Blog

Lay-offs and legal requirements in China

Find here Daxue Talks episode 68. In this interview, Nicolas Coster answers our questions regarding employment and legal compensation in China. 

Full transcript below:

In which context can someone be laid off?

We have a very specific legal ground to lay-off somebody. So, if you want to lay off somebody you need to check your employee handbook which will define what are the reasons to lay off the employee. If you don’t have any employee hand book, that means you didn’t define the reason. If you follow the law, the law is very imprecise about lay-offs. For example, strike in Chinese law is not forbidden, not allowed. So, if you want to forbid a strike in your company, it’s possible but you have to define it in your employee handbook. If you didn’t and the employees start a strike, you can dismiss them with a compensation. If you didn’t do it, it would be very hard for you to lay-off the employees. So, you have to be very, very careful to define — Chinese labour law is not very precise for the definition of lay-off. We have some specific case — for example economic dismissal, a serious mistake by the employee, sickness – such kind of things, but at the end you have to define all the case of the law in the employee handbook, to be more precise.

In which context does an employer have to double the compensation in case of lay-off?

The only situation you have to do that is if the judge or the arbitrator will consider that the layoff is illegal. If the layoff is illegal, then it will be double compensation.

In what circumstances are lay-offs considered illegal in China?

The main reason could be that you don’t have enough evidence. Most of the time when we go to the labour commission the issue is how do you prove that the reason you have is true. How can you prove it? It could be very hard sometimes, if you say the employee is not very competitive, this is not a reason for lay off. If you say the employee destroy a camera belonging to the company – can you prove it? Do we have a video of the guy destroying the camera? Okay. So, the most important when you prepare a lay-off in China is to collect the evidence and to be sure we have enough evidence. And most of the evidence need to be notarized before you go to labour commission. If you don’t notarize the evidences like chat, video, or such kind of things, then also it will be an issue. So, you have to prove that the reason you’re saying is true, so you have material evidence and you have to prove that the reason you give to lay off the employee is in the labour contract or in the employee hand book.

What is the requirement for compensation when an employee is fired from the company?

It depends if there is a good reason or bad reason to fire you. If you get fired with a good reason there is no compensation. If this is for your duties, if it is because you steal something in the company, there is no compensation, you don’t have the right to any compensation.

If you terminate the contract with the company and there is no good reason to fire you, in this case you get one month’s salary. If you have 2.5 years working experience with the company – you will be able to get 2.5 months of salary.

What are the legal requirements to respect when resigning from a company?

If you resign from the company – firstly I’ll not advise you to resign, because if you resign you don’t have the right to the compensations, that means the one month salary per year of working experience, you are not allowed according to the rules. So, a resignation is not a good way to terminate your labour contract with a company if you want to get compensation; it’s better to negotiate a termination contract with the company to get the money.

When you resign, normally you have the right to resign within 30 days, that means you have to give 30 days’ period to the company to resign, but if there is nothing in the contract and if you don’t comply with these 30 days period, it will be very hard for the company to sue you, like you said you have to compensate me for the time you resign, for example 5 days short notice.

Once you resign you of course have to proceed to what we call the handover, that means you have to give back to the company all the materials and the tools of the company, like computer, phone – such kind of things, you have to get rid of them and you have to ask the company to give you a receipt which says yes we received from the employee this, this, this and that’s it. And then of course you will have to sign a paper to say that the company pay you everything they have to pay and to negotiate the final amount of the compensation of your last salaries and holidays.

What are the legal requirements to respect when laying off someone?

You have to be very, very careful. It depends on the reason of lay-off but if you fire somebody for serious mistake the first thing you need to do is to inform the trade union about the dismissal and it should be preliminary information by writing. If you don’t tell the trade union, you need to find a trade union in your district or in your industry, and you have to notify them that you plan to dismiss this employee for this reason, at least one day in advance to be sure it will arrive on time. Once you inform the trade union you have to prepare a dismissal letter to be sent to the employee or to be given by hand to give him the legal bound of the dismissal, you are not obliged to provide the evidence in the letter, but you have to clearly define the reason of the dismissal and the employee has to receive the letter and you should be able to prove that the employee received the letter. So, it could be by hand if he accepts, to sign the receipt, but most of the time we send an EMS which is an original letter. Once the dismissal is done you have to prepare the handover and you have to ask the employee to proceed with the handover. And that’s it.

Is the law different between provinces in China?

It’s not so different, we have the labour law, we have the national labour contract law, we have the national labour law, but each province will have its own labour regulation to inculcate the national law. So, the practice could be a little bit different from one province to another, from one city to another.

Any questions? We will find an expert to answer them. Drop your questions in the comments or send us an email – dx@daxueconsulting.com.