Employment Disputes

Overview

Chinese employment law is strongly protective of employees, and the procedural rules are unusual by international standards: almost every individual labour dispute must go through labour arbitration first before it can reach a court. Employers who ignore the formalities — especially around written contracts and termination — routinely lose.

The core statutes are the Labour Contract Law (劳动合同法), the Labour Law (劳动法), and the Labour Dispute Mediation and Arbitration Law. For foreign employers, the practical stakes are high because termination costs are formulaic and can be substantial.

The rules that drive most disputes

• Written contract is mandatory — if you fail to sign a written labour contract within one month, the employee can claim double salary for up to 11 months.
• Termination is heavily regulated — you can generally terminate only on statutory grounds (serious misconduct, incompetence after training/transfer, redundancy, etc.) or by mutual agreement. "At-will" termination does not exist.
• Non-compete is limited — a non-compete covenant applies only to senior management, senior technical staff, and those with confidentiality obligations, lasts at most two years, and requires the employer to pay compensation during the restricted period (commonly around 30% of monthly salary, subject to local rules).
• Severance is statutory — for lawful termination, severance (经济补偿) is generally N months' salary (one month per year of service), or N+1 where notice is replaced by a payment in lieu. For unlawful termination, the penalty is 2N. Monthly salary for high earners is capped at three times the local average monthly wage, with the count of years capped at 12 for that group.

Common scenarios

• Wrongful / unlawful termination — dismissal without a valid statutory ground, leading to a 2N reinstatement-or-compensation claim.
• Severance and back-pay claims — disputes over the correct N / N+1 calculation, unpaid wages, overtime, or year-end bonuses.
• Non-compete and confidentiality — an ex-employee joins a competitor, or an employer stops paying non-compete compensation.
• Unwritten or irregular contracts — double-salary claims from the failure to sign a written contract.
• Work-permit issues — for foreign employees, disputes can also touch on work permits, social insurance, and cross-border tax.

The mandatory process

1. Labour arbitration (劳动仲裁) — the first, mandatory forum. The limitation period is one year. The labour arbitration commission issues an award.
2. Appeal to court — a party dissatisfied with the award can sue in the people's court within 15 days; certain categories (e.g. wages) may be final for the employer in limited cases.
3. Second instance — the court's first-instance judgment may be appealed to the intermediate court.

Because the employer bears much of the documentary burden (e.g. proving the grounds for termination), keeping written records — signed contracts, performance reviews, disciplinary notices, salary slips — is decisive.

Evidence that wins cases

• Signed labour contract and any amendments or non-compete agreement.
• Salary records and social-insurance payment history.
• Written performance plans, warnings, and minutes of disciplinary meetings.
• Proof of service of any notices (signed, couriered, or emailed).
• Company handbook / rules, with evidence they were properly adopted and communicated.

Practical guidance for employers

• Sign written contracts on time and keep a signed copy.
• Before any termination, map it to a specific statutory ground and document the process (warnings, improvement plans, union notice where required).
• Treat non-compete as a paid obligation — budget the compensation and enforce selectively against genuinely senior or sensitive roles.
• Adopt and communicate lawful internal rules so they can be relied upon.
• For a negotiated exit, use a settlement agreement to close out claims cleanly.

Timeline and cost

Labour arbitration commonly concludes within 45 days (extendable), and court review adds months more. Individual claims are relatively cheap to bring and employees face low barriers, so most cases are resolved by a quick, economically sensible settlement once the legal arithmetic is clear.