China Employment Guide

Navigating Employment Termination in China: A Strategic Guide

Terminating employment relationships in China requires careful adherence to complex regulatory frameworks that vary by jurisdiction. As an international HR professional, I've observed that proper termination procedures must involve collaboration between employers and key stakeholders, often including specific costs and mandatory steps depending on the termination circumstances.

Legal Framework for Employment Termination

Chinese employment law provides limited flexibility for employers regarding termination. Beyond probation periods, employers cannot terminate employment arbitrarily and must establish valid grounds for dismissal. Regional variations add another layer of complexity, with different provinces implementing distinct regulations.

Shanghai-Specific Termination Protocols

Shanghai presents particularly nuanced termination requirements. Employers must demonstrate legitimate reasons for termination, with compliant approaches including:

• Voluntary resignation: Employees may resign at any time by providing notice to employers
• Mutual agreement: Both parties can negotiate termination terms collaboratively
• Employer-initiated termination based on:
  • Probationary assessment: Termination during probation period with documented reasons
  • Objective circumstances: Restructuring, redundancy, or operational changes
  • Disciplinary dismissal: Serious misconduct or policy violations
  • Performance issues: Documented incompetence following evaluation
• Contract expiration: Automatic termination upon fixed-term contract completion unless renewed

Notice Period Requirements

Minimum notice periods range from 3 days during probation to 30 days post-probation. Local regulations may impose additional requirements based on employee location and specific circumstances.

Severance Payment Structures

Chinese severance calculations depend on service duration and termination rationale, with regional variations significantly impacting obligations.

Shanghai's severance framework includes:

• Unjustified termination:
  • Less than 6 months service: Half-month salary
  • Over 6 months service: One month salary per year served (capped at 12 months)
• Termination for serious contract violation: No severance required
• Mutually agreed termination: Negotiable severance terms

Fixed-term contracts calculate severance at one day's wage per year of service.

Risk Mitigation Through Professional Solutions

Organizations like SailGlobal implement severance accrual systems across employment agreements to mitigate unexpected financial exposures. With extensive global expertise in litigation risk management, SailGlobal's calculations incorporate current legal standards and local best practices. Importantly, unused accruals return to clients when employees resign or aren't entitled to severance.

Practical Case Examples

Consider a multinational company terminating a Shanghai-based employee with 3 years of service without proper justification. The employer would face approximately 3 months' salary in severance payments plus potential legal penalties. Conversely, a properly documented performance-based termination following established evaluation procedures significantly reduces liability exposure.

Another common scenario involves fixed-term contract workers completing their terms. While automatic termination occurs, failure to provide proper documentation can lead to claims of de facto permanent employment status.