Transcript Highlight: Terminating Employees in China

with Lesli Ligorner, Partner at Morgan Lewis

· Transcripts - CBLP


S1E2 – Termination of Employees in China – Lesli Ligorner - Highlights 

China not at-will system 

Sometimes a client will come to and say there is a performance issue, andthe person needs to be exited in the next few days. And then we ask well, what documentation isthere?  The reply is well, the managerreally just doesn't think the person's performing or we want to exit the bottom10% or 20% and in the US that's fine. But of course that doesn't work here. It's not at will so the issue is we have to have a statutory ground for termination. Figuring out how instead toencourage someone to leave how to make the determination less risky for a company and that's the the secret sauce so to speak for where we come in, but it does take time and patience and a little bit of documentation along the way.   

It's basically incompetence. That's the word used in the law. It's farharder to build the case for that particularly if there is not years of history,and if there is years of history why have you kept this employee on so long? So it is it's as much about opening the door to a discussion with the employee as it is to create the evidence. If you do have to eventually terminate for failureto perform, then I think you gained more credibility in the process with the employee where they see as well that you're not just setting them up that you're actually trying to create a situation where they can improve. Maybe you can keep them in the same position if it's a performance issue or you can move them to a new position and see how they do in that position and that's another way that maybe you can show the employee we're trying to rehabilitate the situation but in the end it's simply not working.   

Termination for Perfomance   

It is quite rare that you have such a clean and clear reason for thetermination, right? Really it depends on what the what the issue is. So let'ssay if it's performance. If there is no job description, for example, and the employee is saying well, I've done everything I'm supposed to and I've operated at a fine standard. It's just this new boss is giving me new standard even though I had great evaluations before. And nothing was wrong. Now all of a sudden there's a problem. Then it's amatter of understanding exactly what the assignment at issue is and then figuring out is there a way we can talk with this individual or the company can talk with that individual. And then inthat case generally offering money is going to be the way to basically sweeten the exit and make the employee realize there's no future with the company.    

Serious misconduct cases  

But in the case of serious misconduct, it's a little bit different where weneed to understand what the policy is and sometimes again the conduct doesn'talways fit neatly into what the company policy says or the policy itself didn't originally go through a proper employee consultation process when it was formulated. 

Or that specific employee didn't sign off on the consultation. So then it'sa question of figuring out how best to play that back to the employee andsometimes you know, we recommend that the company simply reach a mutual agreement and pay the employee to exit.    

So even when these cases of misconduct even egregious misconduct, sometimesit is still in the company's interest even though it's a bit of a moral hazard.Is it still in the company's interest to pay the person to leave? Yes, and that is one of the hardest hurdles sometimes to get over. So sometimes there are companies that from a principal perspective, they want this person out and they want them terminated, you know, involuntarily. No severance, no compensation, no notice, out today because of theconduct that we've uncovered.   

We come in and basically I think our greatest asset to a client is to giveyou the assessment of risk, and if for example the evidence is not clear or theevidence is going to be embarrassing or problematic or the evidence simply isn't there from a China perspective and it's a very high evidentiary burden then, you know, our suggestion is look maybe the best thing you can do is getthis person out of the company with as least risk as possible knowing that the evidence is not strong.    

And so sometimes we'll recommend look, you know, even though you want totake the principled approach and terminate unilaterally in this case, we thinkyou should pay the person to reach an agreement and then you have no risk essentially. So it really depends on the facts. It's very case specific.    

The issue is if you terminate unilaterally and the employee comes back theycould seek reinstatement and that is that has been gone back. I want my job backand I'm coming back and I'm going to fight and it's not about the money. It's about the principle you terminated me wrongfully.    

Yeah, and we do have some of those and generally speaking if that's theindividual then there may be ways to defeat that but there also may be waysthat the company might say, you know what we're not in it for the long haul we're just going to pay the person and have them leave and then at least the company's interest is protected from a safety interest now, even though it does create the moral hazard.   

Misconduct when a regulatory risk is in play   

I also think it really depends on the nature of the misconduct and if thereis some type of regulatory issue in the background. So as an example, if there's you know, a U.S.FCPA investigation for example in the background. Okay, then getting thisperson in China out because of risk, and because the regulator is going to look at how quickly you exited that person then there may be more tolerance to pay more at the time.    

That's something that's might get disclosed to the regulators.So there's a balance there and I think that's where it's understanding the riskof reinstatement. Yeah, understanding the risk in going to arbitration or going to court where the evidence is going to get disclosed, where it is generally apublic proceeding and the media could show up.