what we think

By Fabian Knopf and Stacey Wu

Terminating an employee who claims sick leave in China presents significant legal challenges, even when the employer suspects the absence may not be legitimate. This case illustrates how PRC labor protections severely limit an employer's options and why mutual termination often becomes the only practical solution.

Background

A Company sought to terminate an Employee who had been absent from work without applying for leave, but subsequently submitted a sick leave application supported by medical documentation. As a result of the Employee's unauthorized absence, the Company had to assign a different employee for an on-going project at a customer's site.

Key Facts

• The Employee was absent without Company approval.
• The Employee later submitted a doctor's note recommending two weeks of rest.
• The Employee applied for sick leave of only 4 days.
• The Company questioned the legitimacy of the medical note but had no concrete evidence to challenge its authenticity.
• The Company's employee handbook allows disciplinary warnings for unjustified absences, but not immediate termination.

Legal Assessment

Under PRC labor law, employers cannot terminate employees at will. Any dismissal must be based on statutory grounds.

Employment termination during sick leave is highly restricted. Employers may not unilaterally terminate an employee during the legally mandated medical treatment period.  Main exceptions include mutual termination by agreement, severe misconduct (which must be proven by the employer), or company closure.

While the absence was not pre-approved in this case, it was explained as sick leave and backed by a medical certificate, which is generally recognized and protected unless the employer can prove fraud or falsification. In this case, no such proof existed. The absence did not meet the threshold for serious misconduct that could justify immediate termination under Chinese labor law.

If the Company proceeded with immediate termination unilaterally, the Employee could file a case in labor arbitration. Claims might include reinstatement (though not often granted) or economic compensation for unlawful dismissal. So in this scenario, the likely exposure would be economic compensation of 2N, or approximately five months' average salary based on the Employee's 2.5 years of service.

Analysis and Considerations

Given the limited legal grounds for unilateral termination, mutual termination presented a more viable path forward. Based on the Employee's 2.5 years of service, the statutory severance (N) would equal 2.5 months of average salary (inclusive of all regular compensation).

In practice, employees typically negotiate for higher severance, and outcomes depend on negotiation dynamics and the specific circumstances of each case.

Resolution

The Company initiated discussions for mutual termination and prepared a severance proposal aligned with statutory requirements, with flexibility for negotiation. No immediate termination was carried out, thus mitigating legal risks and preserving leverage in the negotiation process.

Takeaway

In China, terminations involving sick leave or minor disciplinary breaches require careful legal and strategic consideration. Employers should document performance issues, set and follow internal policies, and avoid unilateral actions unless clear legal grounds exist. Mutual termination is often the most practical and risk-controlled approach in such situations.

R&P's China employment team has been repeatedly recognized by the Legal500 as a leader in the field. Key focuses include termination of senior management, mass redundancy projects all over China, compliance investigations, and general employment law support. For more information, please contact [email protected] and [email protected], or reach out to your trusted contact at R&P.