Chinese Lawyer: Why A Company May Pay Higher Compensation When It Fires Its Employees

Many companies in China want unqualified employees to leave and turns out companies need to pay high compensation. They do not understand why they need to pay when an employee cannot meet their expectation.

A quick answer is: because many companies do not have a proper company regulation in place.

Normally speaking only if a company establishes the following points, the company could terminate the contract with their employees seriously violated company regulation. Otherwise the termination is very likely to be deemed as illegal termination and company shall pay compensation (normally two times the standard of severance pay).

1.The company rules and regulations are lawfully established and through appropriate procedures

Pursuant to Article 4 of the Labor Contract Law, employers shall establish and improve internal rules and regulations in accordance with the law, so as to ensure that Employees enjoy their labor rights and perform their labor obligations.

Article 4 of the Announcement of publishing the explanation of several articles of the Labor Law by the Office of Ministry of Labor (Chinese name: 劳动部办公厅关于印发《关于<劳动法>若干说明》的通知, hereinafter referred to as the ‘Announcement’) states that, employers shall establish and improve internal rules and regulations in accordance with the law; “the law” shall be interpreted broadly, meaning that the rules and regulations shall comply to all official laws and regulations, including but not limited to Constitution, Law, Administrative Regulations, and Regional Regulations.

Article 4 of the Labor Contract Law also states that, when an employer formulates, revises or decides on rules and regulations, or material matters, that have a direct bearing on the immediate interests of its employees, the rules and regulations shall be discussed by the employee union or among all the employees;

Article 19 of the Interpretation of the Supreme People’s Court on Several Issues about the Application of Laws for the Trial of Labor Dispute Cases (2008 Amendment) (Chinese name: 最高人民法院关于审理劳动争议案件适用法律若干问题的解释) states that, employer’s rules and regulations which are: established by democratic procedures; not in violation of national laws, administrative regulations or policies; and are known to employees, could be used as the basis of reviewing the labor dispute case by the People’s Court.

The law has set down that, employer’s rules and regulations shall be established in accordance with the relevant laws and regulations; prior to the establishment, employees should be given chances to express opinions about the content of the company rules and regulations. And employers shall submit a record proving such procedure are followed if the employer wants to use company regulation as the ground for unilaterally terminate a employment contract.

2.Rules and regulations shall be delivered to the employees by the employer.

Company rules and regulations that are established in accordance with the relevant laws should be effectively delivered to the employees.

Pursuant to Article 4 of the Labor Contract Law, company rules and regulations, and decisions on material matters, that have a direct bearing on the immediate interests of employees shall be made public or be delivered to the employees by the employer.

3.The employee has materially breached the company’s rules and regulation

As stated above, employers could terminate employment contracts with employees in the event that the employees have materially breached the company’s rules and regulation. There are no specific laws that set down measurement of the nature of the breach. In practice, the relative conduct of the employee, and the consequences of those conducts would be crucial upon deciding the nature of the breach; arbitrators in the arbitral hearing also have discretion as to evaluating the seriousness of the conduct.

The company rules and regulations of companies would also be an important factor on analyzing whether employee’s conduct would constitute as “material breach of the company rules and regulations”.