Editor's Note: When Singapore companies operating in China handle the departure of their China-based executives, they frequently encounter a puzzling reality: what appears to be a legitimate management decision from a Singapore perspective may, in China, be found to constitute "unlawful termination of the employment contract." In practice, we have seen cases like the following: a Singapore company decided to replace the head of its China operations due to business restructuring. The board of directors had passed a resolution and the company offered the executive several months' salary as compensation. However, the executive subsequently initiated labor arbitration, and the arbitral body ultimately found that the company had unlawfully terminated the employment contract and ordered payment of 2N statutory compensation.
The crux of the issue lies not in whether the company paid compensation, but in whether the termination complied with the statutory grounds and procedural requirements mandated by Chinese labor law.
Compared with Singapore's employment regime, the PRC Labor Contract Law imposes stringent statutory boundaries and procedural constraints on an employer's unilateral termination of employment contracts. Employers do not possess a broad "right to freely terminate," and even senior executive positions enjoy no special exemption under the law. For cross-border executives, termination of employment often also involves:
- Adjustment of corporate governance authority
- Revocation of banking and financial authorizations
- Trade secrets and non-compete obligations
- Cancellation of cross-border work permits and residence documents
If mishandled, such matters may not only give rise to labor disputes but also disrupt the company's business operations in China.
This article, drawing on Chinese labor law provisions and practical experience with foreign-invested enterprises, outlines the key legal boundaries and operational considerations that Singapore companies must focus on when handling the employment termination of cross-border executives in China.
This article is approximately 5,013 Chinese characters in length and takes about 11 minutes to read.
I. Companies May Not Dismiss Executives at Will: The Three Statutory Grounds for Unilateral Termination Under Chinese Labor Law
The PRC Labor Contract Law adopts a "statutory termination regime," meaning that an employer's unilateral termination of an employment contract must fall within grounds expressly provided by law. An employer may not arbitrarily terminate the employment relationship based solely on operational needs. This rule applies equally to cross-border executives, without any position-based exemption. Structurally, there are three categories of statutory grounds for unilateral termination, and the employer bears the full burden of proving the authenticity and legality of the applicable ground:
(A) Termination for Cause: Where the Executive Has Committed a Statutory Fault, the Employer May Terminate Immediately
If a cross-border executive has committed any of the following fault-based acts, the Singapore company may unilaterally terminate the employment contract with immediate effect — without prior notice and without paying severance. This is, in practice, the most common lawful basis for terminating executive employment. The core requirement is sufficient evidence and clearly established facts.
- Being proved during the probation period to not satisfy the conditions of employment (applicable to executives still within the probation period; the company must specify written employment conditions in advance);
- Seriously violating the employer's internal rules and policies (the rules must have been adopted through democratic procedures, duly published and served on the employee, and the executive's violation must meet the statutory threshold of "seriousness," such as a material breach of financial policies or leakage of core trade secrets);
- Committing serious dereliction of duty or engaging in graft, causing material damage to the employer (the criteria for "material damage" must be clearly defined, and the company must prove a direct causal link between the executive's conduct and the resulting damage);
- Simultaneously establishing an employment relationship with another employer, and such arrangement materially adversely affects the performance of work for the original employer, or the executive refuses to cease such arrangement after being notified by the employer;
- The employment contract is rendered void due to statutory circumstances (e.g., the executive used fraud, coercion, or took advantage of the employer's difficulties to cause the employer to enter into the employment contract against its true intent);
- Being subject to criminal liability in accordance with law.
(B) Termination Without Cause: Where the Executive Is Not at Fault but Objective Circumstances Prevent Performance of the Contract
Where a cross-border executive has not committed any of the above fault-based acts, but objective circumstances arise that prevent continued performance of the employment contract, the Singapore company may unilaterally terminate the contract by giving the executive 30 days' prior written notice, or by paying the executive one month's salary in lieu of notice. In either case, statutory severance must also be paid. It is important to note that the employer must fully discharge its burden of proving "change in objective circumstances + contract cannot be performed + consultation on modification was unsuccessful." Any adjustments to the cross-border executive's position or compensation must first be discussed with the executive.
- The employee suffers illness or non-work-related injury, and upon expiry of the statutory medical treatment period, is unable to perform the original job, nor any other job arranged by the employer;
- The employee is incompetent for the position, and remains so after training or reassignment (the company must establish the executive's job responsibilities and performance standards in advance, and must demonstrate incompetence through two lawful performance evaluations);
- Material changes have occurred to the objective circumstances on the basis of which the employment contract was entered into, rendering the contract incapable of performance, and the employer and employee have been unable to reach agreement on amending the contract following consultation (e.g., corporate strategic restructuring, lawful abolition of the executive's position, or other objective circumstances — not merely the employer's subjective decision).
(C) Economic Redundancy: Where the Company Satisfies Statutory Conditions for Mass Layoffs
If a Singapore company needs to carry out economic redundancies due to operational difficulties, restructuring, or other statutory circumstances, and the number of affected employees meets the statutory threshold, the company may lawfully initiate redundancy procedures and unilaterally terminate the employment contracts of cross-border executives, subject to payment of severance. However, this avenue imposes stringent requirements on the employer. Cross-border executives, as holders of core positions, are generally not the primary targets of economic redundancy, and this ground is less commonly invoked in practice.
An employer conducting economic redundancies must satisfy the following statutory requirements:
- The number of employees to be made redundant is 20 or more, or fewer than 20 but representing 10% or more of the total workforce;
- The employer has, 30 days in advance, explained the circumstances to the trade union or all employees and has heard the views of the trade union or employees;
- The redundancy plan has been reported to and filed with the labor administration authorities.
Key Compliance ReminderAn executive's high salary and special management authority do not entitle the company to bypass the statutory grounds for termination. Singapore companies may not unilaterally terminate an employment contract on non-statutory grounds such as "the executive's performance fell short of expectations but did not meet the statutory standard for incompetence" or "business restructuring requires replacement of the executive."
II. Lawful Grounds Are Not Enough: Procedural Defects May Likewise Lead to a Finding of Unlawful Termination
Chinese labor law imposes mandatory procedural requirements on an employer's unilateral termination of employment contracts. Procedural compliance carries the same legal weight as substantive compliance with statutory grounds — even if the company's grounds for terminating a cross-border executive meet the statutory requirements, failure to complete the prescribed procedures will still result in a finding of unlawful termination. Singapore companies, unfamiliar with the procedural requirements of Chinese labor law, frequently stumble on procedural defects such as "failure to lawfully notify the trade union" or "improper service of the termination notice." Companies must carefully manage the following core workflow, ensuring that each step is documented and compliant.
Step 1: Secure Evidence and Complete Internal Fact-Finding
With respect to the statutory ground on which the termination is proposed, comprehensively collect and preserve evidence to form a complete evidentiary chain, avoiding the risk that the termination is overturned for insufficient evidence. The evidentiary standard for cross-border executive terminations must be especially rigorous. Written evidence is recommended:
- For termination for cause: collect written evidence of the executive's misconduct or dereliction of duty (e.g., attendance records, audit reports, written confirmation of disciplinary violations, witness statements, forensic reports on trade secret leakage, etc.);
- For termination without cause: retain records of employment conditions, job descriptions, performance evaluation results, records of training or reassignment, and correspondence regarding consultation on amendments to the employment contract;
- All evidence must either be signed and confirmed by the executive or bear a record of lawful service; uncorroborated oral evidence is insufficient.
In parallel, the company should complete internal fact-finding, with human resources, legal, and business departments jointly confirming the legality of the termination ground and the sufficiency of the evidence, and producing an internal review opinion to avoid compliance risks arising from unilateral decision-making.
Step 2: Lawfully Notify the Trade Union and Obtain Its Response
Pursuant to Article 43 of the Labor Contract Law, where an employer unilaterally terminates an employment contract, it shall notify the trade union of the reasons in advance. If the company has not established a trade union, it must notify the local trade union or the relevant industry trade union. This is a mandatory statutory procedure. Judicial scrutiny of this requirement has become increasingly rigorous in practice. Even where the termination ground is lawful, failure to notify the trade union prior to termination will often result in a finding of unlawful termination.
- Form of notice: written form is recommended (by mail or in-person delivery), setting out the facts, reasons and statutory basis for the termination, and retaining the trade union's acknowledgment of receipt;
- Handling the response: if the trade union raises objections to the proposed termination, the employer shall study the union's views and notify the union in writing of the outcome; the employer may not disregard the union's objections and proceed with termination.
Step 3: Issue a Written Termination Notice and Lawfully Serve It on the Cross-Border Executive
Once the termination ground and procedure have been verified to be compliant, the company must issue a written "Notice of Termination of Employment Contract" to the cross-border executive. Notification by oral means, email, or WeChat alone is insufficient. The notice must be lawfully served — improper service will render the termination ineffective.
- The termination notice must contain the following core content: the date on which the employment relationship is terminated, the statutory facts and grounds for termination, the basis for calculating severance or compensation and the time for payment, requirements for the handover of work, and the date on which social insurance and housing fund contributions will cease. The notice must bear the company seal;
- Lawful methods of service (in order of priority):
- In-person delivery: obtain the executive's signed acknowledgment of receipt, retaining the written record;
- Service by mail: send via EMS to the correspondence address stipulated in the employment contract or the executive's actual residential address, with the envelope clearly marked "Notice of Termination of Employment Contract," and retain the courier receipt and delivery confirmation;
- Service by public announcement: applicable only where the executive cannot be located and the above methods are unavailable. An announcement shall be published in a newspaper of provincial level or above or on the company's official platform; service is deemed complete upon expiry of the announcement period. In practice, this method is relatively uncommon.
Key Compliance ReminderCross-border executives may reside overseas or travel frequently. Companies should specify a valid correspondence address in the employment contract (covering both domestic and overseas addresses) to avoid service failures due to unclear addresses.
Step 4: Complete the Work Handover and Settle Salary and Compensation
Given the unique nature of an executive's role, involving custody of the company's core trade secrets, corporate chops, financial records, and system access rights, the work handover is a critical post-termination compliance step. The company must specify in the termination notice the scope, timeline and recipient of the handover, to avoid subsequent operational risks arising from an incomplete transition.
- Simultaneously recover the executive's company assets and access rights: including physical chops, digital certificates, company mobile phones, laptops, access cards, as well as signing authority, banking authority, and back-end system access rights, with a written handover record;
- Settle salary and statutory payments: on the date of termination, settle the executive's salary, overtime pay, and compensation for untaken annual leave. If severance or payment in lieu of notice is payable, make a single lump-sum payment upon completion of the work handover, and retain proof of payment;
- Facilitate relevant formalities: issue a "Certificate of Termination of Employment Contract" to the executive, and complete the transfer of the executive's personnel file and social insurance and housing fund accounts within 15 days. For Singaporean-national executives, also assist with the cancellation of the employment permit and residence permit.
III. Special Compliance Considerations for Cross-Border Executive Termination
Compared to ordinary employees, the departure of a cross-border executive is often more complex. Beyond the employment relationship itself, it may involve corporate governance structure, banking authorizations, cross-border permit management, and protection of trade secrets. Accordingly, in practice, Singapore companies should pay particular attention to the following:
- Statutory Cap on High-Salary Severance: If a Singaporean-national cross-border executive's monthly salary exceeds three times the local average monthly wage of employees in the employer's locality, the basis for calculating severance is capped at three times the local average wage, and the years of service are capped at a maximum of 12 years. The company need not calculate severance on the basis of the executive's actual salary;
- Concurrent Handling of Foreign Work Permits: Singaporean-national executives working in China must hold a Foreigner's Employment Permit and a Foreigner's Residence Permit. Upon termination of the employment contract, the company must promptly complete cancellation procedures with the local human resources and social security authorities and public security authorities, to avoid administrative liability arising from failure to cancel these permits;
- Coordination of Trade Secrets and Non-Compete Obligations: If the company has entered into a non-compete agreement with the cross-border executive, it must pay non-compete compensation in accordance with the agreement following termination. If no compensation is paid, the non-compete agreement will not be binding on the executive. The company may also require the executive to sign a Confidentiality Undertaking, expressly setting out post-employment confidentiality obligations;
- Clarifying Governing Law and Jurisdiction Between China and Singapore: When entering into the employment contract with a cross-border executive, the company should clearly specify the competent court or arbitral body for dispute resolution and the governing law, stipulating the application of PRC law and the jurisdiction of the labor arbitration commission or court at the employer's place of domicile, to avoid becoming entangled in cross-border litigation due to jurisdictional disputes.
IV. Common Compliance Pitfalls Singapore Companies Should Vigorously Avoid
Drawing on frequent missteps by Singapore companies in practice in China, the following three pitfalls are particularly likely to render unilateral termination of a cross-border executive unlawful. Companies should take proactive steps to avoid them:
- Pitfall 1: Substituting a board resolution for the statutory termination procedure, on the assumption that "removal of an executive at the governance level equals termination of the employment contract." A board resolution is merely an internal corporate governance decision; it cannot directly produce the legal effect of terminating an employment contract. The labor law procedures — notifying the trade union, issuing a written notice, and lawfully serving it — must still be completed;
- Pitfall 2: Applying a Singapore employment mindset and assuming that "payment in lieu of notice permits termination at will." The Singapore regime of payment in lieu of notice reflects a contractual flexibility, whereas in China, payment in lieu of notice applies only to the three statutory scenarios of termination without cause. It is not a universal provision authorizing termination simply upon payment;
- Pitfall 3: Inadequate documentation of evidence — relying solely on verbal explanations to establish that an executive was "incompetent" or "committed a serious violation." In judicial practice, labor arbitration commissions and courts impose an extremely high standard on employers to prove the grounds for unilateral termination. Where written evidence is absent or the evidentiary chain is incomplete, the tribunal will uniformly find that the employer has failed to discharge its burden of proof, and the termination is unlawful.
Conclusion | Lawful Grounds as the Premise, Lawful Procedure as the Safeguard
The unilateral termination of a cross-border executive's employment contract by a Singapore company operating in China is fundamentally governed by the principle of "lawful grounds as the premise, lawful procedure as the safeguard." Compared with the employment flexibility available in Singapore, Chinese labor law places greater emphasis on "statutoriness" and "procedural propriety," leaving no room for discretionary action.
As holders of core management positions, the termination of cross-border executives implicates not only the cessation of the employment relationship, but also the company's cross-border business management, trade secret protection, and financial cost control, among multiple dimensions. Singapore companies must fully appreciate the institutional differences between the two jurisdictions, strictly apply the provisions of the PRC Labor Contract Law, precisely identify the applicable statutory ground for termination, and rigorously complete all procedural steps, while also attending to the specific nuances arising from the executive's special role. Where necessary, engaging specialist employment counsel to participate in the design and execution of the termination process can help achieve the dual objectives of lawful termination and risk mitigation.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.