment Contract

Employment Contract

Employer: ABC Incorporation
Legal Representative:
Post code:

Employee: A
Name: Gender:
Address: Nationality:
ID Card No.:
Date of Birth:

This Contract is signed on a mutuality voluntary basis by and between the following Employer and Employee in accordance with the Labor Law of Peoples Republic of China.”
1.Term of the Contract:
The term of this contract is for _____ years and shall commence on
_____,_____, and shall continue until _____,_____, unless earlier terminated pursuant to this Contract. The Employee shall undergo a probationary period of ___months.
2.Job Description:
The Employer agrees to employ Mr./Ms.________(name) as ________(job title) in ________Department, located in ________(office location and city).
3. Remuneration of Labor
a.The salary of the Employee shall be monthly paid by the Employer in accordance with applicable laws and regulations of P.R.C. It shall be paid by legal tender and not less than the standard minimum salary in Shanghai.
b. The salary of the Employee is RMB$______ per month in the probationary period and RMB$ _____ after the probationary period.
c. If the delay or default of salary takes place, the Employer shall pay the economic compensation except the salary itself in accordance with the relevant laws and regulations.
4.Working Hours & Rest & Vocation
a.The normal working hours of the Employee shall be eight hours each day, excluding meals and rest for an average of five days per week, for an average of forty hours per week.
b.The Employee is entitled to all legal holidays and other paid leaves of absence in accordance with the laws and regulations of the PRC and the company s work rules.
c. The Employer may extend working hours due to the requirements of its
production or business after consultation with the trade union and the Employee ,but the extended working hour for a day shall generally not exceed one hour; If such extension is called for due to special reasons, the extended hours shall not exceed three hours a day. However, the total extension in a month shall not exceed thirty-six hours.
5.Social Security & Welfare
a.The Employer will pay for all mandatory social security programs such pension insurance, unemployment insurance, medical insurance of the Employee according to the relevant government and city regulations.
b.During the period of the Contract, the Employee’s welfare shall be implemented accordance with the laws and relevant regulations of P.R.C.
6.Working Protection & Working Conditions
a.The Employer should provide the Employee with occupational safety and health conditions conforming to the provisions of the State and necessary articles of labor protection to guarantee the safety and health during the working process.
b.The Employer should provide the Employee with safety education and technique training; The Employee to be engaged in specialized operations should receive specialized training and acquire qualifications for such special operations.
c. The Employee should strictly abide by the rules of safe operation in the process of their work.
7.Labor Discipline
a.The Employer may draft bylaws and labor disciplines of the Company, According to which, the Employer shall have the right to give rewards or take disciplinary actions to the Employee; b.The Employee shall comply with the management directions of the Employer and obey the bylaws and labor disciplines of the Employer.
c.The Employee shall undertake the obligation to keep and not to disclose the trade secret for the Employer during the period of this Contract; This obligation of confidentiality shall survive the termination of this Contract for a period of two (2) years.
8.Termination, Modification, Renew and Discharge of the Contract
a. The relevant clauses of the Contract may be modified by the parties:
i.The specific clause is required to be modified by the parties through
ii.Due to the force majeure, the Contract can not be executed;
iii.The relevant laws and regulations have been modified or abolished by the time of signing the Contract.
b.The Contract may be automatically terminated:
i) This Contract is not renewed at the expiration of this Contract;
ii) The Employer is legally announced to be bankruptcy, dismissed, or canceled;
iii)The death of the Employee occurs;
iv) The force majeure takes place;
v)The conditions of termination agreed in the Contract by the parties arise.
c.The Contract may be renewed at the expiration through consultation by the parties with the fulfillment of the procedure within 15 days to the expiration;
d. The Contract may be discharged through consultation by the parties;
e.The Contract may be discharged by the Employer with immediate effect and the Employee will not be compensated:
i.The Employee does not meet the job requirements during the probationary period;
ii.The Employee seriously violates disciplines or bylaws of the Employer;
iii.The Employee seriously neglects his duty, engages in malpractice for selfish ends and brings significant loss to the Employer;
iv.The Employee is being punished by physical labor for its misfeasance
v.The Employee is being charged with criminal offenses:
f.The Contract may be terminated by the Employer by giving notice in written form 30(thirty) days in advance:
i.The Employee fails ill or is injured to (other than due to work) and after completion of medical treatment, is not able to perform his previous function or any other function the Employer assigns to him;
ii.The Employee does not show satisfactory performance and after training and adjusting measures is still not able to perform satisfactorily;
iii.The circumstances have materially changed from the date this Contract was signed to the extent that it is impossible to execute the Contract provided, however, that the parties cannot reach an agreement to amend the contract to reflect the changed circumstances.
iv.The Employer is being consolidated in the legal consolidation period on the brink of bankruptcy or the situation of business is seriously in trouble, under such condition, it is required to reduce the employee.(in legal procedure)
g.The Employee shall not be dismissed :
i. The Contract has neither expired nor conformed to 8.d,8.e,8.f,8.g;
ii.The Employee is ill with occupational disease or injured due to work and has been authenticated fully or partly disabled by the Labor Authentication Commission in  County, Shanghai.
iii. The Employee is ill or injured (other than due to work) and is within the period of medical leave provided for by applicable PRC law and regulations and Company policy;
iv.The Employee is woman who is pregnant, on maternity leave, or nursing a baby under one year of age; or
iii.The applicable PRC laws and regulations otherwise prohibit the termination of this Contract.
h.The Contract may be discharged by the Employee by giving notice in written form 30(thirty) days in advance. However, the Employee may inform the Employer to discharge the Contract at random under the following occasions:
i.The Employee is still in the probationary period;
ii.The Employer force the Employee to work by violence, duress or illegal restriction to physical freedom;
iii. The Employer does not pay the remuneration of the Employee accordance with the relevant clause in the Contract;
iv.The Employer violates the relevant regulations of State or Tianjin for its terrible safe and health condition, which is harmful to the Employee’s health.
I.The Contract can not be terminated by the Employee before the expiration if not conforming to 8.d, 8.h,
j. The Employer shall pay the economic compensation to the Employer if the Contract is terminated conforming to 8.d,8.f,8.h.i-8.h.iv. Additional fee for medical allowance should be paid to the Employee if the Contract is terminated conforming to 8.f.i.
9.Breach Liabilities
a. Due to either party’s fault, if breaching the Contract, that party shall undertake the breach liability according to the extent to the performance of the Contract; if the parties both breach the Contract, they shall undertake its separate liability according to the concrete situation.
b. Due to either party’s fault, if breaching the Contract to damage the other party. The damage should be compensated by the faulty party accordance with the relevant laws and regulations of PRC.
c.Due to the force majeure, causing the non-performance or the damages to either party, the other party may not undertake the breach liability;
c.The Employee wants to resign and has received training provided by the Employer, the Employee shall compensate for the training cost. The method of compensation should be fixed according to the relevant company regulations as follows:
The Employee shall compensate RMB_______ within ___year(s) in the Company if the Contract is terminated by the Employee at his cause;
The Employee shall compensate RMB_______ within ___year(s) in the Company if the Contract is terminated by the Employee at his cause;
The Employee shall compensate RMB_______ within ___year(s) in the Company if the Contract is terminated by the Employee at his cause;
10.Labor Disputes
Where a labor dispute between the parties takes place during the performance of this Contract, the parties concerned may seek for a settlement through consultation; or either party may apply to the labor dispute mediation committee of their unit for mediation; if the mediation fails and one of the parties requests for arbitration, that party may apply to the labor dispute arbitration committee for arbitration. Either party may also directly apply to the labor dispute arbitration committee for arbitration within 60 days starting from the date of the occurrence of a labor dispute. If one of the parties is not satisfied with the adjudication of arbitration, the party may bring the case to a peoples court within 15 days of the date of receiving the ruling of arbitration

Employer: (official stamp)                                                                                  Employee:
Representative :
Address:                                                                                                                 Address:
Date:                                                                                                                       Date:

Note: Different company has different feactures, so if you want an employment contract for your company. Please contact us, we can help you draft an appropriate contact. Wechat  Law021




Read More