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on Wednesday, 23 November 2016
in Business in China

Termination Terms under the Chinese Labor Contract Law

There are several forms needed to end a labor contract in China and each one of them has its own set of terms and rules; how the employer can end the contact, how the employee may quit, and how the severance payment should be calculated. These are some of the issues we have included in this brief guide to help you assess the termination terms in Chinese employment contracts.





The Employer and the Employee agree to terminate a contract


They use a Settlement Agreement to agree on the conditions of the termination.

  • The notice period and the compensation have to be negotiated between both of the parties.
  • Severance payment must be payed if the one proposing to terminate the contract is the Employer.





Termination of the contract by the Employer

One-month salary or 30 days prior notice and severance payment.

Reasons for termination:

  • The Employee is not a good fit after training for his position.
  • The Employee has contracted an illness or injury and is unable to return to his original job or any other suggested by the Employer. 
  • A major change in circumstances from the time the employment contract was entered into has rendered the role non-performable and the Employer and Employee have failed to reach an agreement on restructuring the employment contract.

Note: The Employer may not terminate the employment contract, if:

  • The Employee is on work-injury leave or in the statutory sick leave period
  • The Employee is pregnant and is on her maternity leave or nursing period
  • The Employee is less than 5 years from retirement and has been working for the same Employer for 15 years
  • The Employee was exposed to occupational hazards and has not had a medical check-up yet





Termination of the contract by the Employee

An Employee can terminate his employment contract by giving 30 days prior notice.

Reasons for termination:

  • The Employer fails to provide the work conditions initially stated in the employment contract.
  • The Employer does not pay the full salary on time.
  • The Employer fails to pay social security premiums.
  • The Employer’s rules violate laws and harm the Employee’s rights.
  • The Employee’s employment contract is invalidated due to circumstances in the law.

Note: During the probation period, the Employee must give 3 days' prior notice before terminating his contract;

If an employer forces any employee to work by the means of violence, threat, or illegally restraining personal freedom, or an employer violates the safety regulations to order or forces any employee to perform dangerous operations that endanger the employee’s personal life, the employee may immediately dissolve the labor contract without notifying the employer in advance.


How to calculate severance payment?

Severance pay policy is included in the Labor Contract Law and is understood to be compensation pay for the Employee when the Employer terminates the employment contract; or when the Employee terminates the employment contract due to the Employer’s breach of the Labor Contract Law. The severance payment depends on the length of service of the Employee and it includes one-month salary for each full year worked.

Note: Monthly salary refers to the Employee’s average salary during the 12 months prior to the termination of contract.

• It cannot exceed 3 times the local average monthly salary

• It cannot exceed a period of service of 12 years


• If the Employee has worked for the Employer for less than 6 months: 1/2 month’s salary


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