China’s Highest Court Highlights Guidance on Termination Certificate Guidelines Set by Appellate Court

The Supreme People’s Court of the People’s Republic of China (PRC) recently confirmed guidance on the contents of termination certificates, which employers in the PRC are required to issue to evidence the end of an employment relationship. Multinational companies in China should review their template termination certificates and the related practice in accordance with the guidance to ensure compliance and reduce the risk of a dispute.

Under PRC employment law, an employer must issue an employment termination certificate (Termination Certificate) to an employee to evidence the termination of the employment relationship. [1]Given that it is a routine employment document that an employer in China is required to provide when an employee separates from the company, many companies in China already have a standard template Termination Certificate in place.

One of the “excellent rulings” announced by the Supreme People’s Court (SPC) of the People’s Republic of China in December 2023 provided guidance regarding how to prepare a more accurate and proper Termination Certificate.

OVERVIEW

A Termination Certificate is a written document executed and issued by an employer to a departing employee to evidence the termination of the employment relationship between the employer and the employee. This document is usually required when the employee seeks to enjoy the benefit under the unemployment social insurance scheme or applies for a new job.

LEGALLY REQUIRED ELEMENTS FOR A TERMINATION CERTIFICATE

Under PRC law, a Termination Certificate must contain the following elements:

• The term of the departing employee’s employment contract
• The date on which their employment contract is terminated
• Their work position
• Their number of service years at the entity issuing the Termination Certificate [2]

In practice, some employers may opt to include in the Termination Certificate the termination reason or other contents in addition to those listed above. It is important to note that contents (including the termination reason) beyond the elements enumerated above are not legally required for the Termination Certificate. The employer may objectively state the termination ground in the Termination Certificate upon the employee’s request but is not required to do so. [3]

UNCERTAINTIES REGARDING TERMINATION CERTIFICATES UNDER CURRENT STATUTES

Other than the rules stated above, current laws in the PRC do not provide further guidance on issues such as whether employers should or are permitted to include additional content, whether all the content of the Termination Certificate must be written in Chinese, and whether the employer can list the employee’s position only at the time of the termination or whether it must or should also list the historical positions when there have been changes. This uncertainty for employers in China has resulted in varied practices in issuing the Termination Certificates.

FURTHER GUIDANCE REGARDING A COMPLIANT TERMINATION CERTIFICATE

On December 21, 2023, the SPC of the PRC announced the selected judgments that are recognized as excellent rulings for the 2023 calendar year within the national court system. [4] An appellate decision issued by No. 1 Intermediate People’s Court in Shanghai (SH Appellate Court) [5] on that list provides some clarity on the preferred content of Termination Certificates.

Case Background

The former employee, the plaintiff at trial and appellant on appeal (Employee), signed an open-ended employment contract with the employer, the defendant at trial and appellee on appeal (Employer). The contract took effect on April 1, 2014, and the Employee had been working as a Quality Control Manager (质量控制主管) throughout his tenure. Prior to that, the Employee was employed through a staffing agency, and the Employer also signed a letter in March 2014 recognizing the Employee’s service as a dispatched employee from October 1, 2000.

In or around June 2020, the Employer decided to eliminate the Employee’s position, after which the parties had a dispute over the termination of the Employee’s employment. In July 2020, through a mediation conducted by the labor arbitration committee, the Employer reinstated the Employee’s employment. However, the Employer changed the Employee’s position to Senior Quality Controller (高级质量控制员) and reduced his salary around the same time.

The Employee filed a labor arbitration in September 2020 challenging the new arrangement. While the labor arbitration committee supported his claim for the salary difference, it declined to hear the claim for reinstatement to his original position, citing lack of jurisdiction.

In December 2021, the Employer unilaterally terminated the Employee’s employment based on the grounds that there was a material change to the objective circumstance that the parties relied upon when concluding the employment contract and that the parties failed to reach an agreement on amending the employment contract. [6] The Employer issued a Termination Certificate to the Employee in January 2022 containing the following content:

• Start Date: The certificate states that the Employee joined the Employer on October 1, 2000
• Position: The certificate states that the Employee’s position upon termination was Senior Quality Controller, which is written in English without Chinese translation
• Termination Ground: The certificate states that due to business integration the company decided to eliminate the department’s business in its entirety
• Termination Date: The certificate states that the Employee’s last working day was December 31, 2021

Employee’s Claims Regarding the Termination Certificate

The Employee initiated a labor arbitration in March 2022 demanding that the Employer reissue a compliant Termination Certificate and compensate him for his losses caused by the allegedly improper or noncompliant Termination Certificate. The labor arbitration committee declined to hear the case, and the Employee subsequently filed a lawsuit.

The trial court dismissed both claims on the grounds that (1) the Employer had fulfilled its statutory obligation to issue the Termination Certificate given that the start date and the position immediately preceding the termination of employment stated in the Termination Certificate were consistent with the actual circumstances; and (2) the Employee failed to prove that the Employer’s failure to issue a “compliant” Termination Certificate resulted in the loss of an employment opportunity with a third party or caused him to suffer actual damages.

The Employee then filed an appeal with the SH Appellate Court arguing that the Termination Certificate issued by the Employer was erroneous in the following respects:

• It failed to specify the term of his employment contract
• The position stated in that certificate is inconsistent with the one in the Employee’s employment contract, and the Employer failed to prove that the parties agreed on the change to the position. In addition, the Employer failed to provide a Chinese translation for that position in relevant materials
• The start date stated in that certificate is inconsistent with Employee’s actual start date, which, according to the Employee, should be August 1, 1995
• The termination reason stated by the Employer is not legally required and lacks a factual and legal basis

The Employee also argued that the Offer Letter and the Notice of No Hiring issued by a third-party company proved that he suffered financial losses as a result of the noncompliant Termination Certificate issued by the Employer, as the Notice of No Hiring states that the third-party company decided not to employ the Employee after issuing him the Offer Letter because the Termination Certificate issued by the Employer did not reflect the Employee’s working experience as a quality control manager.

SH Appellate Court’s Decision

The SH Appellate Court vacated the trial court’s decision based on the following reasons:

• As the term of the employment contract is a required element under the Regulation on the Implementation of the PRC Employment Contract Law (Implementation Regulation), the Employer is obliged to include this information in the Termination Certificate, as requested by the Employee.
• Although the Employee failed to prove that he continued to work as the Quality Control Manager (质量控制主管) at the time of the termination, he had been working in that position for many years. The purpose of including the legally required elements in the Termination Certificate under Article 24 of the Implementation Regulation is to evidence an employee’s working experience and professional skills. In this case, listing the Employee’s position at the time of the termination alone could not fully reflect his actual working experience and capabilities. In addition, as the common language in China is Chinese, it was improper for an enterprise incorporated in China to specify the work position solely in English when an employee expressed disagreement around this.
• Under PRC law, the grounds for termination are not a legally required element, but the employer may state the termination ground objectively in the Termination Certificate based on an employee’s request. [7] While including the termination reason neither violates the prohibitive rules under law nor has any adverse impact on the Employee, because the Employee did not agree to include this content in the Termination Certificate it was not proper for the Employer to include that information in the Termination Certificate.

The SH Appellate Court thus ordered the Employer to reissue the Termination Certificate in accordance with PRC law. Nonetheless, the SH Appellate Court concluded that the Employee failed to prove that his service for the Employer commenced from August 1, 1995 and failed to provide sufficient evidence of the alleged losses resulting from the improperly issued Termination Certificate and thus did not support the Employee’s claims in these respects.

Notably, in rejecting the Employee’s claim for damages, the court stressed (1) the irregularities with regard to the Employee’s evidence for his purported loss (i.e., the Employee failed to provide any communication record regarding the Offer Letter and the Notice of No Hiring and failed to mention anything about the loss of employment opportunity to the Employer in a discussion about the Termination Certificate postdating the Notice of No Hiring) and (2) the documentary evidence showing the Employee’s working experience.

KEY TAKEAWAY FOR EMPLOYERS IN CHINA

The common law doctrine of stare decisis does not apply in China, a civil law jurisdiction. Therefore, the SH Appellate Court’s decision regarding the Termination Certificate is not legally binding for other courts when ruling on similar disputes. However, given that this decision is recognized and published by the highest judicial authority in China, it is likely that more courts will increasingly adopt the same approach and reasoning for cases with similar fact patterns.

While in the above case the SH Appellate Court only ordered the employer to reissue the certificate and did not support the employee’s claim for damages, there is still a risk that employers could face financial exposure if a former employee can provide strong evidence to show causation between an improperly issued or inaccurate Termination Certificate and the individual’s economic or opportunity losses.

Employers in China should consider taking the following steps to mitigate the risks of disputes in connection with the issuance of a Termination Certificate:

• Carefully review their existing template Termination Certificate and ensure that all legally required elements are included
• Ensure that the contents in the Termination Certificate are factually accurate
• For multinational companies, include an accurate Chinese translation for all English-language content
• If the employer is considering including information such as the termination grounds in addition to the legally required elements, it is advisable to consult with the employee, obtain the individual’s consent, and document the communication
• Ensure that the Termination Certificate is executed and provided to the employee in a timely manner

Please do not hesitate to contact us for any assistance with the review or issuance of a Termination Certificate.