In China, you can terminate an employee for violating company policy, not following work instructions, or for misconduct. The legal requirement is that the company have committed a “major” violation of the requirements, which is the basis for disciplinary action. (see China Employment Act Section 39) No laws further define what “major” violations encompass. As a result, some employers are frequently ordered to pay damages to the employee for unlawful discharge because they did not correctly understand what judges would consider major. This threat in turn causes employees to be afraid to discipline employees who have genuine behavioral problems, making it impossible for management to control their workforce.
Fortunately, judges in China have written guidance articles for employers that describes an important point of judge-made law to apply in these cases, called the principle of proportionality. In this article, we will introduce the proportionality principle how it applies in an employment dispute, and how you can apply it in disciplinary action so that China’s courts take your side. With the knowledge contained below, you will be able to take control of your China workforce without risking violating an employee’s legal rights.
Contents
Progressive discipline requirement
Employers must apply the proportionality principle to take appropriate disciplinary action
The proportionality principle in China has its roots in administrative and criminal law, which requires that officials minimize any harm resulting from penalties imposed to secure compliance with the law. Thus, the penalty must be proportional to the offense.
Employers likewise have a variety of graded disciplinary measures available to them in China, including warning, demotion, pay cut, suspension, and finally termination, and the proportionality principle can apply to each of these to ensure it is reasonable in light of the infraction. Of these disciplinary measures, the one that leads to the most disputes in China is the disciplinary termination.
Chinese law sees both regulators and employers as being in a position of power relative to employees, and assumes the possibility that power will be abused. The employment dispute cases in China apply the proportionality principle to employment disputes involving disciplinary terminations; judges apply the principle to determine if the disciplinary measure was reasonable in light of the employer’s legitimate interest in controlling its workforce.
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In the words of judges, as we translate below, the proportionality principle “an employer is empowered to discipline an employee for an infraction, but may not be too harsh” and “an employer must use progressive discipline, and the punishment must match the employee’s infraction.” (see Guangdong Appeal 01-cv-18538 and 01-cv-18539 (2018）) The court in Beijing Appeal 02-cv-970 described how an employer must use the proportionality principle, as we translate it: “the employer must choose a punishment provided by company policy that is appropriate to the nature and context of the violation. The employer is obligated to balance the level of punishment against the goal of maximizing individual employment rights, as their right to autonomy and managerial control does not entitle them to leap straight to that most severe of penalties, terminating the employment contract.” (See also Hubei Appeal No. 1653 (2021))
Many types of facts must be collected to determine the correct proportionality
The court will closely examine the employee’s conduct in context and whether the employee had exhausted all other possible disciplinary measures, which will form a key basis in determining whether the disciplinary termination was proportional to the violation. The prerequisite for the employer succeeding is that you have a provision about the prohibited conduct in your company policy or employee handbook in easily comprehensible Mandarin. Many international companies use English handbooks or let an unqualified translator render it to Chinese, often dishonestly using Google Translate, and as a result the judge won’t clearly see a rule being violated.
The court will look at the following facts when reaching a conclusion about the proportionality of a disciplinary action:
- Violation: reasons, consequences, nature, severity, and subjective intent
- Other Parties: contributory negligence, and root cause
- Employee: seniority and past contributions
Violation
Let’s start by looking at the facts related to the violation itself. An employee that acts very inappropriately but without causing damage will usually not be seen as having committed a “major” violation of policy. Even if it does cause damage, the court will look at the nature, severity, and subjective intent behind the violation to see if it rises to the level of being “major.”
A good example of how Chinese judges think about these issues is found in Guangzhou Appeal No. 21530 (2021). In this case, the employee was fired over a “major” policy violation because he got into a fistfight in the workplace while on the clock, but the court nonetheless found against the employer and ordered paying damages. The issue in this case was not whether the employee was fighting at work; this part was uncontested. Rather, the court observed fact that his coworker struck the employee first, and he retaliated in kind, but no injury occurred because other people at the scene pulled them apart before it could get out of hand. The court held therefore that the termination was unfair and in light of the reasons behind and severity of the fight, discharging the employee was not proportional.
In the right context, terminating an employee for publicizing sensitive company trade secrets could be rejected by the courts as being disproportionate. Such a result was reached in Beijing Appeal 02-cv-970, where the employee posted to the internet screenshots of internal company emails saying that the company was in distress and therefore unable to make payroll. The employer terminated his employment contract on grounds it is a major violation of company policy. The court acknowledged this conduct was very inappropriate and noted that the employee hadn’t gone to their supervisor to talk about wage payment issues. Nonetheless, the judge held this to be an unlawful termination and ordered the employer to pay damages.
The court reasoned those two facts in the context of the case required this outcome. First, there was no evidence introduced into court that showed any damage occurred as a result of the disclosure. Secondly, the employer’s actions were the root cause behind the employee’s reaction.
In Guangdong Appeal 02-cv-2039, the court rejected terminating an employee who disparaged the company on social media. The employee shared a TikTok video with colleagues saying that the employer didn’t make their social security contributions as required by law. The court acknowledged that the employer did indeed fail to make social security contributions for the employee and thus there was substance to the video. The employer’s policy merely stated however that employees may not “disseminate false information about the company” and moreover that the video did not damage the company’s image. Thus, it was not a major violation of the company policy.
Fault attributable to others
If another party (coworkers, customers, supervisors etc.) has fault or responsibility related to an employee’s violation of company policy, courts will tend to think that placing the blame on the employee is unreasonable and thus refuse to find that a major violation occurred.
Guangdong Appeal 01-cv-9122 (2020) dealt with an employee’s failure to follow work instructions in the context of problems coworkers contributed to. The employee filled in the wrong price for a product; the employee was aware that the model number indicated on delivery forms was different from the product actually delivered and that the price would be higher, but nonetheless filled in the price shown on the forms and not the price for what was actually delivered.
The employer terminated the employee, claiming this to be a major violation of company policy. The court found there was evidence showing that a half dozen steps in the workflow involving the product including procurement, receipt, and installation were all performed by different employees, and while the employee was at fault for not following instructions right, not all of the blame could be placed squarely on him. Therefore, this was not a major violation of company policy.
Employer’s contributory negligence
In Chinese employment law, the employer’s contributory negligence can be an excuse for even repeat policy violations by an employee. In this case, Chinese courts will apportion fault between employer and employee to determine whether a major violation occurred.
Under these kinds of circumstances, the court excused an employee who was fired for an astonishing 97 individual policy violations in Guangdong Case 0113-cv-7592. The court found that the employer was negligent in auditing employee attendance and gave good feedback, processing payroll as if timesheets didn’t have a problem. No disciplinary or pay docking was imposed. The court held that the employer’s negligence contributed to the large number of policy violations because it failed to quickly discover the employee’s absenteeism issue, and the consequences were largely due to employer’s own laxity in managing its workforce. The employer was ordered to pay damages for unlawful discharge.
Employee seniority and contributions
Chinese courts expect that an employer will give credit to employee seniority and contributions to the organization, and therefore think twice about imposing strict disciplinary measures on an employee whose conduct violates company policy.
Beijing Appeal 02-cv-10263 dealt with terminations of older flight attendants at an airline. The court found that flight attendants overall tend to be young and they are devoting their best working years to the airlines, but when terminated at an older age they would have difficulty finding suitable employment. The court clearly described the judicial doctrine governing misconduct terminations of long-serving employees, which we translate:
“The employer owes a duty of care when disciplining employees to ensure that the goal of the punishment is reasonable. Generally, an older employer will have devoted the most precious years of their working life to create wealth for their employer, so their opportunities for gainful employment will have diminished after their employment contract is terminated. The employer therefore has a duty of care to ensure that the senior employee’s past performance and future employment prospects are taken into consideration.”
Applying this rule, the court was unwilling to accept the employer’s termination for policy violations.
The employer must use progressive discipline and exhaust all other options before using disciplinary termination
China’s proportionality principle requires employers to use progressive discipline and exhausted other less severe disciplinary options, including verbal warning, training, a second chance, formal warning, or changing their job role.
This judicial doctrine is described clearly in Jiangsu Appeal 02-cv-801, which we translate:
“…the employer should apply the minimum effective penalty and give the employee a chance to rehabilitate themselves, treating the possibility of termination with the utmost care. An employee who fails to rehabilitate their conduct after being punished is an appropriate case for a termination.”
The court in Guangdong Appeal 01-cv-13821 clearly laid out expectations for progressive discipline, which we translate:
“…the employer must first work with the employee by using warnings, critical incident reports, or a second chance period, but they will violate the proportionality principle if they proceed directly to terminating employment, as it is the most severe of punishments.”
The cases in China provide good examples of how you can use progressive discipline to successfully enforce any ordinary company policy or work instruction. In Beijing Appeal 01-cv-2234 (2021), a remote worker was terminated for misconduct because she would not reply to messages within a reasonable amount of time, which is not something in itself considered a “major” policy violation. What legitimized the termination is how the employer provided three written warnings to the employee that emphasized disciplinary violation. Nonetheless, the employee continued to not reply to messages in a reasonable amount of time and did not provide a reasonable explanation for doing so. Thus, the court held the termination was done lawfully.
Compliance suggestions for employers and their managers
Management should take the following actions to ensure that your organization is complying with China law and minimizes its legal risks:
Thoroughly fill out your company policy and employee handbook to cover the various possible scenarios for which you may need to terminate an employee. This will be relevant to your business context, for example as seen above, remote employees require a specific set of rules to ensure the integrity of their work. Enforce policy and handbooks requirements with action proportionate to the violation, and using progressive discipline as appropriate and in a manner following your own rules.
Follow international best practices for employee internal investigations and critical incident tracking to provide a basis for taking disciplinary action under your policy and employee handbook. Conduct interviews with the relevant parties to understand the root cause, severity, consequences, and what your employee was thinking when the incident occurred. Require your managers to closely analyze all of the available evidence and apply clear, logical thinking to avoid misclassifying the situation as a major violation of company policy.
Comply with Chinese law’s requirement that managers follow a duty of care, avoiding negligently allowing non-compliant employee conduct that in fact violates the rules. Start the progressive disciplinary process as soon as feasible after non-compliance occurs. The first step should be to use mild disciplinary action such as verbal warning and compliance training, even if done briefly, and give the employee a second chance to get things right.
Conclusion
Chinese employment law requires misconduct terminations to apply the proportionality principle, which requires following a nuanced procedure designed to ensure that workers’ employment rights are protected while enabling managers to control their workforce. According to China’s judge-made doctrine, the proportionality principle in this context requires the employer carefully collect and analyze the following 11 types of facts in three categories:
Violation: reasons, consequences, nature, severity, and subjective intent
Other Parties: contributory negligence, and root cause
Employee: seniority and past contributions
Progressive discipline must be used to address the violations in a proportionate manner, involving verbal warning, training, second chance, formal warning, and change of job role. The employee’s failure to make the required change is necessary to use more severe penalties.
FURTHER READING
Get authoritative insights about this topic from a official government guidance translated by CBL:
For a general overview of this topic, see also CBL’s China Employment Law FAQ.