According to the《Labor Contract Law of the People’s Republic of China》, a company has the right to terminate the labor contract if the employee is not competent. However, a recent unofficial statistic and judicial precedents show that employers who are successful in trying to terminate employment contracts on the grounds of incompetence, is less than 10 per cent.
Now the pressing question is “why”?
First of all, in any labor dispute, the employer has to bear a very strict burden of proof to terminate the employment relationship.
At the same time, the company must strictly follow certain procedures required by law to terminate the contract lawfully.
These points are two important factors that we emphasize repeatedly with all our clients when they are dealing with employment related issues. Especially when the company plans to terminate an employment contract, it is likely to lose the case if it failed to observe aforementioned requirements.
1. How to prove an employee is incompetent?
Generally speaking, a mere comment of “incompetence” by the manager is likely to be found subjective and arbitrary, and as a consequence, will not be adopted by the judge, if there is no description about the job responsibilities and work requirements in an employment contract, in particular if the company did not set any performance appraisal standards. However, a company should:
Now let’s discuss further.
1) Set out requirements clearly
Specific and complete job responsibilities and goals should be set out separately in the form of annexes to employment contracts, and those responsibilities or goals should be measurable in terms of quality and quantity. Describing job responsibilities or goals too broadly or vaguely might not carry any legal significance. For example, instead of setting specified sales targets，requiring a sales director to achieve “satisfactory sales”
2) Reasonably assess
a) The standards and procedures for performance appraisals should be fully known by all employees in a manner that follows the statutory process. Just like other rules and regulations that are related to an employee’s interests and rights, the company’s process for performance appraisals should be transparently discussed in accordance with the law and the opinions of all employees shall be solicited. The finalized version should be made public to all employees, and of course, all above mentioned job should be documented.
b) The standard for performance appraisals should be as objective and reasonable as possible. Performance appraisal should be based upon objective facts as far as possible to avoid being considered a subjective judgment. For example, the company may consider involving HR staff and employees in the appraisal process in order to achieve such objectivity in appraising an employee’s performance.
c) The results of the performance appraisal should be recognized by the employee. The employee’s signature on the performance appraisal form or the performance appraisal report can be interpreted to a large extent as the employee’s acceptance of the appraisal results.
2. Training or transfer
For incompetent employees, the company must first provide training opportunities or adjust their positions.
1) Any transfer of position should be reasonable. The company should try to assign the employee in question to positions which match their qualifications, experience and performance level. In addition, a transfer of position shall not be discriminatory or insulting, such as assigning a former sales manager to do cleaning duties. If so, the company is likely to lose the case, even if it did other things properly.
2) Or arrange training for the employee, and at the same time, pay attention to collect all training-related materials, such as proof of payment for training, attendance records of employees to participate in training, and training summaries signed by employees etc.
After transfer or training, the company shall assess the employee’s performance again. If the employee is proven to be incompetent once more, the company has the right to initiate the dismissal process.
In addition, please note that even for employees during the probation period, the company is required to prove that they are not competent for the position and notify them in writing before the contract can be terminated. Since the probation period is generally a short time, it is probably difficult to prove whether an employee in a certain position is competent or not by assessment. Therefore, it is particularly important to state clearly the entry requirements or job responsibilities in the relevant documents such as job specs and employment contract.
Based on the above-mentioned analysis, if the company wants to dismiss its employees on the grounds of incompetence, it shall follow the procedures required by law and take reasonable measures to evaluate and improve the employee’s performance, otherwise the termination may be found to be unlawful. As a result, the company will be required to pay compensation twofold.
Obviously, it is very important for a company to establish a sound system in the management of employment relations, including but not limited to, specific internal regulations, various norms and SOPs etc. If any reader may have questions in this regard, please feel free to contact us to find out what we could help.
Related legal provisions in <Labor Contract Law>
Article 40 In the case of any of the following circumstances, the employer may terminate the employment contract after it notifies the employee in written 30 days in advance or after it pay the employee an extra month’s salary:
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(2) The employee is incapable of doing his job and remains so upon training or upon adjustment to his position;
