Though most foreign companies doing business in China understand the importance of delicately handling their employee terminations, too many do not understand the need to pay special attention to employee resignations as well. This is because it is not at all uncommon for a Chinese employee to claim that his or her resignation was not voluntary, and that in fact he or she was compelled to leave the company because it failed to follow Chinese employment laws. This means that you as the employer need to be clear on the reason for all of your employee resignations and, more importantly, you need to maintain written records documenting what led to your soon-to-be former employee’s departure.
The first thing you should do with an employee who is resigning is to make sure that his or her resignation letter properly lists the reason for the resignation. If your employee tells you orally or by WeChat or QQ that he or she is leaving for a job with a “better fit,” but the resignation letter lists the reason as “compensation issues,” you have a problem. The Chinese labor authorities recently just made clear their intention to crack down hard on employer failures to pay employees and in response to this, this “bait and switch” resignation letter technique has become quite common. The employee who writes you this sort of resignation letter may turn around and sue you for allegedly due back wages, plus interest, plus penalties, plus attorneys’ fees.
If you get this sort of resignation letter, we suggest that you seek to clarify with your employee the compensation issues he or she is referencing in the resignation letter. Is your employee blaming you for having failed to pay wages on time or in full or both? If you approve your employee’s resignation letter by affixing your company chop to it resignation, you probably just admitted in writing to having violated China’s employee compensation laws. And by doing so, you have just opened your company up to a lawsuit you will almost certainly lose.
To the extent you have any outstanding issues with one of your resigning employees, the best solution is usually to resolve those issues with your employee via a properly drafted, properly executed Chinese language settlement agreement. Settlement agreements in China are like settlement agreements pretty much everywhere else in that the key is that it prevent any future claims or lawsuits. And just to scare you a bit more, our China lawyers are often called in to resolve matters for foreign companies in China with DIY settlement agreements that are either 100% ineffective or even worse, can be used against the foreign company as an admission of wrongdoing in a newly filed lawsuit.
Bottom Line: Treat all employee departures seriously. Document them and, if it makes sense to do so, resolve them with an appropriate settlement agreement.
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.