Terminating a China Employee: Why YOUR Rules and Regulations are Key

China employment lawyersLast week, in Terminating a China Employee: Why Mutual Termination is so Often the Key, I wrote of how getting your China employee to agree to a mutual termination (with a settlement agreement) can greatly minimize employer risk. But sometimes, a mutual termination is not possible. Though China is not an employment-at-will jurisdiction, its laws do permit employers to unilaterally terminate a China employee that has committed a serious breach of the employer’s rules and regulations.

If you are going to unilaterally terminate an employee for breaching your rules and regulations, it is best you have written provisions in your rule and regulations that explicitly justifying the termination. And just moving a list of forbidden behaviors from your oversees employee handbook to your China employer rules and regulations rarely cuts it.

Suppose your employee does X and you think X is terrible and you now want to terminate that employee. You check your rules and regulations and X is listed as a basis for termination without severance and so you terminate the employee. The employee then sues you for unlawful termination.

Let me digress a minute to discuss something our China lawyers are getting more often these days, especially on the employment law front. As China’s laws get more complicated, my law firm is getting more calls from companies contacting us because they have been sued or because they want to sue and telling us that because they “did exactly what we told them to do on the China Law Blog,” they are confident that they will prevail. Sadly, they are nearly often mistaken. What these people have failed to realize is that what we provide here on this blog is not legal advice specific to their situation. And it is the “specific to your situation” part that matters most. On the employment front, the applicable laws will vary depending on, among other things, the size of your company, the type of employees at issue, and your location. See China Employment Law: Local and Not So Simple. Our goal with this blog is NOT to tell you exactly how to do things in your specific situation, but rather to alert you to the issues so that you can — when appropriate — seek out proper help for dealing with them.

This advice is particularly true with China contracts and legal documents (such as your rules and regulations). My law firm has been drafting China contracts for so long that we — and I am not kidding about this — have at least twice been contacted by companies given one of our contracts by “friends” and now want us to help them deal with their Chinese counterpart that has “breached” the contract. Interestingly, in both instances, the contracts were so off the mark for what these two companies needed that we declined even to help them as we thought it would be pointless. In China Contract Templates: the Cons and the Cons, we wrote about why China template contracts (any contract not tailored to your specific situation) do not work:

We don’t use “templates” for our agreements. After a lot of analysis, IF we find what the foreign buyer is trying to do fits into a pattern from a previous transaction, then we will, of course, use an agreement from a previous transaction as a model. But even in the most basic transactions, what we do is to customize it for the current transaction.

In drafting pretty much any contract for China there are literally dozens of variables that can, in turn, be combined in a nearly infinite number of configurations. So the final contract from one transaction may have no application to any other transaction. This is why providing a contract from a past transaction will have no benefit to the Western side and would likely only harm it.

As you note, our clients also need at least one of our China lawyers involved in dealing with the Chinese response. Did the Chinese side change the Chinese and not the English as they so often do? Did they redline in a way that the changes to the Chinese portion are even apparent? More important is whether their changes are the normal technical changes that are part of normal business practice (45 days to deliver a product instead of 30 days) or are their changes destructive to the whole approach, such as: “no, you do not own the technology, we do.” Or, “no, we won’t provide any warranty at all.” Or, “no, we own the molds, not you.” I do not see how anyone without a deep understanding of Chinese law and Chinese business could even begin to deal with these sorts things.

In drafting our contracts, we do of course usually pull some language from other contracts, such as confidential information language. However, the core agreement is almost always completely unique to the specific client before us and when we do use prior language, we nearly always revise it to customize it for the specific client and the specific transaction.

From our having written thousands of China agreements we know there are certain issues that need to be resolved pretty much every time. So we work with our clients to identify those issues and then we work them on how they want to deal with those issues and then we put the agreement together to achieve the goals our client has told us it has. Of course, for some of these components, we use as a base some of the language that has worked in the past in China. This is the benefit of working with us: we know what works and we know what fails. But the resulting contract in each case is unique.

So in that sense, there is no template. There is just decades of experience in drafting agreements for doing business in China or for doing business with China. This is why whenever someone asks me to send them a “template” agreement I tell them I cannot because I have no way to know which of the nearly infinite number of alternatives they should follow. How will they pick and choose from a dozen options for a relatively simple provision? What is unique about their situation? Will the most common solution we have used in the past even make sense for them? Does it make sense for their industry? Their business? Their product? Their location? What if the law has changed? What if the law changes two days after we start drafting?

I usually propose to each client three options for every important issue and I usually come up with those three from about a dozen possible. Say there are ten critical issues for their contract. Each selection of an option affects all of the other options, often in ways we have previously encountered. Before the client answers the questions, we don’t know even what structure to use. After they answer the questions, the agreement that meets all their needs does not exist.

It is also true that in-house counsel cannot write an agreement that can serve as a basis for what our client wants us to craft. Our approach to China contracts is based on three supports: 1) Decades of China experience, 2) A deep understanding of the Chinese civil law system and the Chinese court system, 3) A deep understanding of how contracts actually work in China. Any company with an in-house lawyer who combines all three does not need to come to us for a contract and they don’t. It is not helpful to us to have a common law contract [China is a civil law system] based on a highly idealized and impractical American/European practice that has no applicability or use in China.

Whether your employee termination was lawful is incredibly fact specific. Among other things, it depends on what the employee did. It also depends on exactly what your rules and regulations say and how they say it. It also depends on where you are located as it is critical that your rules and regulations fully accord with the reality on the ground in your specific locale in China. If the rule on which you relied in terminating this employee is not reasonable, your termination will likely be deemed to have been unlawful. For example, your rules and regulations may say that your employees cannot date a supervisor and anyone who does so will be subject to immediate dismissal. This rule is unenforceable in most of China because China’s labor authorities and courts do not want employers restricting their employee’s freedom to date and marry. So even if your rules and regulations prohibit inter-office dating,  if you terminate an employee for dating you probably will need to pay your employee damages and also immediately reinstate him or her.

We often see employers list grounds for termination in their rules and regulations that do not usually work for China. For example, employers in China generally can only govern their employees’ behavior during their working time. For example, though you usually can prohibit an employee from being a “WeChat merchant” during normal working hours, you usually cannot prohibit the employee from doing that during their spare time. Unless what an employee does in his or her personal time leads to criminal liability you usually cannot unilaterally terminate them for what happens outside the office.

Consider this hypothetical. You as an employer host an after-hours holiday party to celebrate the Chinese New Year. One of your employees attends after getting off work that day. This employee gets into an altercation with a supervisor and hits the supervisor. Your employee and your supervisor go to the police station and your supervisor decides not to press charges and no administrative or criminal charges are ever brought against your employee. You then fire the employee because you think what he did  “checks the box” in your rules and regulations prohibiting any fighting at work.

How will this be resolved? In a real case in Beijing with similar facts, the employer lost. The court held that the holiday party did not count as working time and because the employee was never criminally charged the employer had no legal basis for the unilateral termination.

Bottom line: Without well-crafted rules and regulations that work for your specific business and your specific locale it is usually impossible to justify a unilateral employee termination.

This article was written by Grace Yang and published on China Law Blog. Original Post: https://www.chinalawblog.com/2018/02/terminating-a-china-employee-why-your-rules-and-regulations-are-key.html      

View the original article here.

Grace Yang

Grace focuses on international business and China law. Grace is admitted to practice law in the States of New York and Washington. Grace is our lead attorney on China labor and employment law.