Under the legislative framework of Chinese labour law, which prioritises the protection of employees’ rights, employers seeking greater autonomy in terminating employment contracts often rely on provisions in the Labour Contract Law. These include article 39, which addresses “termination due to employee misconduct”, and article 40, which covers “non-fault dismissals”. Among these, the provision for termination due to “significant changes in objective circumstances” under article 40 is frequently invoked. This is because it places less emphasis on employee fault and allows for interpretative flexibility. However, its application remains contentious and subject to strict procedural requirements, often leading to disputes over unlawful termination.
This article analyses the legal framework surrounding the concept of “objective circumstances”, exploring its definitional boundaries and the compliance requirements for negotiation procedures. It aims to provide systematic recommendations for employers to establish lawful and reasonable mechanisms for terminating employment contracts. To terminate an employment contract on the grounds of “significant changes in objective circumstances”, two conditions must be met: the objective circumstances must render the contract’s performance impossible; and the employer and employee must fail to reach an agreement after consultation.
Employers must carefully define the reasonable scope of “objective circumstances” and focus on collecting...
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