How to properly effect a dismissal for incompetence

By Shao Bo, Labour Consulting (LABOURS)

“Incompetence” is a concept easy to comprehend, but difficult to apply, particularly because the standards vary between internal management and court adjudication. Companies that fail to realise this are at greater risk of disputes

After tracking labour dispute cases involving termination of labour relations for incompetence in Beijing from 2019 to 2022, we find that it is difficult for enterprises to obtain court support for the dismissal of employees on the grounds of incompetence. Among such cases in 2022, the percentage of losing cases by enterprises amounts to a staggering 96%.

Failure to effectively prove incompetence, as well as issues in the system/regulations, performance achievement, training/position transfer, and dismissal process are the top five reasons why enterprises lost their cases.

Low performance management consumes considerable time for business line managers and HRs, and the entry into Performance Improvement Plans (PIPs) is increasingly perceived as a precursor to departure. Ultimately, enterprises are burdened with legal risks and challenges while paying the costs.


Shao Bo, Labours
Shao Bo
Labour Consulting (LABOURS)
Tel: +86 10 8225 5618

Enterprises need to have a system in place to determine whether an employee is incompetent and to define the specific circumstances of incompetence. The systems of “dismissing the employee with worst performance” and “normal distribution” can be useful to the management, but many enterprises fail to set provisions in advance on what level of performance is considered incompetent and how it is associated with the legal definition of “incompetence”. Enterprises can take a centralised approach to scoring, and define in advance in the system that those below a certain level are incompetent.

Due to the different assessment methods of different departments, or due to the independent management of business units, an enterprise can also adopt a decentralised approach and delegate the authority to define incompetence to the head of each business line. The enterprise also needs to fix the evidence through regulations that the business unit has the power to set its own incompetence criteria.

The above provisions on incompetence should be recorded in writing, such as the employee handbook, performance system, performance contract and labour contract, so as to ensure its legality and validity. For such matters involving employees’ personal interests, it is recommended that enterprises comply with the requirements of article 4 of the Labour Contract Law regarding democratic procedure and service procedure, so that the relevant provisions can be effective and legally valid.

Enterprises should have their own criteria

Incompetence addresses the objective fact that employees are underperforming. The management of incompetence requires a clear basis on which an employee will be considered as incompetent.

Better democratic procedure ensures the validity of evidence

Certain enterprises send an email notice to the employees when they believe them to be incompetent. However, the employee may simply claim to have not received the notice and thus does not accept the determination of incompetence. Therefore, the notification and service process can also affect the validity of evidence during the labour dispute arbitration and the first and second instance trials. The author believes that enterprises need to have a more adequate democratic process to deal with such potential risks.

Reasonableness is required for position transfer or training

After the initial determination of incompetence, position transfer or training may be adopted to improve the employee’s performance. In this case, enterprises are prone to be challenged in terms of reasonableness. From a legislative perspective, incompetence refers not to any fault of the employee, but rather a lack of personal competence. Thus, the employee is offered a way out through position transfer or training. If, afterwards, the employee is still unable to meet the requirements after position change or training, the enterprise can unilaterally dismiss the employee according to the law.


Improve the incompetence management mindset

For the executives, performance management requires considering hard indicators, including whether their own and their team’s performance is qualified, and whether management standards are qualified. Management standards in turn cover the personal growth and turnover of the team members, employees’ compliance, obedience and professionalism, and whether they match the enterprise’s strategy.

Meanwhile, performance management also requires the consideration of external factors, such as changes in the business of upstream and downstream enterprises, as well as changes in competitors and customers, etc.

Avoid the mindset of ‘cumulative punishment’

If performance assessment standards are applied too thoroughly, covering an employee’s performance, ability, management ability, and personal habits, it would be difficult for either the employee or the judiciary to recognise the assessment result.

To the judiciary, if, for example, the enterprise disapproves the employee’s behaviour in four points and thus dismisses the employee for incompetence, it would be required to establish every single one of these points. Defect in the evidence of any point would render the dismissal invalid. Therefore, it is important for business managers to grasp the core of the incompetence argument.


Let rules and regulations effectively play their roles

The management should check if there are corresponding articles in the enterprise’s rules and regulations and set up sanctions such as warnings for disobeying work arrangements. The process of dismissal should especially comply with every step of the procedures as stipulated by law, and any mistake can lead to illegal dismissal.

Change the legal basis for dismissal from incompetence to discipline violation

When an enterprise exercises its management powers and arranges a position transfer or PIP, its employee must comply with such arrangement. If its employee fails to comply, it could constitute a discipline violation as long as the position transfer or the PIP is not insulting and meets applicable requirements.

If an employee refuses to accept the position transfer or PIP, the enterprise must take the matter seriously and adhere to the management principles. Only with a firm approach can the enterprise make a dismissal on the grounds of discipline violation.

Communication is no less important than legality. There is growing emphasis of communication in the field of labour law. Without communication, it is no longer considered sufficient to unilaterally notify an employee and ensure he/she has received the message.

The importance of communication is reflected in the labour dispute arbitration and the first and second instance trials. The arbitrator or court may consider that the enterprise has abused its position of strength and performed its management without effective communication. Moreover, in the era of right protection by self-media, the lack of effective communication may have an unpredictable impact on the goodwill of enterprises.

Shao Bo is a partner at Labour Consulting (LABOURS). He can be contacted by phone at +86 10 8225 5618 and by email at

Labours LogoLabours
Room 630, Tower A, Chengjian Plaza
No.18, North Taipingzhuang Road
Beijing 100088, China

Tel: +86 10 8225 5618
Fax: +86 10 6641 5678/6641 3211