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Notice periods in China
Termination of employment in China
Post-termination restraints in China
Waivers in China
Transfer of undertakings in China
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End of employment in China
All employment relationships eventually come to an end, and the rules around the end of employment in China set out clear procedures that employers must follow when that happens. Whether it’s termination with notice, summary dismissal, or collective redundancy, the legal framework ensures employee rights are protected and employers stay compliant.
In this section, we’ll explain the standard notice periods for both employers and employees, the rules around severance pay, and the use of probationary periods. We’ll also cover the types of termination available, post-termination restrictions, and the rules on waivers. Finally, we’ll look at what happens when a business or part of a business changes hands, including employee rights during transfers of undertakings.
Notice periods in China
Both employers and employees in China must usually give the other party notice if they want to end their employment agreement — read on for what you need to know as an employer.
Notice periods in China for employers
The statutory notice period in China for employers is 30 days. This applies in cases such as employee incompetence, inability to work after illness or injury, or significant changes in the circumstances that make the contract unfulfillable. Employers can also choose to pay the employee one month’s salary in lieu of notice.
Immediate termination without notice is permissible only under specific circumstances, such as serious misconduct or criminal conviction.
Notice periods in China for employees
Employees can also terminate their employment agreement by giving 30 days’ notice. They generally don’t need to give a reason. Employees may only end their employment without notice in exceptional circumstances, such as the employer forcing them to engage in risky work that endangers their personal safety.
Severance pay in China
In China, severance pay is mandatory in most termination scenarios, except during the probationary period or in cases of serious misconduct. Statutory severance pay is calculated as one month’s average salary for each full year of service. For service periods of less than six months, severance is half a month’s salary.
Additionally, severance pay is capped at 12 years of service. The monthly salary used for calculation cannot exceed three times the local average monthly salary. That means the maximum statutory severance pay an employee may receive is 36 times the average monthly wage. Employers can agree to pay additional severance pay as part of a settlement agreement.
Probationary periods in China
Probationary periods are permitted under Chinese labour law and are generally stipulated in the employment contract. The maximum length of the probationary period depends on the length of the contract, as follows:
- Contracts of 3 months to 1 year: Probation period up to 1 month.
- Contracts of 1 to 3 years: Probation period up to 2 months.
- Contracts of 3+ years or open-ended contracts: Probation period up to 6 months.
Termination of employment in China
In China, employer-led termination can generally happen in one of three ways: dismissal with prior notice, summary dismissal, or collective redundancy. Keep reading to find out what each of these looks like in practice.
Dismissal with notice in China
The usual method of termination of a contract in China is to give the employee 30 days’ notice. However, the employer must still have a good reason for dismissing the employee. This might include incompetence even after training, non-work-related illness, or a change in the objective circumstances surrounding the employment contract.
Summary dismissal in China
In some circumstances, employers in China can terminate a contract without giving notice to the employee. This is known as summary dismissal. It’s permissible in the following cases:
- The employee fails to meet the requirements of the role during the probationary period.
- The employee seriously breaches the employer’s rules and regulations.
- The employee abandons their duties or damages the employer’s interests.
- The employee is engaged in other work that affects their performance of job duties.
- The employee misled the employer into concluding the labour contract.
- The employee is found liable for a crime.
Collective redundancies in China
Special rules apply to collective redundancies in China. This is defined as the dismissal of 20 or more people or at least 10% of the total workforce due to restructuring, operational difficulties, changes in the line of production, or other objective economic circumstances. Before proceeding with a collective dismissal, the employer should explain their redundancy plan to the trade union (if applicable) or to employees or their representatives. They must also report the workforce reduction plan to the competent labour administration authorities.
Unfair dismissal in China
Employees who believe they have been unfairly dismissed in China can seek remedies through labour arbitration. If the dismissal is deemed unlawful, employees may request reinstatement, and the employer must backpay the employee’s salary and social insurance contributions for the period of dispute resolution. Alternatively, the employee may be awarded compensation amounting to double the statutory severance pay. Employers bear the burden of proof in termination disputes and must provide solid evidence to justify the dismissal.
Post-termination restraints in China
Post-termination restraints are restrictions that employers can impose on former employees after the end of the employment relationship. While they are permissible in China, they are subject to certain limitations and requirements. Post-termination restraints may also be referred to as restrictive covenants or post-termination restrictions.
Types of post-termination restraints in China
The following types of post-termination restraints exist and may be enforceable in China:
- Non-compete agreements: These prevent employees from engaging in activities that compete with their former employer’s core business. They are typically only valid for a certain time period and may be subject to geographical limitations.
- Customer non-solicit agreements: These prohibit employees from poaching customers from their former employers. They typically only apply to employees who have direct contact with customers as part of their role.
- Employee non-solicit agreements: Similarly, these prevent employees from soliciting their former colleagues once they leave an organisation. They are most often used for employers in senior management positions.
Limitations on post-termination restraints in China
While post-termination restraints are legally permissible in China, they must be reasonable and designed to protect the employer’s legitimate interests. For example, non-compete agreements are enforceable for a maximum duration of two years.
Employers are required to compensate employees during this period, in an amount of at least 30% of the employee’s average monthly salary over the 12 months prior to termination, or the local minimum wage, whichever is higher. In some regions, local regulations stipulate higher compensation rates.
Waivers in China
In some countries, employees may waive certain rights in the context of a settlement agreement. However, under Chinese employment law, such waivers are generally not enforceable, particularly concerning statutory rights like severance pay and overtime compensation. Employers are strongly advised to seek specific legal advice before requesting an employee to waive any statutory entitlements, even in exchange for monetary compensation.
Transfer of undertakings in China
A transfer of undertakings happens when a business, or part of it, changes hands from one employer to another. This can occur through mergers, share sales, or asset transfers. When this happens, specific rules in China protect employees’ rights during the process. Read on to learn what employers and employees should know about a transfer of undertakings in China.
What counts as a transfer of undertakings in China?
In China, transfers can take different forms. A merger means two companies combine, and the surviving company takes on all employee contracts. A share transfer involves selling a company’s shares, where employees keep their contracts with the same company. Asset transfers involve selling business assets, but employees’ contracts usually need to be ended and re-established with the new employer, with their consent.
Employee rights following a transfer of undertakings in China
During mergers and share transfers, employees keep their existing contracts and rights. However, in asset transfers, employees may need to agree to new contracts, or they might be entitled to severance pay if they refuse.
Consulting and information rights related to business transfers in China
Employers are generally required to inform and consult employees or their representatives before a transfer. This ensures employees can raise concerns and understand how the transfer will affect them.
Avoid risk and missed opportunities with our end-to-end employment solutions
There are many different ways an employment contract can come to an end. But whatever the situation, you need to understand the rules that cover the end of employment in China — or you could end up facing legal issues.
Our solutions ensure your business is protected from risk when a relationship with a worker comes to an end — whatever the reason. We can also help you to avoid missed opportunities by re-deploying talent where possible.
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