China Employee Leaving Employment Early. Forget About Payment In Lieu Of Notice

China allows employees to terminate labor contracts by giving 30 days written notice to the employer during the standard employment term or 3 days written notice during the probation period.

Our clients occasionally ask us whether it is permissible under Chinese law to require an employee to pay a certain amount of money (代通知金 or 代替通知金) to an employer, when the employee tries to terminate the labor contract without prior written notice. We have received inconsistent responses from a few cities’ labor bureaus, but it seems the majority think that would be illegal, and putting such a provision into an employment contract would be illegal as well.

To be clear, the phrase “代通知金” is nowhere to be found in China’s Labor Contract Law. The concept does exist in the Law though: for example, Article 40 provides a list of circumstances under which an employer may terminate an employee without cause but must either give a 30 days’ written notice or payment of an additional month’s salary to the terminated employee.

As indicated above, it seems that payment in lieu of notice may only be applied to an employer, and that requiring an employee to pay in lieu of notice is not in line with PRC labor laws. One major reason is that China’s Labor Contract Law was intended to make it relatively easy for employees to terminate labor contracts. Employees should be able to get out of an employment relationship simply by giving prior written notice and, perhaps more importantly, they should be able to do so without a penalty. Therefore, any additional obligation on the part of the employee would violate the spirit of the law, even if the employee has some choice in the matter.

Some practitioners also believe that an employee “payment in lieu of notice” constitutes a penalty under Chinese laws, which are fairly strict about when an employer can impose a penalty on an employee. Specifically, China’s Labor Contract Law allows only the following two circumstances when an employer and an employee can agree on a penalty provision payable by the employee.

• Pursuant to an education reimbursement agreement, an employer can require that the employee reimburse the company for the education expenses if the company pays major expenses for an employee’s employment-related education or training, but after the training is complete, the employee quits.

• Pursuant to a non-compete provision or agreement, an employer can require an employee pay a penalty to the company if the employee violates any non-compete terms by, for example, joining a competitor after leaving employment.

China’s Labor Contract Law makes clear that except for the two circumstances above, an employer and an employee may not agree on any provision that requires the employee to pay a penalty to the employer.

Bottom Line:  The safest thing for you to do as an employer is to require your employees give 30 days prior written notice during the standard employment term, and 3 days written notice during the probation period, for early termination of a labor contract, and not to provide or take money in lieu of that.