According to local labor regulations, employees in China have certain employment rights when an employer wishes to conduct layoffs, restructure, or liquidate a company. These rights do not guarantee job retention but require a notice period and adherence to specific procedures. This article discusses when employee termination in China can occur and the circumstances and grounds for mass termination.

When Can Employee Termination Occur?

Employee termination in China can occur in two primary ways: upon expiration of the labor contract or through early termination. Employers must pay severance upon expiration of the labor contract or in cases of early termination. Labor issues often arise during early termination.

An employer cannot unilaterally terminate an employment contract without fault or at will unless certain statutory grounds exist (see Article 40 of the Labour Contract Law). Termination generally falls under the following categories:

Termination Type	Description
Mutual Agreement	Both parties agree to terminate the contract. Severance payment is common.
Fault/Misconduct	Termination due to employee’s breach of contract or misconduct. No severance is required.
Without Fault	Termination for reasons unrelated to misconduct. Requires 30 days notice or payment in lieu and severance.
Wrongful Termination	Unilateral termination without legal grounds. This can lead to disputes and compensation.

Termination by Mutual Agreement

This occurs when an employer and employee mutually agree to terminate the relationship. Employers often provide severance payments to secure the employee’s consent.

Termination Due to Fault or Misconduct

No severance payment is required when an employer terminates the contract due to an employee’s material breach or misconduct. Examples include:

Grounds for Termination	Description
Probation Failure	Minimum job requirements not met during probation.
Neglect of Duties	Serious neglect or damage to company interests.
Rule Violations	Violation of company rules and procedures.
Conflict of Interest	Employment with another company affects the current job.
Deception or Coercion	Acts against employer’s interests.
Criminal Activity	Commission of a crime.

Termination Without Fault

This occurs when an employer terminates the contract for reasons unrelated to misconduct. Employers must provide at least 30 days’ notice or pay one month’s salary instead of notice, along with severance pay.

Severance Payment Following Termination

In China, severance pay is calculated based on the number of years of service, as set out in Article 47 of the Labour Contract Law. The standard formula is one month’s salary for each full year of service. Any period less than a full year but more than six months is considered one year. Half a month’s salary is paid if the period is less than six months.

Years of Service	Severance Payment
Less than 6 months	Half a month’s salary
6 months to 1 year	One month’s salary
Every additional year	One month’s salary per year

Protected Employees

Certain employees cannot be terminated without fault, including pregnant women and those who have lost the capacity to work due to injury or disease contracted during employment (see Article 42 Labour Contract Law). Additional circumstances include:

Protected Circumstances	Description
Medical Treatment	Inability to work post-treatment for non-work-related injury or illness.
Incompetence	Continued incompetence after training and reassignment.
Material Changes	Changes in circumstances make contract performance impossible.

Wrongful Termination

Unilateral termination without legal grounds constitutes wrongful termination. Disputes can be settled through settlement payments, arbitration, or litigation. If reinstatement is not possible, employees may seek double severance.

Mass Terminations of Employment

Mass termination involves terminating 20 or more employees or 10% of the workforce. Employers must notify the labor union and provide the local Labor Bureau with a 30-day notice of the layoff plan (see Article 41 Labour Contract Law).

Grounds for Mass Layoffs in China

Once an employer has submitted the plan to the local Labor Bureau, they may terminate the employment relationship on the following grounds:

Grounds for Mass Layoffs	Description
Bankruptcy Restructuring	Company restructuring under bankruptcy law.
Operational Difficulties	Severe operational difficulties.
Economic Changes	Material changes in the economic situation affect contract performance.
Technological Changes	Changes in product line or technology necessitating staff reduction.

Employers must ensure compliance with laws and regulations in their HR practices. Understanding the grounds for layoffs and the legal requirements is crucial for maintaining lawful operations.

Severance formulas, written warnings, and compensation calculations are statutorily prescribed in China, limiting discretion and requiring precise documentation to defend against wrongful termination claims. HR & payroll specialists at MSA Asia ensure termination procedures comply with labor law requirements. Drop us a line to audit your termination procedures.