Labour Dispute

V. Termination and ‘Layoffs’
1. Under what circumstances can an employee be terminated without notice?

An employer may terminate an employee without requirement for notice in the following situations:

- during the probation period, if the employee is determined to be unfit for the position;
- employee materially breaches employer’s rules and regulations;
- employee engages in serious dereliction of duty, graft or corruption causing substantial damages to the employer’s interests;
- employee has established an employment relationship with another employer and that relationship affects the completion of his tasks and he refuses to appropriately remedy the situation after employer notification;
- employee used fraud in concluding the labour contract; or
- employee is subject to criminal investigation.

2. Under what circumstances must an employee be given notice of termination?

An employer must give 30 days’ prior written notice or payment in lieu thereof, if it terminates the labour contract under the following situations:

- the employee is unable to perform his original duties or re-assigned duties, after returning from medical leave or non-work-related injury;
- the employee is incompetent and remains incompetent after training or adjustment of position; or
- the occurrence of a major change of objective circumstances which were relied upon when signing the labour contract, and the employee and employer are unable to agreed on modified terms of the labour contract.

3. Under what circumstances may an employee terminate the labour contract without notice?

An employee may unilaterally terminate the employment contract without requirement for notice in the following instances:

- employer fails to provide labour protections and working conditions in accordance with the labour contract;
- employer fails to pay remuneration in full and on time;
- employer fails to pay social security payments in accordance with the law;
- employer’s rules and regulations violate laws and regulations, harming the employee’s rights and interests;
- employer uses fraud, coercion or the employee’s unfavorable position to conclude the contract; or
- other situations set out in laws and regulations. 

4. In what instances is compensation required and how much?

Severance compensation is due in a number of situations, which are summarized below:

- termination by employee under situations which result in his right to terminate the contract immediately (Item 3, discussed previously);
- termination by employer under situations which require 30 days’ prior written notice (Item 2, discussed previously);
- the employee is terminated due to restructuring or difficulties in business operations;
- the labour contract is terminated after being proposed by employer and there is mutual agreement on termination;
- a fixed-term labour contract expires (except where employee refuses to renew the contract on terms equal to or better than previously concluded);
- termination of labour contract due to revocation of employer’s business license; and
- termination of labour contract due to bankruptcy.

Employers must pay severance in the amount of one month’s salary for each year of service, with half a month’s salary for each partial year.

If the employee earns more than 3 times the average monthly wage of the locality, then the compensation will be capped at 3 times the average monthly wage, up to a maximum of 12 months.

5. Can employees be ‘laid off’?

Under the following circumstances, labour contracts may be terminated due to business difficulties:

- restructuring due to the Enterprise Bankruptcy Law;
- serious difficulties in production or operations;
- a staff reduction is necessary due to changes in production, technical innovation or adjustment of management operation style; or
- other major changes in economic circumstances relied upon at the time of conclusion of the labour contract, rendering them non-performable.

For large-scale layoffs (20 or more employees, or in smaller organizations where employee layoffs are less than 20 employees but this accounts for 10% or more of the total employees), the employer must first explain the circumstances to the trade union or all employees (where there is no trade union) 30 days in advance, and may reduce the workforce only after consideration of the opinions of the trade union or employees and reporting the restructuring plan to the labour administration.

VI. Labour Arbitration and Dispute Resolution
1. How are labour disputes resolved in China?

Like most jurisdictions, mediation is the preferred method of dispute resolution, however, this is a voluntary process. The Labour Arbitration Law provides that mediated settlement agreements for salaries, medical fees for job-related injuries, severance and penalties may be entered into court for enforcement.

Labour dispute claims, according to the Labour Law and the Labour Arbitration Law, must first be submitted to the local labour arbitration committee located in the jurisdiction of the employer. The labour arbitration committee must then render its award within 45 days after the dispute has been accepted.
Arbitration decisions are final for employers in the following instances: salaries, medical fees for job-related injuries, severance, and penalties, where the disputed amount does not exceed an amount equal to 12 months’ local minimum wage. 

Employees and employers (with the exception of those instances set out previously) may within 15 days of the arbitration award submit the dispute to the people’s court for hearing.

2. What is the statute of limitations for bringing a labour dispute claim?

The limitation period is 1 year after the employee knew or should have known that their rights have been infringed, however, if the dispute occurs under an existing labour contract, the limitation period does not start until the labour contract has expired or has been terminated.


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