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Guide - 15 April 2021

How to Mitigate the Risks of Employment Termination in China

Multinational companies with parent companies overseas often encounter questions about how businesses in China manage and coordinate their labour relations. Cultural and legal differences can make it difficult for many non-Chinese managers in companies to deal with employee relations.

Sometimes, even when it's clear that an employee hasn’t complied with company regulations, the employer might still end up paying heavy compensation and may even be forced to agree to restore labour relations. 

Every manager and HR worker operating in an international company in China should understand how to correctly handle labour relations between employees and the company, how to avoid labour disputes and how to reduce the risks that may be brought to the company when the labour relationship is terminated.

According to Article 50 of the Interpretation (I) of the Supreme People’s Court of Issues Concerning the Application of Law in the Trial of Labor Dispute Cases, ‘the rules and systems formulated by an employer through democratic procedures in accordance with Article 4 of the Labour Contract Law, which do not violate national laws, administrative regulations, and policies, which have been disclosed to a worker, may be used as the basis for determination of the rights and obligations of both parties.’

We can see that the Labour Contract Law empowers the company with the right to formulate rules and regulations and practically manage employees by applying these terms. For example, Article 39 of the Labour Contract Law of the PRC clearly stipulates that the employer can terminate the labour contract at any time if a worker seriously violates the rules and regulations of the employer.

What constitutes a serious violation of the rules and regulations of the employer is for the employer to define and give clear examples of in advance.

A sound and comprehensive framework of rules and regulations can help safeguard the legitimate rights and interests of enterprises. Below, this article further elaborates on a real-life appeal case featuring a fast-fashion company that happened in Shanghai in 2020.

Case Summary

After showing up late for work, a member of staff falsified their attendance records, thus violating the discipline code of the company. As a result, the member of staff’s labour contract was terminated by the employer.

The employee's arbitration appeal for the company's alleged illegal termination and related compensation was not supported by the local arbitration committee. The employee appealed to the Court of First Instance and the Court of Second Instance but was not supported by the courts. The appeal was rejected and the original decision was upheld.

Basic Case Details

On 8 May 2020, a company issued a serious written warning to Lin (a pseudonym), stating that Lin had been late for work a total of seven times in March 2020. In April, Lin had been late five times in total. According to the company’s employee handbook, Lin's behaviour seriously violated company discipline.

The company hoped that Lin could reflect on his mistake after receiving the serious written warning and learn a lesson from it. If Lin violated the rules and regulations again, the company would then dismiss Lin as the situation required.

The next day, the company issued a letter of termination of employment to Lin, stating that an investigation had revealed that Lin had committed the following breaches of conduct during his tenure at the company:

  1. Actual working hours had not been recorded in the system;
  2. Lin had been late for work seven times in total in March 2020 and five times in total in April 2020.

Lin's behaviour seriously violated the company's rules and regulations and the relevant provisions of the employee handbook that could lead to dismissal. Referring to the company's employee handbook, the company decided to terminate their labour relationship with Lin from 9 May 2020.

Lin immediately filed a labour arbitration and demanded that the company pay 171,160 yuan in compensation for illegal termination of employment.

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The following is the evidence provided by the company:

  1. The company's employee handbook. According to the employee code of conduct in the company's employee handbook, if an employee is late for work or leaves early or there is no check-in record three times (or more) within a month, a serious written warning shall be given. It is also stipulated that the employee can be dismissed immediately if one of the following situations occur: 1) if the same behaviour mentioned in the serious written warning occurs again; 2) if the employee provides forged, false or tampered materials or information or conceals any facts.
  2. Transcript of the conversation with Lin on 8 May 2020.
  3. Roster of the shop where Lin worked.
  4. A summary table of attendance records and working hours records to confirm that Lin had been late and modified his attendance in March and April 2020, confirming that the company's contract termination was legal.

In the end, the District Labour and Personnel Dispute Arbitration Committee decided that Lin's request was not justified. Lin was not satisfied with the decision and appealed to the Court of First Instance.

The Court of First Instance maintained that the employer’s employee handbook represented the internal laws and regulations of the enterprise, serving as an effective management tool for the enterprise and a guide for employee behaviour. It has a binding force that must be upheld by both the employer and the workers.

In order to prove Lin’s disciplinary violations, the company provided rosters, attendance records and the daily summaries of working hour records to prove that Lin had been late multiple times and had modified attendance records. At the same time, the company also provided the employee handbook received by their staff.

After confirming that Lin's behaviour violated the provisions stipulated in the employee handbook and matched explicit clauses for the termination of the contract, the Court of First Instance decided that Lin’s claim for financial compensation of 171,160 yuan for illegal termination of the labour contract was not supported.

Lin was not satisfied with the decision and appealed to the Court of Second Instance.

The Court of Second Instance held that the labourer should have abided by labour discipline and the rules and regulations of the employer. If a labourer seriously violates the rules and regulations of their employer, the employer is entitled to terminate the labour contract.

In summary, because Lin's appeal request lacked facts and a legal basis, the appeal was rejected and the court did not support it. The original decision was upheld.

Summary

This case shows that perfecting internal rules and regulations via a sound company handbook can help enterprises to have standardised workforce management. Poor policies may have negative impacts on an enterprise, not only with regard to failing to provide businesses with guidance in their labour relationships but also with regard to causing trouble for the enterprise.

If an employer wants to exercise their right to early termination considering the many relevant restrictions, it is legally necessary to think beyond the regulatory framework by giving clear and practical definitions of ‘serious violations’, ‘major damages’ and ‘incompetence in work’ in advance

How Can Hawksford Help?

Hawksford has over ten years of experience in providing HR and payroll management services and solutions. We have 100 technical experts on the ground across five locations (Shanghai, Beijing, Guangzhou, Suzhou and Shenzhen) in mainland China.

With local knowledge, a robust administration framework and international client experience, we can confidently guide international companies, SMEs and other types of businesses through the steps to successfully operate their businesses in China. Our multilingual team can provide extensive services including general employment advice, enterprise personnel recruitment support and customised HR services.

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