Labor Case Study: Navigating China’s Laws Surrounding Employee Termination During Probation

Posted by Reading Time: 5 minutes

Case study banner

By Allan Xu  Manager, Business Advisory Services
Editor: Alexander Chipman Koty
Dezan Shira & Associates, Shanghai

Although many employers in China know that the labor contract of an employee can be dissolved at any time during the probationary period, most are unaware of the restrictions governing this termination procedure. According to China’s labor laws, the ability to terminate a labor contract during the probationary period is limited to the specific circumstance “where it is proved, on the expiry of the probationary period, that a worker has failed to meet employment requirements”. In practice, this rule is endowed by the law as a right for the worker, and it is the employer’s burden to prove that the employee “has failed to meet employment requirements” if the employer intends to dissolve the labor contract during the probationary period. Here, a case involving this situation will be discussed, along with practical advice for managing employees during the probationary period.

Scenario

Mr. Qian signed a two year labor contract with a company as a project manager. The contract stipulated the probationary period of Mr. Qian as two months and did not provide any explicit employment requirements. Among the 60 projects he was managing, 18 were not completed and 25 needed to be further revised. Since Mr. Qian did not perform well and did not meet the expected targets, the company rescinded the labor contract with him after one month, declaring that he had failed to meet the employment requirements.

In response, Mr. Qian applied for arbitration. Because the labor contract did not list any specific employment requirements, Mr. Qian argued that he was terminated without grounds and was therefore entitled to compensation from the company for violating the contract. The labor disputes arbitration committee determined that the evidence submitted by the company was insufficient to prove the failure of Mr. Qian to meet the employment requirements and thus approved the claim of Mr. Qian for compensation.

Professional Service_CB icons_2015RELATED: Payroll and HR Services from Dezan Shira & Associates

Legal Grounds and Analysis

According to China’s labor contract law, an employer can terminate the labor contract with an employee within the period of probation if the employee cannot satisfy the employment requirements. However, the employer is obliged to provide relevant evidence to justify the termination, including the company’s employment requirements, the employee’s acknowledgement of these requirements, and an assessment of the employee’s performance during the probationary period. The employer must make the employment requirements clear to the employee during the recruitment process.

If the court or the arbitration committee considers the evidence of the employer insufficient, the employer might be required to pay compensation to the employee and the termination can be overturned. In this particular case, the company did not indicate any employment requirements in the labor contract with Mr. Qian, and also did not stipulate specific requirements during the probationary period. As such, the labor dispute arbitration committee deemed the company’s actions a violation of the labor contract and approved Mr. Qian’s claim for compensation.

Suggestions

From a legal perspective, there are no specific regulations on the standards and principles of “employment requirements”. Hence, the definition of “employment requirements” must be determined by the employer themselves, within the scope permitted by law and based on its practical situation.

Generally speaking, the professional abilities or skills required by a given position are a must-have for the employee during recruitment, and can be regarded as their “employment requirement”. However, it should be noted that the employer must provide the specific and feasible criteria for the “employment requirements” and clearly inform the employee of these requirements before signing the contract. The “employment requirements” can be included in the labor contract, employee handbook, or stipulated in a separate policy.

It is suggested that the acknowledgement receipt of the “employment requirements” be obtained from the employee in advance. If the employer intends to terminate the employee within the probationary period due to poor performance, the employer must bear responsibility for proving the employee’s failure to meet the stipulated employment requirements, such as through an assessment form. Otherwise, the claim for terminating the employee during the probation period based on dissatisfying employment requirements might not be approved by the court or arbitration committee.


About
Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

 ‍

Related Reading

Human Resources and Payroll in China 2015
This edition of Human Resources and Payroll in China, updated for 2015, provides a firm understanding of China’s laws and regulations related to human resources and payroll management – essential information for foreign investors looking to establish or already running a foreign-invested entity in China, local managers, and HR professionals needing to explain complex points of China’s labor policies.

 

labor dispute managementLabor Dispute Management in China
In this issue of China Briefing, we discuss how best to manage HR disputes in China. We begin by highlighting how China’s labor arbitration process – and its legal system in general – widely differs from the West, and then detail the labor disputes that foreign entities are likely to encounter when restructuring their China business. We conclude with a special feature from Business Advisory Manager Allan Xu, who explains the risks and procedures for terminating senior management in China.

Employing Foreign Nationals in China
In this issue of China Briefing, we have set out to produce a guide to employing foreign nationals in China, from the initial step of applying for work visas, to more advanced subjects such as determining IIT liability and optimizing employee income packages for tax efficiency. Lastly, recognizing that few foreigners immigrate to China on a permanent basis, we provide an overview of methods for remitting RMB abroad.