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China Employee Layoffs and Salary Reductions: An Admittedly Warped View

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China employment lawyer for employee terminations

One of the problems with being a lawyer is that we oftentimes only see or hear about things when they are a problem. This can give us a somewhat warped view on things, but so be it.

So when we say that terminating your Chinese employee will lead to problems 100% of the time, you need to take it with a grain of salt. But from our perspective, almost every single time a company has terminated a China employee incorrectly it has led to problems. The same, pretty much holds true for companies that reduce their employees’ wages without first going through all of the necessary steps for this.

What I know of is that a ton of foreign companies with employees in China are terminating or reducing the salaries of their China employees these days and from the perspective of the China employment lawyers at my law firm, it sure does seem like these employees and ex-employees are retaining lawyers pretty much straight off the bat every time. And based on all that we have seen and hearing out there, the chances of foreign companies doing well in a lawsuit against a terminated China employee in these cases are not good at all.

The solution here is the same solution for nearly every China legal problem. Preventative maintenance is the key. If you are going to terminate or reduce the wages of a one or more of your China employees, the first thing you should do is recognize that employees have a lot of rights under Chinese employment laws AND a lot of social/sympathy power in China. And then you should act accordingly.

Acting accordingly means you should not just up and fire or reduce the wages of someone in China and expect to walk away unscathed. You should plan carefully. You should get your lawyer involved. In a termination setting, it usually means you need to negotiate a deal with your employee where you pay some money and in return you get a signed agreement in which your employee clearly agrees to absolve your company of any legal liability for every possible claim against you. Before you enter into such an agreement, make sure that the agreement covers all relevant issues regarding your employee. In other words, you do not want to leave important matters open at the time of termination, unless you want to have a dispute with the same employee later. Instead, the agreement should spell out how every issue (e.g., severance, overtime, payout for vacation time) between your employee and your company will be settled.  You also should be sure to draft this agreement so its official version is in Chinese (but double check to confirm the Chinese version 100% lines up with the English/other non-Chinese version!) and so it makes clear your employee is satisfied with the results and is relinquishing his or her rights to pursue any further legal action against you. And one quick note regarding the governing language, simply translating a U.S. or non-Chinese style agreement will not work, no matter how perfect the Chinese translation is.

Needless to say, an agreement for wage reduction will look different than a termination agreement, but one principle is the same: the agreement should be fair, reasonable and clear and complete (i.e., as noted above, it should cover all issues that should be covered). One common failure we have seen is that the employee refuses to sign the agreement because it is too hard to understand which leads the employee to believe that the company is trying to trick him or her which then in turn leads to failed negotiation. Too often the company ends up back to square one after such debacle.

Even this may end up not being foolproof, but done right this virtually always does the trick. Done wrong, it likely will be no better than not doing anything at all and there is actually a really good chance it will be worse.

The money you pay out to your employee and your lawyer to settle early invariably will be a lot less than the money you will need to pay out to your employee and your lawyer if you find yourself in a knock-down drag-out legal fight. Trust us on that.

What are you seeing out there?

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.

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