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Understanding Labor Contracts in China, India and Vietnam
Employing Foreign Nationals Across Asia: Visa Procedures
P.04
P.10
P.14 Comparing Employee Termination Procedures Across Asia
HR Administration: Labor Contracts, Visas and Termination Procedures
www.asiabriefing.com
Issue 14 • March and April 2015
From Dezan Shira & Associates
2
Kind regards,
Adam Livermore
Within the modern, globalized market, maintaining
a competitive edge necessitates identifying new
growth opportunities and ways of cutting costs.
It is for this reason that entering into the Asian
market has become more of
an essential, than optional,
part of a successful business
model.
In our experience at Dezan
Shira & Associates, some
of the most impor tant
parts of an effective Asia
market-entry strategy are
hiring the right staff and
clearly understanding the
associated laws for doing
so. While a Western business
may have a firm grasp of HR procedures in their
home country, companies often find that their
established practices have almost no bearing in
Asia. Without adapting to and understanding the
unique HR challenges of individual Asian nations,
firms risk incurring substantial yet completely
avoidable losses.
In this issue of Asia Briefing, we set out to provide
readers with a basic understanding of how
to navigate the HR procedures of China, India
and Vietnam. We begin by introducing the
most common employment
contract structures in each
of these countries, as well as
their laws for employment
probation. We then take a
look at the three’s increasingly
complex procedures for
obtaining work/business
visas, and conclude with a
special feature on how to
legally terminate an employee
across Asia.
Several key Asian destinations
for foreign investment have introduced new HR
legislation in the last two years alone. With more
than 20 years’ experience of managing HR in
Asia, Dezan Shira & Associates is well equipped to
help businesses understand the region’s various
procedures. We hope readers find this issue helpful
and informative.
This Month’s Cover ArtBuilders K. K. Hebbar 91.4 x 76.2 cm, Oil on CanvasDelhi Art Gallerywww.delhiartgallery.com
Introduction
All materials and contents © 2015 Asia Briefing Ltd.
For queries regarding the content of this magazine, please contact:[email protected]
ReferenceAsia Briefing and related titles are produced by Asia Briefing Ltd., a wholly owned subsidiary of Dezan Shira Group.
Content is provided by Dezan Shira & Associates. No liability may be accepted for any of the contents of this publication. Readers are strongly advised to seek professional advice when actively looking to implement suggestions made within this publication.
Adam LivermorePartner
Dezan Shira & AssociatesDalian, Mumbai, New Delhi,
Qingdao Offices
3
CreditsPublisher / Chris Devonshire-EllisSenior Editor / Samuel WrestEditors / Charles Small & Steven ElsingaIntern / Grace TateDesign / Jessica Huang & Estela Mi
Table of Contents
Understanding Labor Contracts in
China, India and Vietnam
Employing Foreign Nationals
Across Asia: Visa Procedures
Comparing Employee Termination
Procedures Across Asia
P.04
P.10
P.14This Issue’s Topic
HR Administration: Labor Contracts, Visas and Termination Procedures
“? ” The 2015 Asia Tax Comparator
Manufacturing Hubs Across Emerging Asia
Minimum Wage Developments Across Emerging Asia
Understanding Asia’s Individual Income Tax Rates
Payroll and Human Resource Services
Report: ASEAN Should Facilitate Visa Procedures
Obtaining a Multi-Year Employment Permit in China
INDIA BRIEFING Registering your Indian Employment Visa
Vietnam Minimum Wage Increases Spark Investor Uncertainty
Online Resources from Asia Briefing
Online Resources on Emerging Asia
Asia Briefing Magazine is published 6 issues per year. To subscribe, please Click Here
Annual Subscription
This publication is available as an interactive PDF and ePublication. Above are additional clickable resources.
Cross Region Comparisons
Magazines, Guides, Reports
Industry Studies
Podcast & Webinar
Strategic Advisory & Commentary
Professional Services
Legal, Tax, Accounting News
Regulatory Framework & Updates
4
Foreign companies expanding their operations into the Asia-Pacific need to be fully versed in the region’s various hiring policies. While firms are permitted to hire both domestic and overseas employees, businesses will be faced with a unique array of considerations and challenges that do not exist in the West.
Within Asia, the laws that govern hiring procedures vary significantly from country to country, with numerous affiliated conditions and stipulations. Companies looking to establish a presence in more than one of the region’s booming economies will not be able to do so under a single policy, as may be possible in other parts of the world. Rather, the procedures of each country will need to be individually interpreted, which will better prepare a company to decide which Asian jurisdiction best suits their operation.
Generally speaking, Indian employment contracts are less restrictive than those of China and Vietnam and can offer greater flexibility to the employer. Chinese and Vietnamese employment law tends to provide more protection to the employee and can force employers into unwanted contractual obligations if proper due diligence isn’t paid.
Foreign enterprises in Asia generally opt to hire employees on a fixed-term basis in order to mitigate liability for unjust dismissal. In this section, we detail how these types of contracts are structured in China, India and Vietnam, outline the other main types of employment contracts available to employers, and provide practical guidance for maintaining compliance before and during an employment relationship.
ChinaIn principle, a company does not have to be located in China in order to hire staff to work in China. However, unless the employment contract is entered into via an invested entity on the Chinese mainland, it will not be regulated by relevant Chinese legislation. As a result, the company won’t be able to make mandatory benefit contributions for employees in China or deduct individual income tax before paying salaries, neither of which is likely to attract talent to one’s operations.
Fixed-term ContractThe vast majority of employees hired in China’s private sector are given fixed-term contracts. This type of contract creates an employer-employee relationship for a fixed length of time and can be used for both part-time and full-time work.
In China, a fixed-term contract can only be renewed once. When a contract is renewed for a second time, the employee must be given an open-term contract. This is why an employer needs to be careful when determining the contract length – if two successive short fixed-term contracts are offered and accepted, then the employee will automatically obtain an open-term contract, which makes termination far more difficult.
The employer needs to sign a written contract with the employee within one month, starting from the day the employee starts working at the company. If not, the employee will be entitled to double salary for each month that they have gone without a contract. If a year passes without a written contract, the employee’s contract switches to open-term.
Understanding Labor Contracts in China, India and VietnamBy Dezan Shira & Associates
Shanghai, Delhi and Ho Chi Minh City Offices
5
Issue 13 • March and April 2015 • Asia Briefing
IndiaIndia, like others, has adopted varying measures to regulate the conditions under which employment contracts are written, applied and interpreted. Labor is a concurrent subject in the Indian Constitution, and is therefore subject to legislation from both state and central governments.
In India, “workmen” are entitled statutory rights, but “non-workmen” have no such protection. Indian labor law distinguishes between workmen and non-workmen type employees as follows:
• A workman is a person (including apprentices) employed in any industry undertaking manual, unskilled, skilled, technical, operational, clerical or supervisory work earning less than US$25.89 (Rs 1,600) per month
• A non-workman is a person employed in a managerial, administrative or supervisory capacity drawing wages in excess of US$25.89 (Rs 1,600) per month
Regardless of whether a person is employed on a permanent, temporary or part-time basis, employers should offer a written contract setting out the terms and conditions of the employment relationship. These must meet the minimum statutory requirements set out in either the SE Act of the state where the employee is based or the ID Act, depending on the employee’s classification.
Fixed-term ContractLike China, the majority of employees hired in India’s private sector are given fixed-term contracts. A fixed-term contract creates an employer-employee relationship for a fixed length of time and can be used for part-time, full-time or temporary work.
In India, there are no limits to the amount of successive standard fixed-term contracts that can be issued, nor is there a maximum cumulated duration of successive standard fixed-term contracts.
The employer should sign a written contract with the employee within one month of starting work at the company. However, unlike China, failure to do so after one year does not result in an open-term contract. While open-term contracts do exist in India – and create an employer-employee
relationship for an indefinite length of time – they
can only be established through mutual agreement.
Employment Trends in Asia in 2014-2015
Decrease14%
Sustain42%
Increase44%
Decrease7%
Sustain45%
Increase48%
Bonuses Related To:
Companies Intending to O�er Bonuses this Year
Nil12%
Less than 10%15%
More than 50%51%
From 10%to 20%
From 20%to 50%
13% 9%
Percentage of Sta� Salary Intended to be Awarded as Bonus
Less than 10%34%
100%11%
From 11%to 50%
44%From 51%
to 99%
11%
80% 73%
11% 5% 4%
Employee Performance Employer Performance
65%
35%
YES
NO
Guaranteed Other Hours Billed
Asia Based Companies that would Consider Hiring Foreign Sta� in Skill Shortage Areas
Permanent Sta� Levels of Asia Based Companies in Previous 12 Months
Predicted Permanent Sta� Levels in next 12 Months
Data provided by:
6
Asia Briefing • Issue 14 • March and April 2015
VietnamVietnam has strict laws relating to foreign
companies’ employment of domestic Vietnamese
workers. When recruiting Vietnamese employees,
foreign businesses must first submit a recruitment
request to a Vietnamese recruitment agency. The
agency is responsible for introducing Vietnamese
employees to the employer within 15 days of the
request. If the agency fails to do so within this time
period, the foreign company has the right to recruit
Vietnamese staff directly.
Labor contracts in Vietnam are divided into three
types by the country’s Labor Code. As with China
and India, fixed-term contracts are the most
commonly used, but these are separated into
“definite term contracts” and “seasonal contracts”
under Vietnamese law, depending on the length
of the contract. Open-term contracts also exist
in Vietnam’s Labor Code, but under the name of
“indefinite contracts”.
Definite Term ContractA definite term contract can be anywhere between
12 and 36 months in length. Within 30 days of
expiration, a new contract must be signed if the
employee is still working. If no new contract is
signed within this period and the employee
continues to work, the contract will automatically
become indefinite term. If the employer does not
wish to keep the employee on, they can simply
let the contract expire without providing a reason
for termination (see more in our termination
procedures article on page 14).
Similar to China, employers can only grant
two definite-term contracts, following which
an indefinite contract must be offered to the
employee.
Seasonal/Work-Specific ContractSeasonal/work-specific contracts can only be
offered if the position is less than 12 months in
length, except when temporarily replacing an
employee who is on maternity or sick leave, military
duty, recuperating from a workplace accident, or
taking other temporary leave. Such contracts may
not include probationary periods.
As with definite term contracts, the employee
must be offered a new contract if they continue
to work after the contract term expires. If no new
contract is signed but the employee continues to
work for 30 days following expiration, they must
be offered a definite-term contract with a duration
of 24 months.
Employment Probation Across AsiaSetting a probationary period can assist in
determining whether an employee is the right
fit for your business. This occurs at the start of
an employee’s contract, during which time it is
not only easier for the employer to terminate the
contract, but also for the employee to resign. As
with labor contracts, there are several nuances to
Asia’s probationary periods that differentiate them
from the West.
In China, the length of the probationary period
is affected by the employee’s contract term,
while in India the period is set at the employer’s
discretion and has no cap. Conversely, Vietnam has
a liberalized probation law that greatly protects
both domestic and foreign employees.
During an employee’s probationary period in China,
the employer is obligated to pay the employee
80 percent of the full salary in their employment
contract.
The maximum length of probation the employer
can set is as follows:
• For contracts with a term less than three months,
no probation
• For contracts between three months and one
year, one month probation
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This fourth edition of Human Resources And Payroll in China, updated for 2015, offers
a comprehensive overview of the laws and regulations surrounding both human
resources and payroll management in China. Available now in the Asia Briefing
bookstore, this guide is ideal for foreign investors, local manager and HR professionals
seeking to understand the complex points of China’s labor policies.
Available Now
Human Resources and Payroll in China 2015 (4th Edition)
7
Issue 13 • March and April 2015 • Asia Briefing
• For contracts between one and three years, two
months’ probation
• For contracts more than three years, six months’
probation
Although India does not have maximum
probationary periods like China, permanent
employees are typically kept on probation for a
period of six months to one year, during which
time the employee’s suitability for the position
can be assessed. Indian law does not stipulate any
maximum probationary period, nor does it allow
an employer to pay a wage any less than outlined
in the contract term. However, because during this
period an employee may resign with just a few days’
notice, companies tend to avoid long probationary
periods.
Vietnam’s probation law is very different to both
China and India: amendments to the country’s
Labor Code in 2013 resulted in regulations strongly
favoring the employee. Consequently, the country
has comparatively short probation terms:
• A maximum of 60 days for positions that require
technical qualifications, university degrees or
high training levels;
• A maximum of 30 days for positions that
require technical training or professional level
qualifications; and,
• A maximum of 6 days in all other instances.
Vietnam’s new Labor Code also increased the
minimum salary payable during the probation
period. Now, employers are obligated to pay at
least 85 percent of the salary specified in the labor
contract, compared to the previous 70 percent.
Sound contractual negotiation and compliance is
crucial to mitigating liability under Asia’s various
hiring procedures.
Company RulebookAs a guideline, Dezan Shira & Associates recommends
any company with over ten employees to create a
company rulebook. A company rulebook clarifies
what is expected of employees and, if necessary,
makes it easier to demonstrate that an employee
has broken a company rule and can be legally
dismissed.
The contents of the rulebook will vary per industry.
Manufacturing companies will want to focus on
issues relating to promptness, break lengths, safety
requirements, etc. On the other hand, business
process outsourcing companies will be more
concerned with confidentiality of their clients’
information.
When drafting a company rulebook, keep in mind
the following considerations:
• Ensure the company rulebook is in both English
and the company in question’s language.
• Have the labor contract make a clear reference
to the company rulebook. This will strengthen
the company’s case if it needs to dismiss an
employee over the breach of company rules.
• If a dispute is taken to court, and the company
is found to have set arbitrary rules to find reason
to fire employees, the judge is more likely to
decide in the employee’s favor. You should be
prepared to explain why each of the regulations
were included.
• Have the rulebook differentiate between minor
and major breaches.
• Have each employee sign a statement showing
they have read, understood and agreed to the
rulebook. This improves your position in the
event of a court case, and encourages employees
to read the rules more carefully.
Professional Services
For a consultation on the implications of Asian employment law on your business, or advice
on managing employment contracts in Asia, please contact the Human Resources and Payroll
professionals of Dezan Shira & Associates at [email protected]
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According to a survey conducted by HSBC, Asia
is the world’s most popular destination for expats
seeking a new challenge, particularly from Western
countries such as the U.S. and U.K. Combined with
its surging economies and plentiful opportunities,
Asia is understandably an appealing destination for
Western workers seeking employment.
Having the right mix of domestic employees with
an understanding of local customs and expats with
international experience is essential for foreign
companies. However, obtaining employment visas
for foreign talent can be a complicated procedure
in many of the most popular destinations for
foreign investment. Added to this, the relevant
regulations undergo change at a rate faster than
many companies are prepared to handle: China,
India and Vietnam, for example, have all amended
their work visa regulations in recent years. For China
and Vietnam, these changes have served to increase
the overall number of visa categories available
to foreigners, while in India, new procedures
have been introduced that add more eligibility
requirements for the employment visa. In all
instances, the process for obtaining a work visa has
become more stringent.
The types of work visas available to foreigners can
broadly be separated into two categories: short-
term business visas, and long-term employment
visas. Their suitability depends firstly on how long
the foreign worker wishes to spend in the country,
and secondly on how much time the employee is
able to devote to preparing the relevant application.
Short-term work visits can typically be prepared
in under a week or two, while long-term work
visas can take up to four months to obtain. China,
India and Vietnam are mostly comparable in this
regard. Within all three, the process for obtaining a
short-term visa is fairly straightforward, but it is not
uncommon for long-term visas to be rejected even
if the individual meets all eligibility requirements.
This can prove costly for foreign companies, as
failure to bring the employee in on schedule will
invariably impact operations. Visa consultants
are well acquainted with the application process
and can provide form letters and useful advice to
mitigate any potential problems.
Employing Foreign Nationals Across Asia: Visa Procedures By Dezan Shira & Associates
Shanghai, Delhi & Ho Chi Minh City Offices
Amount of Expats Living Across Asia
China
India
Singapore
568,000
301,000VietnamVietnam
1.4 Million
737,000
88,00088,000
Source: Finaccord; Vietnam Brie�ng
Hong Kong
11
Issue 13 • March and April 2015 • Asia Briefing
Short-term Business VisasShort-term business visas are appropriate for
foreigners who do not work full time in Asia, but
need to make occasional visits for work purposes.
While in practice, foreign employees or interns in
China, India and Vietnam often overstay these types
of visas, the governments of each have increasingly
been attempting to stop this practice. If caught, the
foreign worker is likely to be immediately deported
back to their home country.
Here, we list out the applicable short-term business
visas for China, India and Vietnam.
China – M VisaThe M visa was introduced as part of new Chinese
visa regulations released in 2013. In order to receive
an M visa, a foreigner must supply an invitation
letter from a company registered in China.
M visas can be issued for one month to one year
and become valid from the date of entry into China.
The length granted will depend largely on the
individual’s situation and the government agency
granting it, but M visas exceeding six months are
increasingly rare.
India – Business VisaBusiness visas are granted in India for a maximum
period of six months. Unlike China’s M visa, this type
of visa’s validity begins from the date of issuance
from the High Commission of India and not from
the individual’s entry date.
In order to receive a business visa, a foreigner must
supply an original signed letter from their company
detailing the nature of their business trip. A signed
letter of invitation from either a domestic Indian
company or a registered entity in India is also
required.
Vietnam – Business VisaVietnam’s business visas can be granted for either
a one or three month period and for either single
or multiple entries. As with China, applicants must
provide an invitation letter from either a Vietnamese
business partner or a foreign invested company
in Vietnam. The visa will be valid from the date of
entry, which must be specified and agreed on in
the original application.
Long-term Employment VisasChina – Z and R VisasWith its investor-friendly policies and massive
consumer class, China has long been a magnet
for foreign workers eager to ply their trade in the
world’s second largest economy. That being said,
according to a study conducted by UniGroup
Relocation, twice as many foreigners moved out
of China in 2014 than moved in. The study points
out that this may be attributed to expiring work
contracts (as noted previously, China’s private
sector tends to employee staff on a fixed-term
basis). However, the drop may also be due to stricter
Chinese employment visa regulations, which have
made it far more difficult for foreign workers to
actually reach the country.
Like the M visa, the R visa is one of the new visa
categories introduced in September 2013. These are
typically only issued to a firm’s senior management
or to foreigners that are filling a vacancy where
there currently exists a domestic skills shortage.
The R visa’s requirements are stricter than those
of the Z visa, China’s other official work visa.
Consequently, the Z visa is still the most common
type of employment visa used by foreigners and will
likely remain so for the foreseeable future.
The Z visa is used by foreigners who are employed
by either a domestic company in China or a foreign-
invested enterprise that has been incorporated
there. It is intended for employees who work and
live in China. After a Chinese embassy has granted
the Z visa, the employee has three months in which
to enter China. Upon arrival, the foreigner needs to
apply for a residence permit.
The residence permit allows the foreigner an
unlimited number of trips into and out of China
during the contract term, usually for one year.
The procedure for obtaining a Z visa often differs
per city or region. The required steps, documents,
relevant government departments and even the
overall procedure can vary per jurisdiction. For
example, in three neighboring cities, the first may
require a copy of a criminal background check, the
second will want a notarized original and the third
may not require one at all.
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Asia Briefing • Issue 14 • March and April 2015
India – Employment Visas Indian authorities typically issue one-year multiple
entry visas that can be renewed for up to five years,
but the application protocols are very stringent.
Following the global financial crisis of 2007-8, many
fresh college graduates from Europe and North
America relocated to gain job experience in India’s
vibrant economy. In order to protect its growing
white-collar workforce and stem the flow of these
foreign workers, the Indian government introduced
stricter eligibility requirements for the employment
visa. The effects of these reforms are reflected in the
sharp decrease of Western workers in India over the
past few years. While the country has a relatively
large expat community, the vast majority of its
foreign workforce is from neighboring countries
such as Pakistan, Bangladesh and Nepal. In 2014,
the number of international workers in fact declined
by more than one-fourth to 30,000.
Indian authorities require documentation from
both the applicant and their employer. While the
necessary documents depend on the applicant’s
nationality, these are largely identical for citizens
of developed economies in Europe and North
America. Nevertheless, applicants and their
employers should verify all required documentation
with the Indian consulate in the applicant’s home
country.
On the employee side, preparing an application is
relatively straightforward and should not take more
than a day to complete. Conversely, the documents
needed from the employer can take up to one
business week to gather and complete.
With exceptions for the Incorporation Certificate and
PAN card, which can be scanned or photocopied,
every other document provided by the employer
needs to be an original. Each of these original
copies needs to be drafted on company letterhead,
signed by a senior manager, and marked with the
company’s official stamp. Due to these stipulations,
overseas applicants must receive the original copies
from their employer by mail.
Vietnam – Work PermitsVietnam’s work permit process is notoriously
complex and inconsistent. Similar to China, the
criteria for attaining an employment visa vary
significantly from city to city, but highly qualified
applicants can still encounter difficulty. Late last
year, director of Baker McKenzie law firm Fred Burke
told the Vietnam Business Forum that even Bill
Gates and Steve Jobs wouldn’t be able to obtain a
Vietnamese work permit, and argued that “a radical
revisit of the current rules” was needed.
Shortly after Burke’s comments, on January 1,
2015, Vietnam’s Law on Entry, Exit, Transit, and
Residence of Foreigners came into effect and
doubled the number of visa types available to
foreigners from 10 to 20. Under the current system,
the visa type applicable for a foreign worker is
determined by his/her occupation. For instance,
foreign investors and lawyers must obtain the
new ĐT visa, whereas foreign employees in
representative (RO) offices, project offices (PO) or
non-governmental organizations (NGO) will need
a type NN1, 2 or 3 visa. Regardless of the visa type
needed, however, an applicant’s eligibility and the
necessary procedures are still broadly outlined
under Vietnam’s work permit laws.
In most cases, a work permit is required when
working in Vietnam for more than three months.
Where a work permit is not compulsory, a notice
must be submitted seven days in advance to the
provincial Department of Labor, Invalids and Social
Affairs (DoLISA) prior to working in Vietnam.
Currently, work permits for foreigners are valid for
a maximum of three years. As part of the Law on
Entry, Exit, Transit, and Residence of Foreigners,
expats are no longer permitted to change their
visa category once inside Vietnam. Therefore, the
option of arriving on a tourist visa, applying for a
work permit and changing visa categories is no
longer available.
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• Business license, organization code, Articles of Association
• Official letter explaining why the company must hire a foreigner
• Official letter stating the intention to hire the person in question
• Application form
CHINA
13
INDIA VIETNAM
• Permission letter that requests approval for the applicant’s visa
• Sponsorship letter• Tax liability letter pledging responsibility for
the applicant’s income tax in India• Justification letter confirming that a qualified
Indian candidate was unavailable/unsuitable• Details of the applicant’s unique specialization
and professional capabilities• Appointment letter detailing the job role
and salary• Comprehensive employment contract• Copy of the company’s Permanent Account
Number (PAN) card• The company’s Incorporation Certificate• Application form
• Proof of government approval to employee foreign workers
• Valid labor contract• Copy of company license certified by
government authority office• Application form
• Passport• Health certificate (depending on city, may
be required from home country or upon arrival in China)
• CV in Chinese• Credentials (e.g. copy of academic degree)• Criminal record check (depending on city,
may not be required)• Passport-size photo
• A completed visa application form• A valid passport• A passport sized photo• Proof of address, such as a driver’s license
or utility bill• A detailed curriculum vitae
• Passport• Health certificate (either in home country
or from select list of hospitals in Vietnam)• 3 passport sized photos• CV • Credentials (e.g. copy of degree, reference
letters covering several years’ work experience)
• Work permit form• Work permit application letter• Criminal record check
• At least 18 years old• In good health • Has no criminal record• Has the required professional skills & work
experience to fulfill the role
• At least 18 years old• In good health• Filling a position unsuitable for a qualified
Indian employee• Will not be working in a routine, secretarial
or clerical job• Must have an annual salary in excess of US$
25,000 (with the exception of language teachers, ethnic cooks, embassy staff and voluntary workers)
• At least 18 years old• In good health• A manager, executive director or expert with
technical skills and knowledge necessary for the job
• Not currently subject to criminal prosecution or any criminal sentence in Vietnam or overseas, or have a criminal record
Approximate time to complete
6WEEKS
6WEEKS
8WEEKS
Comparison of Employment Visa Requirements in China, India, and Vietnam
EMPLOYEE ELIGIBILITY
DOCUMENTS REQUIRED FROM EMPLOYEE
DOCUMENTS REQUIRED FROM EMPLOYEE
DOCUMENTS REQUIRED FROM EMPLOYEE
EMPLOYEE ELIGIBILITY EMPLOYEE ELIGIBILITY
DOCUMENTS REQUIRED FROM EMPLOYER
DOCUMENTS REQUIRED FROM EMPLOYER
DOCUMENTS REQUIRED FROM EMPLOYER
14
Asia Briefing • Issue 14 • March and April 2015
Comparing Employee Termination Procedures Across AsiaBy Dezan Shira & Associates
Shanghai, Delhi and Ho Chi Minh City Offices
For foreign enterprises operating in Asia, terminating
an employee is a process fraught with various dos
and don’ts. Employers may encounter regulations
that seem to offer an overly high degree of protection
to the employee’s job security, or anachronistic
legislation that hasn’t kept pace with the given
country’s current environment.
Failure to identify and adhere to the relevant laws
can result in unfair dismissal suits and prove costly
for the perpetrating company. As such, foreign
enterprises operating in the region need to be fully
versed in the relevant government framework to avoid
unnecessary disputes. Here, we outline the different
employee termination types that exist in China, India
and Vietnam, and highlight the differences that exist
between the three.
Types of TerminationTermination for CauseTermination for cause refers to termination resulting
from employee misconduct or incompetence and
takes immediate effect upon an employee’s receipt
of a termination notice.
Across China, India and Vietnam, this type of
termination does not require the employer to provide
severance payment to the employee. However, the
valid grounds for termination for cause do differ
slightly between the three. The employer must first
identify and then establish cause through an enquiry
that adheres to the laws of natural justice. In most
cases, an employee is entitled to either a warning
prior to termination, an internal review, a fair hearing,
or the right to respond to and defend any allegations.
‘Ordinary’ TerminationIf an employee has not committed any of the faults
that constitute a termination for cause, the employer is
still permitted to initiate ‘ordinary’ termination. In such
instances, the employer must provide the employee
with a written notice of termination, with reason, at
least 30 days prior to dismissal, unless stated otherwise
in the employment contract.
Even if an employee qualifies for ordinary termination,
there remain numerous stumbling blocks that a
foreign company in Asia may encounter. In China,
such terminations can be ‘blocked’ and deemed
invalid, usually in the instance that the employee has
contracted a disease or is pregnant/on maternity
leave. India’s antiquated Shops and Establishments Act
1953 may require the employer to notify the relevant
government authority of a termination event, which
can delay the process. In Vietnam, employers must
prove the fault of the employee and the employee
may defend themselves or request a lawyer.
Termination upon Expiry of ContractEmployers may also dismiss an employee by simply
not renewing their contract. Companies operating in
China and Vietnam are able to do so without providing
a reason, but are still required to pay severance. In
India, if the employee has been with the company
for a minimum of two years, a “fair” reason must
be provided for non-renewal. In the case that the
employee has been with the company for at least two
years and the reason for non-renewal is redundancy,
severance pay must also be provided, but not under
other conditions.
SPECIAL FEATURE
15
Comparison of Termination Procedures
Termination for Cause
Ordinary Termination (30 Days’ Notice)
Severance Payment Due
• Employee has committed a serious violation of company rules
• Company suffers serious loss that can be attributed to employee’s conduct
• Employee is convicted of a criminal offence
• The labor contract was signed under false assumptions
• Employee has established an employment relationship with another employer
• Mutual agreement to end labor contract• Employee cannot work due to sickness
or injury• The employee is incompetent for the
position, even after training or job transfer• Change in circumstances
• Applicable for both ordinary terminations and terminations upon expiry
• Capped at three times the average monthly salary in the given location
• Willful insubordination or disobedience• Theft, fraud or dishonesty • Willful damage to or loss of employer’s
goods• Taking or giving bribes or any illegal
gratification• Absence without leave for more than
10 days• Habitual late attendance• Disorderly behavior during working hours• Habitual negligence of work
• No legislated reasons. However, the employer will have to notify the relevant government authority of a termination event, and courts may demand a fair hearing for the employee. As a result, these types of terminations can be very protracted
• Owed in ordinary terminations. Only owed in terminations upon expiry if the employee has been with the company for at least 2 years and the reason for termination is redundancy
• Calculated on a case-by-case basis on duration of employment, performance and salary
• Theft, embezzlement, disclosure of business secrets
• Absent for either five days a month or 20 days a year without reason
• The employee recommits an ‘ordinary’ termination offence
• Employee fails to perform contracted duties
• Violation of labor discipline, regulations for which must have been recorded in contract
• The employee is sick or otherwise unable to work. If this reason, employees on indefinite contracts can be dismissed after 12 consecutive months; on definite term contracts, six months; and on seasonal contracts, half of the contract term
• Applicable for both ordinary terminations and terminations upon expiry, but only for employees that have worked for 12 months or longer
• Amount received is equivalent to one month’s wages for each year employed by company
China India Vietnam
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