Key principles for terminating an employee in China, where labor law is highly protective of workers and strictly regulates dismissals.
🇨🇳 1. The core principle: termination must be justified and legally grounded
In China, employers cannot dismiss employees at will.
A termination is only valid if it fits a reason explicitly allowed by law.
Unlawful termination can lead to:
- mandatory reinstatement, or
- significant financial compensation (often 2× the statutory severance).
🇨🇳 2. Three categories of lawful termination
- Immediate dismissal for serious misconduct (no severance)
Allowed only in specific cases (Article 39 of the Labor Contract Law):
- serious violation of company rules
- gross negligence or malpractice
- corruption, theft, disclosure of secrets
- engaging in unauthorized competing work
- prolonged absence
- providing fake documents during hiring
➡️ The employee receives no notice and no severance, but the employer must have strong evidence.
- Termination for objective reasons with notice + severance
Reasons allowed (Article 40):
- incompetence or unsatisfactory performance despite training or role adjustment
- medical incapacity after a non-work-related illness
- individual redundancy (position eliminated but not part of a mass layoff)
Requirements:
- 30-day notice or one month’s salary in lieu
- statutory severance payment
- Collective economic redundancy (mass layoff)
Allowed if the company:
- restructures,
- adopts major technological changes,
- faces serious financial difficulties,
- changes or ceases its operations.
Obligations:
- consult the labor union / employee representatives
- file with the labor authorities
- pay statutory severance
Employees must be given priority for rehiring within 6 months if the position reopens.
🇨🇳 3. Cases where termination is prohibited
Certain employees cannot be dismissed, except for serious misconduct:
- pregnant women
- women on maternity leave
- employees on sick leave
- employees injured at work
- employees in mandated medical treatment periods
- labor union representatives
➡️ Important: dismissing a pregnant employee is illegal, unless serious misconduct is proven.
🇨🇳 4. Statutory severance
Formula:
📌 1 month of salary per year of service
- less than one year → prorated
- more than 6 months → rounded up to 1 year
Caps:
- monthly salary capped at 3× the local average wage
- maximum of 12 years at the capped rate
Additional severance may apply for:
- unlawful termination
- negotiated termination (Mutual Release Agreement)
🇨🇳 5. Mandatory procedure
1️⃣ Document the cause (evidence, evaluations, warnings)
2️⃣ Hold a meeting with the employee
3️⃣ Consult the labor union if applicable
4️⃣ Issue a written termination notice
5️⃣ Calculate severance and payments
6️⃣ Report the termination to the Social Security Bureau
7️⃣ Provide exit documents (certificate, payroll records, etc.)
A procedural mistake can invalidate the termination even if the reason itself is lawful.
🇨🇳 6. The method most companies use: mutual termination
In practice, over 90% of terminations in China are resolved through a negotiated mutual termination agreement, which includes:
- severance higher than the legal minimum
- a clause preventing future claims
- a simpler and much safer process
For any information, please contact our team to info@opkofinance.com.
