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China Employee Terminations when Economic Circumstances Change


Terminating a China-based employee usually requires good cause. A serious breach of employer rules and regulations can be a basis for an employer’s unilateral termination of an employee, but China employers have other options as well.

A China-based employer may terminate an employment contract if the economic circumstances which formed the basis for the parties signing the employment contract in the first place have changed, causing the employer to be unable to perform under the contract. This sort of termination is permitted only after negotiations between the employer and employee have proven they are unable to reach an agreement on amending the contract. But does this sort of termination really work? As with just about everything related to China employment law, this will depend on whether the employer handled the termination 100% correctly and a bit on the locale as well. See China Employment Law: Simple Questions and Complex Answers.

The courts sided with the employer and ruled as follows. After the employer decided to shut down the employee’s department and eliminate the employee’s original position, the employer provided the employee with notice specifying (1) his new position, (2) the new payment standard (which would not reduce his take-home pay one Yuan) and (3) the requirement that he report to his new position or be terminated for failing to cooperate. The employer also repeatedly asked the employee to report to the new position. The court held that the employer had handled the termination correctly and ruled entirely in the employer’s favor.

This case almost certainly would have turned out very differently had this employer not been so punctilious in following all the procedural requirements for a termination due to economic circumstances. This employer did not go full speed ahead and unilaterally terminate the employee right after it made the decision to eliminate his position. It instead got its labor union to sign off on its plan and then it sought to give the employee a similar position with similar pay.

Keep in mind that terminations because of economic circumstances require the employer pay their terminated employees statutory severance. And as always, it is important to check all the requirements — local as well as national before you terminate an employee.



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