China’s labour framework provides strong protection for employees, and employers cannot dismiss staff without legal grounds. Understanding the grounds for termination, the procedures that apply and the obligations that follow is essential for avoiding costly disputes, penalties and reputational damage.
This guide covers the main termination routes available to employers in China, the situations where termination is restricted, the step-by-step process to follow and how severance is calculated.
- Employees who resign give 30 days’ written notice, or three days during probation, with longer notice periods permitted for managerial roles if agreed.
- Employers can terminate immediately and without severance for serious misconduct under Article 39 of the Labour Contract Law but must be able to evidence the grounds.
- Certain categories of employees are protected from termination under Article 42, including pregnant employees, those on sick leave and long-serving employees approaching retirement age.
- Severance is calculated at one month’s salary per full year of service, capped at three times the local average monthly salary per year.
What are the routes for terminating an employment contract in China?
China recognises four main termination routes: mutual agreement, employee resignation, employer-initiated termination for misconduct and termination under special circumstances. Each route carries different requirements, and the employer bears the burden of proof if a termination is contested.
Mutual agreement
An existing contract may be terminated at any time through mutual agreement between the employer and employee. If the employer initiates the termination, the employee is entitled to severance pay.
Employee resignation
If the employee decides to terminate the contract, the required notice period depends on the circumstances. During probation, three days’ notice is sufficient. In all other cases, 30 days’ written notice is required. A longer notice period for managerial employees may be agreed in the employment contract.
Employees are not required to give notice if the employer has created unsafe working conditions, failed to pay salary on time, given instructions that contradict the contract or used coercion to force the employee to work. In these circumstances, the employee is also entitled to severance.
Employer-initiated termination for misconduct
Under Article 39 of the Labour Contract Law, an employer may terminate an employment contract immediately and without severance if the employee:
- Seriously violates the rules and procedures set up by the employer
- Causes any severe damage to the employer through negligence or seeking personal benefit
- Establishes an employment relationship with another employer that affects the completion of their duties, and refuses to rectify the situation after the employer raises it
- Is held criminally liable under the law
- Fails to meet the agreed job requirements during the probation period
For misconduct-based terminations to hold up in arbitration or court, employers need documented evidence of the violation and a properly implemented staff handbook that clearly defines the rules the employee has breached.
Automatic termination
The employment contract terminates automatically in certain circumstances, though severance may still be payable in some cases. These include expiry of the contract, the employee reaching statutory retirement age with the option to agree an extension of up to three years, the employee’s death or court declaration of being missing, and situations where the employer is declared bankrupt, has its business licence revoked or is liquidated.
Termination under special circumstances
Under Article 40, an employer may terminate a contract with 30 days’ written notice or one month’s salary in lieu, plus severance, if the employee cannot return to work after a medical treatment period, remains unable to perform their role after training or reassignment or if the contract can no longer be performed due to significant changes and no agreement can be reached.
Situations where termination is not permitted
Article 42 protects certain categories of employees from termination under special circumstances or automatic termination grounds. Where these protections apply, the contract is extended until the protection period ends. These situations include:
- Employees exposed to occupational disease hazards who have not received a pre-departure health examination, or who are suspected of, diagnosed with or under medical observation for an occupational disease
- Employees who have suffered work-related injuries or occupational diseases and have been confirmed to have lost or partially lost the ability to work
- Employees on a medical treatment period for a non-work-related illness or injury
- Employees who are pregnant, in the postnatal period or breastfeeding
- Employees who have worked continuously for the employer for 15 years and are within five years of the statutory retirement age
How the termination process works in China
Employers face significant legal and reputational risk from wrongful termination or failure to follow due process. A structured approach to each termination reduces this risk considerably.
Step 1: Gather information and establish grounds
The legal grounds for termination are specific and exhaustive. If an employer dismisses an employee for cause and that decision is contested, the employer bears the burden of producing sufficient evidence to justify the termination. The first step is to gather documentation that supports a legally valid case, including records of misconduct, performance reviews, warning letters and any relevant correspondence.
Step 2: File with the labour bureau if required
For mass layoffs involving 20 or more employees or 10% or more of the total workforce, notification to the local labour administrative authorities is required. For individual terminations, this step does not apply unless specific local requirements indicate otherwise.
Step 3: Negotiate a mutual termination or issue a written notice
After establishing the grounds and gathering evidence, the employer decides whether to negotiate a mutual termination agreement or proceed with a unilateral written termination notice. Mutual termination negotiations should be conducted individually rather than collectively to allow more freedom of expression and reduce the risk of collective action. Where possible, handle straightforward cases first to minimise exposure in labour tribunal proceedings. The termination process is only complete once both parties have signed a termination agreement or the written termination notice has been formally delivered to the employee.
Dismissing an employee unlawfully
If an employer unlawfully dismisses an employee without legal grounds or in breach of the protected categories under Article 42, the employee may submit a claim in labour arbitration. The remedies available are reinstatement or economic compensation at double the normal severance. If the employee requests reinstatement and it is possible to do so, the employee is entitled to 100% of their remuneration for the period from unlawful dismissal to reinstatement.
Post-termination obligations in China
Termination of an employment contract does not end the employer’s obligations. After termination, immediate focus is required on recovering company property and managing any continuing obligations, such as non-compete arrangements.
Property handover and system access
On termination, the employee should hand over all work documents, materials, keys, access cards, laptops, phones and any other company property. A clear plan should be in place to recover any items the employee does not have immediately available, and it is reasonable to make the return of company property a condition of issuing the final payslip. IT should revoke all computer, system and data access permissions promptly on or before the last working day.
Non-compete obligations
Where a post-employment non-compete is agreed, it takes effect from termination or contract expiry and applies only to senior management, technical staff and others with access to confidential information whose work for a competitor could harm the employer.
The maximum duration is two years, during which the employer pays monthly compensation. If not agreed in advance, courts typically set compensation at around 30% of the employee’s average monthly salary over the 12 months before termination. Our guide on understanding HR compliance requirements in China covers the updated non-compete compensation guidelines in detail.
How severance pay is calculated in China
Severance is calculated at one month’s salary per full year of service, based on the employee’s average monthly remuneration over the last 12 months. For partial years, periods of less than six months attract half a month’s salary and periods of six months or more attract a full month. The monthly reference salary is capped at three times the local average monthly salary in the relevant city. For a broader breakdown of employment costs including social insurance and leave entitlements, see our guide on how much does an employee cost in China.
| Employment period | Severance entitlement |
|---|---|
| Less than six months | Half a month |
| Six months to one year | One month |
| One to two years | One month per year |
| Each additional full year | One month per year, up to the local cap |
Note: Severance is not payable where termination is based on the employee’s serious misconduct under Article 39, or where the employee resigns voluntarily without cause.
The mass layoff framework
Where a company needs to reduce its workforce by 20 or more employees or by 10% or more of its total headcount, the economic redundancy framework under Article 41 applies. This involves a separate set of procedural requirements including advance notice to the labour union, government notification and priority retention rules.
Conclusion
Terminating an employee in China requires a clear legal basis, documented evidence and a structured process followed in the right order. The protections afforded to employees under Chinese labour law are substantial, and the consequences of getting termination wrong, whether through insufficient grounds, procedural errors or failure to pay correct severance, can be significantly more costly than taking the time to do it properly. Where the grounds are unclear or the situation is complex, working with in-country HR and legal advisers reduces the risk of disputes arising.
How Acclime can help with employee termination in China
Managing employee termination in China involves navigating legal grounds, documentation requirements, severance calculations and post-termination obligations simultaneously. Acclime China supports companies through the full termination process, from assessing the legal basis and preparing documentation to managing employee deregistration and calculating severance correctly. Contact us to discuss how we can support your HR compliance and termination needs in China.
Contact our teams for expert support and further information about HR and employment solutions in China to ensure you are compliant in the market.
Grace Zhang, HR Services Manager, g.zhang@acclime.com
Stella Zhou, HR & Payroll Director, y.zhou@acclime.com
Jacob Ketcher, Business Development Manager, j.ketcher@acclime.com
