China Employee Terminations: Speed is the Enemy of Good

Just about every week, one of our China employment lawyers will get an urgent email from a non-client that goes something like this

We terminated an employee yesterday because of X, Y and Z and we just need one of your China lawyers to quickly review our situation to make sure we handled the termination properly under Chinese law. We figured it should only take you a couple of hours. Can you help?

We usually respond by first saying that before we can give any legal advice, our law firm must first run a conflicts check to make sure there is no conflict with any of our existing clients and then we would need to onboard them as a client. We then usually explain how China employee terminations are pretty much always more complicated than realized and seldom if ever can we get a good handle on one in just a couple of hours. This is because they always requires we review the employment contract, the employer’s rules and regulations, along with the termination document and any other documents (including emails and WeChats, etc.) that might be relevant to the employee’s termination. This includes any communications regarding the employee’s performance, promises made along the way to the employee, and — of course — anything that discussed the employee’s possible or actual termination. And then we have to talk with our client to gather up all of the facts.

After we have all of the facts, we usually then must conduct at least some quick research before we can advise on the legal issues involved. Remember that China’s employment laws can be national, provincial and, most particularly local.  See China Employment Law: Local and Not So Simple.

Only after we have done the above are we ready to start figuring out what the employer should do next to reduce its likelihood of being sued by its terminated employee. Most of the time, that will involve our drafting a bilingual Chinese-English (with Chinese as the official language) employee termination agreement.

Sometimes, the terminated employee is not contesting the termination and just wants money and to move on with his or her life. In those cases, the termination agreement usually gets signed with little to no fuss. Until about a year ago, this sort of smooth termination was more the norm than the exception, but that has drastically changed. When China’s economy was booming, the typical terminated employee wanted just money and to move on, confident that they could get at least as good a job within a few weeks. But as China’s economy has slowed, almost all the time now our China employment attorneys are having to deal with a very different sort of terminated employee. We are now seeing a constant stream of angry and scared terminated employees, who are rightfully worried about their long term economic situation. This has been especially true in the last 3-6 months where scared employees want big termination packages and are more than willing to fight and sue until they get one.

We always used to tell our foreign clients that terminated Chinese employees virtually always win in lawsuits against their foreign employers, but now we are saying that they will win and they will win big. Chinese government officials and judges and arbitrators view it as essentially their public service to transfer money from foreign companies to terminated Chinese employees. This is the reality with which we as employment lawyers are having to deal and we have modified just about everything we do to meet it.

The mere fact an employer first comes to us after a termination is a tell that it will not be a straightforward matter. I say this because the best way to handle a China employee termination is to have worked with your China lawyer long before the termination. Companies with well-honed HR machines have been using China employment lawyers all along and they have well-crafted documents in place to protect against future terminations and they go to their China employment lawyer weeks before any termination so as to plot out exactly how that termination should go down. It should go without saying that employers have more power the day before a termination than the day after. So if a company comes to us for the first time and in a rush after a termination, we know that does not bode well for the sort of documents they have or for their HR system.

It also does not bode well for the procedures they employed in the termination itself, which, standing alone, can be disastrous for employers. I say this because in many locales, the arbitrators and judges will find an employee termination to have been unlawful based solely on procedural problems with the termination itself. In other words, these arbitrators and judges may very well agree that the employee’s misconduct warranted dismissal but the employer’s failure to consult with the employee’s union before the termination made the entire termination unlawful.  Perhaps most commonly, the arbitrator or judge will find the termination wrongful simply because the employer failed to provide adequate termination notice — which can  include the employer simply having said the wrong thing in the termination notice or not having said something in the notice that should have been said. This is why we always stress the need to take great care in drafting all termination-related documents. Companies that contact a lawyer for the first time after a termination almost invariably have done something wrong in the termination itself and our spending “a couple of hours” is not going to remedy that. Sorry.

The good news though is that no matter how messed up your employee termination situation, until a judge or arbitrator actually rules against you, there will always be things that can be done to ameliorate your situation. Even if the terminated employee brings a labor arbitration claim, the labor authorities will almost always push the parties to mediate before the formal labor arbitration. This means that even far along in the process, it is still possible to settle with your terminated employee and get him or her to sign a China-specific settlement agreement that will avoid or terminate labor arbitration/litigation altogether.

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.