Managing Underperformance and Termination in China: An Employer Guide
Employer-side guidance on performance management, evidence, warnings, reassignment, training and termination risk in China.
This guide is written from the employer/company perspective and is intended for businesses operating or employing personnel in China.
This guide focuses on inability to perform the job and the management process that precedes a proposed dismissal. It is not a general checklist for every termination ground. A low rating, missed sales target or position at the bottom of a ranking does not by itself establish that a company can lawfully terminate employment.
Define the performance standard first
Use standards related to the actual position, communicated before the assessment period and supported by a realistic working environment. Record duties, targets, resources, dependencies and how results are measured. If the role or market changed, assess whether the original target remains a fair measure. Do not retrospectively create a standard to justify a decision already made.
Build contemporaneous evidence
Retain work products, objective results, customer or internal feedback, review notes and the employee’s response. Identify the author, date and source of each record. Explain the gap between the required standard and actual work, including relevant context. A manager’s later summary can help organise the evidence, but should not substitute for the underlying records. Preserve the employee’s disagreement as part of the file rather than editing it out.
Distinguish performance from misconduct
Inability to perform under Article 40(2) of the Labor Contract Law is different from a serious breach of employer rules under Article 39. Lack of skills, insufficient output and intentional refusal to perform duties are not interchangeable. Select the legal route supported by the facts; changing the label to avoid training, reassignment or compensation requirements can weaken the company’s position.
Consider training or reassignment where required
Article 40(2) addresses an employee who cannot perform the job and remains unable to do so after training or adjustment of position. A company considering that route should document the initial inability, the genuine remedial step and the subsequent assessment. A performance improvement plan may organise that work, but the plan’s name or expiry alone does not prove that the statutory conditions are satisfied.
Training should address the identified gap and give a meaningful opportunity to improve. Reassignment should be assessed against contractual terms and the law; it is not a licence for punitive demotion or arbitrary salary reduction. Record the support given, dates, follow-up work and the employee’s explanations.
Follow internal procedures
Review company approval requirements, applicable policies and evidence of their validity and communication. For a lawful Article 40 termination, the statute requires 30 days’ written notice or an additional month’s wages, and economic compensation is generally payable under Articles 46–47. Payment in lieu of notice does not cure the absence of a substantive termination ground. Check the applicable calculation rules and notify the trade union in advance where Article 43 applies. Ensure the stated reasons and delivery records accurately reflect the decision actually taken.
Assess protected circumstances before termination
Article 42 restricts termination under Articles 40–41 in specified circumstances, including prescribed medical-treatment periods, pregnancy, maternity and nursing periods, and certain occupational-health or long-service situations. Investigate the individual’s status before issuing notice. These protections must be considered by reference to the proposed legal ground; they should not be reduced to a blanket statement covering every possible form of separation. Check occupational-health examination requirements where exposure to occupational hazards is involved.
Consider reinstatement exposure
Under Articles 48 and 87, unlawful dismissal may lead to continued performance where requested and possible, or statutory compensation in the relevant circumstances. Employers cannot assume that paying twice statutory economic compensation is an elective purchase of the right to dismiss. Interpretation II, Articles 16–18, addresses inability to continue performance, occupational-health checks and wages during the period before employment resumes. The listed circumstances require factual analysis; replacing the employee or describing trust as lost does not automatically establish objective impossibility.
Employer takeaway
Before issuing notice, assemble a decision file covering the standard, demonstrated gap, training or reassignment, reassessment, protected circumstances, procedure, calculations and delivery. Compare continued management, a genuinely negotiated separation and litigation exposure. Do not issue a notice first and ask legal counsel to construct the evidence afterwards.
Legal sources
Legal review: 6 October 2026. This article provides general information only and does not constitute legal advice for any particular employment matter.
Employer-side legal support
We advise companies on performance management, disciplinary procedures, termination risk, severance and labour-dispute strategy in China.