Article 38 of China’s Labour Contract Law grants employees the right to unilaterally terminate their contracts in case of specific employer fault. Additionally, under article 46, such termination even entitles employees to statutory severance pay from the employer.
These “forced termination” claims – which are often accompanied by labour arbitration applications seeking severance and unpaid wages – present substantial legal and managerial challenges for employers.
It is therefore crucial for companies to accurately interpret article 38 and establish systematic compliance and risk mitigation procedures.
Defined circumstances
Wu Kun
Partner
Blossom & Credit Law Firm
Accurately determining whether an employee’s “forced termination” claim falls under the circumstances defined in article 38 of the Labour Contract Law is an imperative prerequisite for an employer’s response strategy.
This article lists six specific grounds for termination, which reflect fundamental legal duties of the employer. The first three are the most frequently cited and require particular attention.
Failure to provide stipulated labour protection or working conditions. The scope of labour protection and working conditions extends beyond physical safety – such as compliant health and safety facilities – to include the contractual work environment and necessary tools.
In the case of Lu 01 Min Zhong 8372 (2025), a logistics company was found to have failed in its duty after moving a driver’s vehicle to another location without providing a replacement or further work. According to judicial practice, revoking work access or unlawful position transfers can also constitute such failure.
Failure to pay labour remuneration in full and on time. This potential issue is subject to significant interpretive disputes in practice. A primary ambiguity lies in the scope of “remuneration”, particularly its inclusion of overtime payment and compensation for untaken annual leave.
Some judicial interpretation, reflected in rulings like Zhe 1082 Min Chu 5879 (2024), classify overtime pay as part of total wages, referencing article 4 of Regulations on the Composition of Gross Wages.
However, an alternative perspective argues they are not inclusive, supported by the separate listing of “overtime pay” alongside “labour remuneration” in article 85 of the Labour Contract Law, as well as article 45 of Interpretation (I) of the Supreme People’s Court of Issues Concerning the Application of Law in the Trial of Labour Dispute Cases.
Regarding unpaid annual leave, the majority view excludes it from article 38’s definition, with the notable exception of Chongqing, where it is considered part of remuneration and grounds for compensation.
Sun Linjiaying
Associate
Blossom & Credit Law Firm
Another interpretive dispute can arise over whether the employer’s subjective intent and severity of the case should be considered. In the case Zhe 0203 Min Chu 3385 (2023), the court ruled that the employer’s partial payment of overtime wages, absent evidence of persistent or long-term non-payment, did not justify the employee’s termination of the contract.
Failure to duly contribute to an employee’s social insurance. Following the more recent implementation of Interpretation (II) of the Supreme People’s Court of Issues Concerning the Application of Law in the Trial of Labour Dispute Cases, the adjudication of related disputes has been somewhat unified, further clarifying that providing statutory social insurance is a non-negotiable legal obligation for employers.
Response strategies
Acknowledging termination notice and securing evidence. If an employee issues a forced termination notice, the employer should first verify the specific allegations, timing and legal clauses cited, as this informs the subsequent response strategy.
An internal investigation must be launched to determine if the circumstance or circumstances fall under the definition contained in article 38 of the Labour Contract Law. Relevant evidence should be preserved for potential labour dispute resolution.
Establishing a favourable position with formal correspondence. If an employee’s forced termination claim is unsubstantiated, the employer can issue a formal reply. This reply should either acknowledge the employee’s voluntary decision to resign or demand their return to work by a specified deadline. Wording must be precise to avoid admitting any legal or contractual breaches.
Crucially, as the employee’s right to forced termination claim is a right of formation, the employer’s response does not validate it. Even if no grounds for termination under article 38 are found, the court’s focus will be on whether severance pay is due.
Thus, a back-to-work notice should be treated as a new offer, with continuity of the employment relationship hinging on whether the employee resumes work after their termination notice.
Sustaining compliance in employment practices. The primary defence against labour disputes lies in ensuring workplace policies are legally compliant, which means maintaining standardised employment contracts and remuneration systems, and establishing effective internal communication channels.
Key takeaway
In summary, employers confronting challenges under article 38 of the Labour Contract Law are not confined to a passive defence.
Internally, they must treat employment compliance as fundamental to operations – establishing robust procedures, standardising payroll, and safeguarding workers’ rights to eliminate risks at source.
Externally, when disputes arise, they should replace confrontation with a calm, professional approach. Compensation losses can be effectively avoided or minimised by prioritising evidence and legal risk assessment while flexibly using both negotiation and litigation.
Wu Kun is a partner and Sun Linjiaying is an associate at Blossom & Credit Law Firm.
Blossom & Credit Law Firm
12/F, 15/F, Tower A, Xinzhongguan Building
No.19, Zhongguancun Street, Haidian District
Beijing 100086, China
Tel: +86 10 8287 0263
Fax: +86 10 8287 0299
E-mail: wukun@baclaw.cn
sunlinjiaying@baclaw.cn
www.baclaw.cn
