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Can a foreign invested enterprise in China terminate labor contracts unilaterally during the reduction of a business’ operations?


Due to the slowdown of the Chinese economy, more foreign-invested enterprises (FIE) are seeking to shift operations to cheaper  locations in order to control expenses. When employees are unwilling to relocate, the employer can terminate the labor contract unilaterally through two possible methods, provided that the company meets certain conditions of each. First of all, the company can terminate the labor contract in the name of continuous absenteeism, which can be viewed by the court as a serious breach of company rules if previously stated in the employee handbook.  In this case, no severance payment is required. The second method is through Article 40(3) which stipulates that the employer can terminate the contract if ‘significant changes’ are made to an employee’s labor contract and an agreement cannot be reached on the changes made. Unlike under the first case, here the employer needs to make a remuneration payment in addition to the severance payment.

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