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PRC Labour Law - Bitesize

10 April 2013
Mayer Brown JSM Newsletter

Termination and Renewal of Employment Contract (Cont'd)

If an employee resigns today, can I ask him or her to leave the company’s premises immediately?

The PRC Labour Contract Law requires an employee to provide written notice to the employer of 30 days after the probation period and three days during the probation period to terminate his or her labour contract. However, the law is silent on whether, after an employee tenders their resignation, the employer may ask him/her to cease employment before the expiry of the notice period.

Different labour dispute arbitrators and judges take differing approaches. Some of them hold that an employer cannot unilaterally require an employee to cease employment prior to the expiry of the notice period (as the employee is entitled to work out the 30 days' notice), while others hold that an employer is entitled to waive the notice period and can require the employee to leave the employer's premises, under the basic law principle.

As a matter of prudence an employer may try to reach a written agreement with the employee if it wants the employee to leave prior to the expiry of the notice period.

What are my legal entitlements if the employee resigns and leaves without providing 30 days' prior written notice?

If the employee leaves employment without providing the required notice, the employee has unlawfully terminated the labour contract. In these circumstances, according to article 90 of the PRC Labour Contract Law, if the employee's violation causes the employer to suffer losses, the employee will be liable for damages.

However, in practice it is usually difficult for an employer to prove its losses and the link between the losses and the employee's unlawful termination. Hopefully this can be addressed by law in the future.

Do I have to pay one month's salary in lieu of notice in a mutual termination situation?

In a mutual termination scenario, neither prior notice nor payment in lieu of notice is required under the PRC Labour Contract Law. However, in our experience it is not uncommon for an employer to pay one month's salary in lieu of notice to the employee if he or she agrees to terminate the employment relationship (although this is not required by law). Some employers may pay an increased ex-gratia payment in order to obtain the relevant employee's mutual agreement to a separation. Obviously, the higher the ex-gratia payment an employer offers, the better its prospects will be of enticing the employee to mutually agree to a separation.

Is there any issue if the employee agrees to be paid economic compensation at an amount lower than the statutory amount for a mutual termination scenario?

Generally, if the employer has clearly informed the employee of the statutory amount in the mutual termination agreement and the employee has clearly confirmed that he or she agrees to waive their rights, the court will not usually support the employee's claim for the balance between the statutory amount and the agreed amount.

However, in cases where the employee has sufficient evidence to prove that they had misunderstood the effect of the agreement, or that the agreement is obviously unjust (and the employee has filed the lawsuit within one year after the agreement was concluded), the court may rule in favour of the employee.

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