Reliant on the Law: Labor Contract Termination

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 Reliant on the Law

Labor Contract Termination

Can I really be fired for all those things but have no right to quit? 

There seem to be common misimpressions among many foreign employees in China, that employment contracts are like agreements for indentured servitude. No doubt, many unscrupulous employers perpetuate this myth by using contracts that stipulate that an employee can only end the contract with the agreement of the employer or under onerous circumstances. In truth, China’s Labor Contract Law (LCL) gives clear rights to both employee and employer as to when either can terminate the labor contract. These rights supersede strictures in contracts, and are designed to protect the employee. Broadly speaking, employees can resign when there is agreement with the employer, after giving 30 days notice, and in cases where there is wrongdoing by the employer. In cases of subjective fault of the employer, the employee does not have an obligation to give prior notice. There are also specific rules around how employers can fire employees. Employees can only be fired for cause, even in the probationary period, and only a few specific conditions allow immediate termination without severance.

According to LCL 36, the employer and the employee can mutually agree on terms to end the labor relationship. According to LCL 37, if the employee informs the employer in writing 30 days in advance then the employee may end the labor relationship. If the employee is still in the probationary period - there are many rules around probationary periods, but we will save that for another article - the 30 day advance notice is shortened to three (3) days. Note, the employee does NOT need to give a reason for ending the labor relationship under LCL 37. (In some cases a longer notice period may be supported by arbitration tribunals and courts, but only in cases where the notice period is reciprocal and so can be seen as protecting the employee.)

When we get to LCL 38, things get more interesting. This article deals with the employee’s right to end the labor relationship based on the subjective fault of the employer. When the employer (1) fails to provide labor protection or working conditions specified in the labor contract; or (2) fails to pay the employee in full or on time; or (3) fails to enroll and pay for social insurance for the employee; or (4) has illegal work rules that harm employees; or (5) the labor contract is invalid due to fraud by the employer, violation of employee rights or contains provisions that are at variance with mandatory provisions of laws or administrative regulations; then the employee can quit without the need for 30 days notice. In these circumstances the employee still has to inform the employer that the employee is quitting, but she does not need to do so in advance. If the employer uses violence, force, threats of force, or tries to make an employee do things that are a threat to the employee’s personal safety, the employee can quit without even telling the employer and the resignation is still legal. Also note, if an employee discharges the labor contract under LCL 38 that employee is still entitled to severance, but we will have more about severance in a later article.

While LCL 38 deals with when the employee can quit because of what the employer has done, LCL 39 is about when the employer can fire the employee for what that employee has done. While the conditions in LCL 38 rarely appear in contracts, those from LCL 39 often appear in exaggerated and expanded form. Only the actual circumstances in LCL 39 allow the employer to fire the employee without prior notice and without rights to severance. These include: (1) during the probationary period the employee is found not to be suitable for the job; note the employer must still give specific reasons to justify this; (2) if the employee seriously violates the employer rules; (3) if the employee’s serious negligence or personal profit seeking cause significant damages to the employer; (4) if the employee takes on other employment that influences the performance of the original position and continues this secondary employment after a warning from the original employer; (5) if the labor contract is invalid due to fraud by the employee; (6) if the employee is subject to criminal investigation. Condition four does not apply to non-Chinese employees as they must, except in a very limited number of special cases, have a single clear employer who is listed on the employee’s Work Permit (Rules for the Administration of Employment of Foreigners in China Artt. 7.4, 24).

LCL 40 is also about conditions under which the employer can fire the employee, but these are not the serious fault of the employee and so employees fired under LCL 40 are entitled to both a month notice, which must be given in writing, or a month’s worth of pay in lieu of notice, and severance. There are three conditions for which an employee can be fired under LCL 40: (1) if the employee has used up all statutory sick leave for a non-work related injury or illness and still cannot perform the original job and the employer cannot provide an acceptable alternative position; (2) if the employee is incopentent for the job position and, after training or position adjustment, is still incomptent; (3) after a change in objective conditions makes the contract unperformable, and negotiations between the employer and employe fail to agree on new conditions for employment. 

Here, a few notes are in order. For LCL 40.1, this does not apply in cases of work related injury, but you need to (1) make sure your employer is paying your social insurance and (2) that you immediately start the process for workers’ compensation if you have a job related injury, including motor vehicle accidents sustained on the way to or from work (Work Injury Insurance Regulations Art. 14.6). Also, many contracts illegally claim that the employer can fire the employee after as few as three to seven sick days. The actual regulations for this start at 90 days of sick leave. This leave is paid, but usually at very low rates which can vary by location and full pay sick days promised in a contract are benefits over and above the statutory sick leave obligations (Notice of the Ministry of Labor on Issuing the "Regulations on the Medical Period for the Employee's Illness or Non-Work Injury" Art. 3). 

For LCL 40.2, the finding of incompetence for the position needs to be documented and given to the employee in writing, and the training and position adjustment and subsequent incompetence finding should also be specific and documented in writing. LCL 40.3, which I have written about elsewhere, is the clearest manifestation of Force Majeure in LCL (something similar appears in the Labor Law Art. 26.3). Thus, if an act of God or of government alters reasonable expectations which underpin business plans and the labor contracts based on those plans, and the employer and employee cannot agree on a new contractual arrangement, then termination under LCL 40.3 is the most appropriate choice. The payment of one month’s wages that can be given in lieu of notice under an LCL 40 termination is paid at the standard of the prior month’s pay (Implementation Regulations for the Labor Contract Law of the People’s Republic of China Art. 20).

The provisions in LCL 41 deal with mass layoff situations. The standard is when 20 or more people or 10% of the labor force is to be laid off, then LCL 41 can be applied. While there are four separate conditions in LCL 41, they are all very similar in that they indicate the employer is undergoing major disruption. In the first, the severity is such that it has led the employer to enter bankruptcy. The fourth condition is also noteworthy for being similar to LCL 40.3 and another instance where the Force Majeure concept, though not that actual wording, appears. LCL 41 also directs employers to create a layoff plan, share it with employees at least a month before implementation, and also to share it with the administrative department of labor. In addition, LCL 41 sets out that if an employer lays off workers due to bankruptcy, it should give the previously laid off workers priority in hiring if the employer does hiring again within six months of the lay off. What is most notable about LCL 41 is that, as per LCL 46.4, it is only in cases where the employer undergoes bankruptcy that employees laid off under LCL 41 are entitled to severance. 

LCL 42 is actually a limitation on the application of LCL 40 and 41. When an employee has or is suspected of having an occupational disease or a disabling work related injury; or where an employee has worked for an employer for 15 or more years and is five or fewer years from retirement; or where any female employee is pregnant or during the period of her maternity and nursing leave; that employee cannot be dismissed using LCL 40 or 41.

While many labor contracts signed by foreign employees in China are one-sided and favor employers, large portions of those contracts are likely invalid. This is particularly true for contract termination. Many labor contracts fail to even touch on the employee rights to terminate the contract in LCL 38, but expand and elaborate into fanciful fictions the employer rights in LCL 39. The provision of LCL on contract termination lay out a framework that supersedes many onerous and one-sided contract provisions. Knowing this is part of how being Reliant on the Law you can help you protect your labor rights.

References 

Labor Contract Law of the PRC

http://english.www.gov.cn/archive/laws_regulations/2014/08/23/content_281474983042501.htm 

中华人民共和国劳动合同法

http://www.gov.cn/flfg/2007-06/29/content_669394.htm 

Article 36 

An employer and a worker may discharge the labor contract upon unanimity through consultation.

第三十六条 

用人单位与劳动者协商一致，可以解除劳动合同。

Article 37 

A worker may discharge the labor contract if he informs the employer in written form 30 days in advance. During the probation period, a worker may discharge the labor contract if he informs the employer three days in advance.

第三十七条 

劳动者提前三十日以书面形式通知用人单位，可以解除劳动合同。劳动者在试用期内提前三日通知用人单位，可以解除劳动合同。

Article 38 

In the case of any of the following circumstances occurring to an employer, workers may discharge the labor contract:

(1) It fails to provide labor protection or work conditions as stipulated in the labor contract;

(2) It fails to pay the full amount of remunerations in a timely manner;

(3) It fails to pay social security premiums for the workers according to law;

(4) The bylaws thereof are inconsistent with any law or regulation and impair the rights and interests of the workers;

(5) A labor contract is invalid due to the circumstance referred to in Paragraph one of Article 26 of this Law; or

(6) Any other circumstance as prescribed by any law or administrative regulation under which the labor contract may be discharged.

Where any worker is forced to work by violence, by threat or by illegally limiting his personal freedom, or is forced to perform dangerous operations which may endanger his personal safety under illicitly commands or forces of the employer, the worker may immediately discharge the labor contract without informing the employer in advance.

第三十八条 

用人单位有下列情形之一的，劳动者可以解除劳动合同：

（一）未按照劳动合同约定提供劳动保护或者劳动条件的;

（二）未及时足额支付劳动报酬的；

（三）未依法为劳动者缴纳社会保险费的；

（四）用人单位的规章制度违反法律、法规的规定，损害劳动者权益的；

（五）因本法第二十六条第一款规定的情形致使劳动合同无效的；

（六）法律、行政法规规定劳动者可以解除劳动合同的其他情形。

用人单位以暴力、威胁或者非法限制人身自由的手段强迫劳动者劳动的，或者用人单位违章指挥、强令冒险作业危及劳动者人身安全的，劳动者可以立即解除劳动合同，不需事先告知用人单位。

Article 39 

In the case of any of the following circumstances occurring to a worker, the employer may discharge the labor contract:

(1) It has been proved that he does not satisfy the recruitment requirements during the probation period;

(2) He is in serious violation of the bylaws of the employer;

(3) He causes any severe damage to the employer due to his grave negligence to his duties or seeking private benefits;

(4) He establishes a labor relationship with other employers at the same time and may seriously influence his completion of the works in this entity, or he refuses to make a correction even though the employer has pointed it out;

(5) The labor contract is invalidated due to the circumstance referred to in Item (1), paragraph 1, Article 26 of this Law; or

(6) He is subject to criminal liabilities according to law.

第三十九条 

劳动者有下列情形之一的，用人单位可以解除劳动合同：

（一）在试用期间被证明不符合录用条件的；

（二）严重违反用人单位的规章制度的；

（三）严重失职，营私舞弊，给用人单位造成重大损害的；

（四）劳动者同时与其他用人单位建立劳动关系，对完成本单位的工作任务造成严重影响，或者经用人单位提出，拒不改正的；

（五）因本法第二十六条第一款第一项规定的情形致使劳动合同无效的；

（六）被依法追究刑事责任的。

Article 40 

In the case of any of the following circumstances, the employer may discharge the labor contract after it notifies the worker himself in written form 30 days in advance or after it pay the worker an extra month's salary:

(1) The worker falls ill or is injured for a non-work-related reason, who is not able to bear the original post after the expiration of the medical treatment period as prescribed, nor can he assume any other position as arranged by the employer;

(2) The worker is incapable of doing his job and remains so upon training or upon adjustment to his post; or

(3) The objective circumstance has altered significantly, on which the conclusion of the labor contract is based, which results in that the labor contract is unable to be performed. And no agreement concerning the modification of contents of the labor contract is reached after consultations between the employer and the worker.

第四十条 

有下列情形之一的，用人单位提前三十日以书面形式通知劳动者本人或者额外支付劳动者一个月工资后，可以解除劳动合同：

（一）劳动者患病或者非因工负伤，在规定的医疗期满后不能从事原工作，也不能从事由用人单位另行安排的工作的；

（二）劳动者不能胜任工作，经过培训或者调整工作岗位，仍不能胜任工作的；

（三）劳动合同订立时所依据的客观情况发生重大变化，致使劳动合同无法履行，经用人单位与劳动者协商，未能就变更劳动合同内容达成协议的。

Article 41

If, in any of the following circumstances, an employing unit needs to cut employment by more than 20 persons, or by less than 20 persons, which, however, accounts for more than 10 per cent of the total number of the enterprise’s employees, it may do so after it explains the situation to the trade union or all of its employees 30 days in advance, solicits opinions from among them and submit its plan for cutting employment to the administrative department of labor:

(1) The enterprise is to undergo reorganization pursuant to the provisions of the Law on Enterprise Bankruptcy;

(2) The enterprise is in dire straits in production and management;

(3) The enterprise changes its line of production, introduces a major technological updating or adjusts its business method, and, after modification of the labor contracts, still needs to reduce its personnel; or

(4) The objective economic conditions taken as the basis for conclusion of the labor contracts have greatly changed, so that the original labor contracts cannot be performed.

When cutting employment, the employing unit shall continue to employ the following persons by giving priority to them:

(1) persons who have concluded fixed-term labor contracts for a relatively long term with the employing unit;

(2) persons who have concluded open-ended labor contracts with the employing unit; and

(3) persons none of whose other family members has a job or who have an elder or minor depending on his support.

If an employing unit that has cut its employment pursuant to the provisions in the first paragraph of this Article goes to recruit employees anew within six months, it shall give notification to the laid off persons and, under equal conditions, recruit them before others.

第四十一条

有下列情形之一，需要裁减人员二十人以上或者裁减不足二十人但占企业职工总数百分之十以上的，用人单位提前三十日向工会或者全体职工说明情况，听取工会或者职工的意见后，裁减人员方案经向劳动行政部门报告，可以裁减人员：

（一）依照企业破产法规定进行重整的；

（二）生产经营发生严重困难的；

（三）企业转产、重大技术革新或者经营方式调整，经变更劳动合同后，仍需裁减人员的；

（四）其他因劳动合同订立时所依据的客观经济情况发生重大变化，致使劳动合同无法履行的。

裁减人员时，应当优先留用下列人员：

（一）与本单位订立较长期限的固定期限劳动合同的；

（二）与本单位订立无固定期限劳动合同的；

（三）家庭无其他就业人员，有需要扶养的老人或者未成年人的。

用人单位依照本条第一款规定裁减人员，在六个月内重新招用人员的，应当通知被裁减的人员，并在同等条件下优先招用被裁减的人员。

Article 42 

In the case of any of the following circumstances occurring to a worker, the employer may not discharge the labor contract in accordance with Articles 40 and 41 of this Law:

(1) Any worker that conducts operations exposing him to occupational disease hazards has not gone through an occupational health check before leaving his post, or is suspected of having an occupational disease and is under diagnoses or medical observation;

(2) Any worker has occupational disease or he has lost or partially lost his capacity to work as confirmed due to an injury relating to his job during his employment with the employer;

(3) Any worker is suffering from illness or is being injured irrelevant to his job, and the period of medical treatment as prescribed therefore has not expired;

(4) Any female worker is in her pregnancy, confinement or nursing period;

(5) Any worker has been working for the employer for exceeding 15 years continuously and is less than five years away from his legal retirement age; or

(6) Other circumstances as prescribed by laws or administrative regulations.

第四十二条 

劳动者有下列情形之一的，用人单位不得依照本法第四十条、第四十一条的规定解除劳动合同：

（一）从事接触职业病危害作业的劳动者未进行离岗前职业健康检查，或者疑似职业病病人在诊断或者医学观察期间的；

（二）在本单位患职业病或者因工负伤并被确认丧失或者部分丧失劳动能力的；

（三）患病或者非因工负伤，在规定的医疗期内的；

（四）女职工在孕期、产期、哺乳期的；

（五）在本单位连续工作满十五年，且距法定退休年龄不足五年的；

（六）法律、行政法规规定的其他情形。

Rules for the Administration of Employment of Foreigners in China

http://english.www.gov.cn/services/work_in_china/2018/08/02/content_281476245886934.htm

外国人在中国就业管理规定

http://www.mohrss.gov.cn/SYrlzyhshbzb/zcfg/flfg/gz/201704/t20170413_269433.html 

Article 7 

Any foreigner seeking employment in China shall meet the following conditions:

(1) 18 years of age or older and in good health;

(2) with professional skills and job experience required for the work of intended employment;

(3) with no criminal record;

(4) a clearly-defined employer;

(5) with valid passport or other international travel document in lieu of the passport (hereinafter referred to as the “Travel Document”)

第七条 

外国人在中国就业须具备下列条件：

(一)年满18周岁，身体健康；

(二)具有从事其工作所必需的专业技能和相应的工作经历；

(三)无犯罪记录；

(四)有确定的聘用单位；

(五)持有有效护照或能代替护照的其他国际旅行证件(以下简称代替护照的证件)。

Article 23

The employer of the foreign employee in China shall be the same as specified in his Employment License.

When the foreigner switches employers within the area designated by the Certificate Office but stays in a job of the same nature, the change must be approved by the original Certificate Office and recorded in his Employment Permit.

If the foreigner is to be employed outside the area designated by the Certificate Office or switches employer within original designated area while taking up jobs of a different nature, he must go through formalities for a new Employment License.

第二十三条 

外国人在中国就业的用人单位必须与其就业证所注明的单位相一致。

外国人在发证机关规定的区域内变更用人单位但仍从事原职业的，须经原发证机关批准，并办理就业证变更手续。

外国人离开发证机关规定的区域就业或在原规定的区域内变更用人单位且从事不同职业的，须重新办理就业许可手续。

Work Injury Insurance Regulations

工伤保险条例

http://www.gov.cn/zwgk/2005-05/20/content_144.htm

Article 14 

Employees who have any of the following circumstances shall be deemed as work-related injuries:

(1) During the working hours and in the workplace, he was injured by an accident due to work reasons;

(2) Being injured in an accident during work-related preparatory or finishing work in the workplace before or after working hours;

(3) In the working hours and in the workplace, due to the performance of work duties, violence or other accidental injuries;

(4) Those suffering from occupational diseases;

(5) When he was away from work, he was injured due to work reasons or his whereabouts were unknown;

(6) Being injured by a motor vehicle accident during commuting;

(7) Other circumstances that should be recognized as work-related injuries as required by laws and administrative regulations.

第十四条

职工有下列情形之一的，应当认定为工伤：

(一)在工作时间和工作场所内，因工作原因受到事故伤害的；

(二)工作时间前后在工作场所内，从事与工作有关的预备性或者收尾性工作受到事故伤害的；

(三)在工作时间和工作场所内，因履行工作职责受到暴力等意外伤害的；

(四)患职业病的；

(五)因工外出期间，由于工作原因受到伤害或者发生事故下落不明的；

(六)在上下班途中，受到机动车事故伤害的；

(七)法律、行政法规规定应当认定为工伤的其他情形。

Notice of the Ministry of Labor on Issuing the "Regulations on the Medical Period for the Employee's Illness or Non-Work Injury"

劳动部关于发布《企业职工患病或非因工负伤医疗期规定》的通知

http://www.mohrss.gov.cn/gkml/zcfg/gfxwj/201407/t20140717_136132.html 

Article 3 

When an employee of an enterprise needs to stop working due to illness or non-work-related injury, the medical period of 3 months to 24 months will be granted based on the actual number of years of work and the number of years of work in the unit:

(1) If the actual working period is less than 10 years, the working period in the unit is less than 5 years is 3 months; if the working period is more than 5 years, it is 6 months.

(2) If the actual working period is more than 10 years, the working period of the unit is less than 5 years is 6 months; the more than 5 years and less than 10 years is 9 months; the more than 10 years and less than 15 years is 12 months; 15 18 months for those over 20 years and 24 months for those over 20 years.

第三条 

企业职工因患病或非因工负伤，需要停止工作医疗时，根据本人实际参加工作年限和在本单位工作年限，给予3个月到24个月的医疗期：

（一）实际工作年限10年以下的，在本单位工作年限5年以下的为3个月；5年以上的为6个月。

（二）实际工作年限10年以上的，在本单位工作年限5年以下的为6个月；5年以上10年以下的为9个月；10年以上15年以下的为12个月；15年以上20年以下的为18个月；20年以上的为24个月。

Implementation Regulations for the Labor Contract Law of the People’s Republic of China

http://www.fdi.gov.cn/1800000121_39_521_0_7.html 

中华人民共和国劳动合同法实施条例

http://www.gov.cn/zwgk/2008-09/19/content_1099470.htm 

Article 20 

Where an employer decides to dissolve the employment contract with an employee by paying the latter an additional month’s wages according to Article 40 of the Labor Contract Law, the amount of the additional month’s wages shall be determined according to the employee’s wages in the last month. 

第二十条

用人单位依照劳动合同法第四十条的规定，选择额外支付劳动者一个月工资解除劳动合同的，其额外支付的工资应当按照该劳动者上一个月的工资标准确定。

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How Reliant can help
We can help you get better results when in a China labor dispute. We offer nationwide strategy consulting, planning, translation, and editing services, as well as work permit processing and consulting, and we can act as an agent for many matters in Beijing.About Reliant
Reliant’s co-founders are Josh and Lee. Josh is a former Fullbright Scholar educated at Yale and Tsinghua University. He is a native English speaker who has been featured on Chinese language television programs for his Mandarin language abilities, and has lived and worked in China since 1999. A native of Beijing, Lee was educated at Renmin University and holds a Chinese Human Resources Professional certificate. As specialized labor consultants we know China labor laws and administrative regulations. We are not lawyers but we work with attorneys as needed.

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