From the archive. This article first appeared on China Law Insider in March 2017. The framework of the PRC Labor Contract Law described here remains in force; contact the firm for guidance on current practice.
If you are a Chinese employer and have terminated an employee, it is highly likely the employee may seek redress through the courts in an effort to rescind their termination and be reinstated. Chinese employment law is extremely employee-friendly, and there are very limited circumstances under which an employee can be terminated when compared with the employment laws of many Western countries. If a Chinese employer terminates an employee without a legally valid reason, the employee is entitled to seek redress, including potential reinstatement, through the Chinese courts, which will examine the circumstances of the termination carefully to ensure it rested on a legally justifiable ground.
However, as both employers and employees often find, reinstatement of an unlawfully terminated employee simply may not be workable in practice, for reasons that have little to do with the law and everything to do with the workplace the employee returns to.
Chinese law on termination of employees
Western companies, American companies in particular, are often confused by Chinese employment law. Many are used to at-will regimes that enable them to hire or fire employees for any reason or no reason at all. In China, every employee must be employed pursuant to a written employment agreement, and after an initial probationary period it is very difficult to terminate an employee. Employees in the PRC can only be terminated under certain enumerated circumstances.
The PRC Labor Contract Law permits employers to unilaterally terminate labor contracts without notice or economic compensation if: the employee commits a material breach of the employer's rules and regulations; the employee commits a serious dereliction of duty or engages in graft or bribery; the employee simultaneously takes a second job with another employer that materially impacts the employee's ability to do their existing job; or the employee is found guilty of a criminal offense.
An employer may also terminate an employee by giving one month's written notice or paying one month's salary in lieu, where the employee becomes ill or is injured for a non-work-related reason and cannot resume their original position after the prescribed medical treatment period, nor any other position arranged by the employer, or where the employee is incapable of doing their job and would remain so even with training or an adjusted role.
In all other circumstances, the termination is wrongful. A wrongfully terminated employee may demand reinstatement under the Labor Contract Law, and the employer is required to give the employee their job back. If the employee does not wish to continue working for the employer, or if performance of the employment agreement is no longer possible, the employer must instead pay damages equal to double the statutory severance. To add insult to injury from the employer's perspective, the reverse relationship is simple to end: an employee may resign on thirty days' notice.
Reinstatement does not put things back to normal
Although a wrongfully terminated employee has a legal right to return, the remedy provided by the law and the reality of the workplace can be two very different things. A reinstated employee may find themselves shunned by peers, treated less warmly by supervisors, and working in an environment that, while not unlawful, is strained by the fact that the employee took the company to court and won. From the employee's perspective, the right to return is often less attractive than it appears. From the employer's perspective, a reinstatement can create serious morale and management problems that outlast the dispute itself.
The remedy provided under the law and the reality of the employee's situation can be two very different things.
A settlement is often the better outcome for both sides
Because reinstatement is frequently impractical for employer and employee alike, the best resolution of a termination dispute is often an accommodation: a negotiated monetary settlement in lieu of time-consuming and expensive proceedings that are likely to end in an arrangement uncomfortable for everyone. Even where a court orders reinstatement, returning to the previous position may simply be impossible, in which case the employer is responsible for paying severance. A negotiated exit lets the employer refocus on its business and spares the employee a return to a workplace that no longer wants them.