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How to terminate an employment contract in China legally and avoid legal problems

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I write this article not to encourage a China employer to fire employees, neither to infringe the legal rights of employees. I believe a legal termination will benefit both employer and employees. Therefore, please read this article with a object perspect.

The decision to terminate an individual’s employment carries with it the risk of a possible legal challenge. Depending upon an employer’s policies or whether an employee has an employment contract, an employee may, for example, have a breach of contract or “wrongful discharge” claim.

An “at-will” employer - that is, an employer who reserves the right to terminate employees without cause - generally does not need to worry about such claims. Like all other employers, however, an at-will employer still must be concerned about many other possible claims.

Possible Claims of Discrimination Upon Employment Termination

All employers need to be cognizant of possible discrimination claims arising from employment termination. To prevail, the former employee would have to prove that he or she was terminated, at least in part, because his or her employee’s protected status (gender, religion, race, national origin, age, disability, etc.). In addition, discharged employees could claim that their former employer defamed them by:

  • making false, disparaging comments about them to coworkers or other parties;
  • treated them in a manner intended to cause emotional distress;
  • invaded their privacy by improperly disclosing the reason for an involuntary termination; or

  • terminated them in retaliation for exercising a legal right, such as reporting discriminatory or other unlawful employment practices or taking a leave under the Family and Medical Leave Act or the Military Leave Act.

Legitimate Business Reasons for Employment Termination

Even though at-will employers may terminate employees for any reason – or for no reason at all – terminations are easier to defend when they are justified by a legitimate business reason. Legitimate business reasons could include problems, misconduct, a reorganization resulting in elimination of the employee’s position, or financial considerations.

Regardless of the nature of the employment relationship, an employer should consider establishing work rules that list conduct that could result in discipline or termination.

At-will employers should include a disclaimer in the rules making clear that the existence of company rules does not nullify or in any way change an employee’s at-will status.

Moreover, employers (at-will or otherwise) should include a disclaimer stating that the reasons listed are not all-inclusive and that the employer retains the right to terminate employees who, in the employer’s discretion, have either engaged in misconduct or who have not performed at an acceptable level.

In addition, if progressive discipline is provided for, the employer should retain the flexibility to discharge employees immediately when circumstances warrant.

Questions Employers Need to Ask Before Employment Terminations

Before deciding to terminate an employee, the employer should ask themselves the following questions:

  • Does the employee have a legitimate explanation for his/her actions or poor performance? Before deciding whether to terminate an employee, conduct a thorough investigation of the events in question and get the employee’s version or explanation. Consider whether a neutral third person would find the employee’s explanation plausible.

  • Does the punishment “fit the crime”? Consider whether a neutral third party would agree that termination was fair given the nature of the conduct or the seriousness of the performance problems.

  • Is the decision to terminate inconsistent with previous actions of the company? For example, has the employee recently received a favorable performance review, promotion or pay increase? If yes, this would make it more difficult for an employer to justify terminating an employee for performance related reasons.

  • Is the decision to terminate premature? Determine whether alternatives to termination are more appropriate, such as giving an employee a “last chance” or placing the employee on a “performance improvement plan.”

  • Does the employee have any pre-termination rights? Ensure that any pre-termination procedures provided for by the company are followed (Note: special procedures may exist for public sector employees who have certain due process rights not accorded to private sector employees).

  • Has the company administered discipline in a consistent manner? Ensure that members of a protected classification are treated the same as employees outside the protected classification who engaged in similar conduct, under similar circumstances (severity of conduct, prior offenses, length of employment, etc.).
  • Assuming that you have taken steps to help an employee improve his work performance - and they are not working - it may be time to fire the employee. These are the legal, ethical steps in how to fire an employee.

    Ensure that the company's actions, as you prepare to fire an employee, are above reproach. How you fire an employee sends a powerful message to your remaining staff - either positive or negative. So, always fire an employee as a last resort.

    But, do not jeopardize your company's success, a department's success, or your employees' success, to retain an underperforming or non-performing employee. Fire an employee to ensure the success of your other employees and your business.

    Provide Feedback so the Employee Knows That He Is Failing

    The steps that you take when you prepare to fire an employee matter. Unless the actions of the employee require immediate dismissal from the premises, progressively more intense feedback to the employee about his or her work performance is in order. Make sure that you are communicating with the employee by obtaining feedback from the employee that you are communicating effectively. Keep in mind that the goal of the feedback is to help the employee succeed and improve.

  • The employee's actions communicate powerfully, too. The employee takes the feedback to heart, and changes - or not. Document the content of the feedback meetings, and the date and times.

    • How To Provide Feedback That Has an Impact
      Make your feedback have the impact it deserves by the manner and approach you use to deliver feedback. Your feedback can make a difference to people if you can avoid a defensive response.


    • Performance Improvement Strategies
      Use these strategies to help the employee improve his or her performance. You will know that you did your level best to help the non-performing employee succeed.


    • Coaching for Improved Performance
      Looking for a step-by-step coaching approach you can use to help an employee improve his work performance? This approach avoids the need for discipline and produces great results.


    • How to Hold a Difficult Conversation
      Chances are good that one day you will need to hold a difficult conversation. These steps will help you hold difficult conversations when people need professional feedback.


    • Performance Development Planning Process
      If your normal process is not assisting the employee to succeed at work, and you believe there is hope that the employee can and will improve his performance, you will need to introduce a Performance Improvement Plan.

    • Performance Improvement Plan
      The Performance Improvement Plan (PIP) is designed to facilitate constructive discussion between a staff member and his or her supervisor and to clarify the work performance that needs improvement. The PIP is implemented, at the discretion of the supervisor, when it becomes necessary to help a staff member improve his or her performance.

      This format enables you to set goals, establish measures, conduct review sessions and chart progress. No specific amount of time is required for an employee to follow a performance improvement plan. In fact, if no progress is made, you can terminate an individual's employment after several weeks.

      PIPs have a terrible reputation among employees who see them as the final step prior to employment termination. This is because many employers use PIPs incorrectly or for creating a legal safe guard before termination. In my book, PIPs should only be used if you genuinely believe that the employee has the capability to improve. Anything else is torture for the employee and a time consumer for managers and HR staff.

      In the case of managers and HR personnel, a PIP is almost never appropriate. If a manager is failing badly enough to require a PIP, rarely will he or she regain the necessary confidence of reporting employees or his or her own supervisor. HR staff have too much access to highly confidential, irreplaceable information. In addition, because of their position, the damage to your confidence in them and their credibility is almost impossible to surmount.

    Steps to Employment Termination

    • If you believe that the employee is unwilling or unable to improve his performance, you will want to start progressive disciplinary action. Again, documentation is critical so you have a record of the steps you took in the process. Use this Progressive Discipline Warning Form to document each step.

      As with the PIP, however, if you do not believe that the employee is capable of improving, why not terminate employment now? You'll spare everyone the agony of a long, drawn out process. Certainly, at this point in your relationship with the employee, if the supervisor has done her job, you have sufficient performance counseling records and disciplinary action forms on file to fire the employee.


    • Following the steps in progressive discipline should be consistent for each employee you fire, once you decide to start on this path (which you don't need to do), unless an event out-of-the-ordinary occurs. You may also provide the employee with any number of options, starting with the performance improvement plan step.


    • You can ask the employee if he wants to voluntarily quit rather than participate in disciplinary action. You can agree on a timeline by when the employee will have given notice. This may, however, interfere with the individual's ability to collect unemployment.


    • You can agree that, for whatever reason, the employee is incapable of doing the job, provide a couple of weeks of severance pay, and say good-bye.


    • Talk with an attorney to understand all of your options. In cases where you provide any severance pay, as an example, you will want to ask the departing employee to sign a release that is different for employees older than forty and under age forty.

    Hold the Employment Termination Meeting

    Eventually you will want to schedule and hold the employment termination meeting. I would not give an employee more than a few minutes notice before the meeting. You will cause the employee unnecessary worry and upset. In most cases, however, this moment is expected.

    Complete the steps in the Employment Ending Checklist. Some steps, you will want to have completed before the termination meeting. Consider the termination meeting to be the employee’s exit interview.

    Most Important Lesson Learned in Firing an Employee

    Most people wait too long to fire an employee. If an employee is misbehaving publicly, disciplinary action should start after one event. If an employee is consistently missing due dates, and you’ve determined the issue is not training or another identifiable factor, gather documentation, and fire the employee.

    If you’ve introduced a company mission and vision for your workplace and managers fail to support their implementation, fire the managers. If you are developing a culture that empowers and enables employees and a manager is persistently autocratic, fire the manager. People don’t change all that much; although I have witnessed transformations, I usually witness months of heartbreak and wasted effort.

    I have also received regular feedback that firing an employee was the best thing that ever happened to them because it caused the employee to move on to better pastures. In my most recent note from a former employee who had been on a five day suspension, she thanked me. She had moved on, gotten her real estate license, and was looking forward to a great life.

    Behave legally, ethically, with kindness, civility, and compassion, but do fire employees who ought to be fired.
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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.