China: Can a Negotiated Labour Contract Termination Agreement Be Revoked After Signing?

Article 36 of the Labour Contract Law stipulates that an employer and employee may terminate a labour contract by mutual agreement. As the principal method for both parties to “peacefully terminate” an employment relationship, negotiated termination is widely used in enterprise employment management due to its flexibility and relatively simple procedures.

However, in practice, situations where parties “sign first and later seek to withdraw” are not uncommon. Some employees seek to revoke agreements on the grounds of major misunderstanding. In other cases, after signing the agreement, the employer discovers serious disciplinary violations committed by the employee and subsequently attempts to terminate the labour contract on disciplinary grounds, thereby overturning the agreed compensation arrangement.

So, can a negotiated termination agreement be reversed after signing? What is the legal basis for doing so? And how are such disputes treated in judicial practice?

1. Legal Basis and Basic Principles Governing Negotiated Termination of Labour Contracts

Article 35 of the Supreme People’s Court Interpretation (I) on Issues Concerning the Application of Law in the Trial of Labour Dispute Cases provides:

“An agreement reached between an employee and an employer regarding the termination or dissolution of a labour contract in relation to handling procedures, payment of wages, overtime pay, economic compensation or damages, etc., shall be deemed valid where it does not violate mandatory provisions of laws or administrative regulations and does not involve fraud, coercion, or taking advantage of another party’s difficulties.

Where the agreement contains a major misunderstanding or is obviously unfair, and a party requests revocation, the people’s court shall support such request.”

This provision establishes the core rules governing the validity of negotiated termination agreements, which may be summarised as follows:

Validity Principle

Provided that the agreement does not violate legal provisions and both parties genuinely express their intentions, the agreement should be recognised as lawful, valid, and binding on both parties.

Exceptions: Invalidity or Revocability

If the agreement involves fraud, coercion, or taking advantage of another party’s difficulties, it may be invalid. If there is a major misunderstanding or obvious unfairness, one party may request revocation of the agreement.

A review of labour laws, regulations, and relevant judicial interpretations indicates that this provision is the primary rule specifically addressing the parties, subject matter, and circumstances in which a right of revocation may arise in labour disputes. Accordingly, it serves as the core legal basis for applying the right of revocation in labour law disputes.

It should also be noted that China’s labour law system does not clearly define the specific circumstances constituting “major misunderstanding” or “manifest unfairness”. Therefore, whether an employee or employer files a revocation claim, relevant provisions of the Civil Code must also be relied upon as legal support.

At the same time, due to the inherent imbalance in bargaining power within employment relationships, employers usually occupy the dominant position. In practice, employers often initiate negotiated terminations by offering economic compensation in exchange for employees relinquishing rights such as continued performance of the labour contract or certain remuneration claims. Consequently, judicial practice more commonly involves employees seeking revocation of negotiated termination agreements.

2. Common Areas of Dispute

(1) Employee Regret and Judicial Determinations

1. Fraud, Coercion, or Taking Advantage of Another Party’s Difficulties at the Time of Signing

The Civil Code clearly defines fraud, coercion, and taking advantage of another party’s distress:

• Fraud – Article 148:
  
  If one party uses fraudulent means to induce the other party to perform a civil legal act against their true intentions, the defrauded party has the right to request revocation by a people’s court or arbitration institution.
• Coercion – Article 150:
  
  If one party or a third party uses coercion to induce another party to perform a civil legal act against their true intentions, the coerced party has the right to request revocation.
• Taking Advantage of Another Party’s Distress – Article 151:
  
  If one party takes advantage of another party’s distress or lack of judgement to conclude an obviously unfair civil legal act, the disadvantaged party may request revocation.

Under these provisions, an employee seeking revocation must provide sufficient and convincing evidence proving that fraud, coercion, or exploitation occurred at the time of signing, resulting in a declaration of intent contrary to their true intentions. This places a high evidential burden on the employee.

For example, “fraud” generally requires proof that one party knowingly provided false information or concealed the truth, causing the other party to fall into a misunderstanding and act contrary to their genuine intentions.

In principle, negotiated termination agreements are the product of mutual consent and should reflect the principle of good faith. Accordingly, where an employee merely alleges fraud or coercion without sufficient evidence satisfying the legal definitions of those concepts, courts are unlikely to support such claims.

2. Discovering Pregnancy After Signing as a Claimed “Major Misunderstanding”

Chinese labour law provides special protections for female employees during pregnancy, maternity leave, and breastfeeding periods. Article 42 of the Labour Contract Law prohibits employers from unilaterally terminating labour contracts with pregnant employees. However, it does not prohibit mutual termination by agreement.

A civil legal act based on a major misunderstanding refers to an act performed due to a substantial misunderstanding regarding the nature or content of the act itself. The determination of a “major misunderstanding” depends on whether the misunderstanding materially affected the party’s decision-making.

At the time of signing a negotiated termination agreement, both parties generally understand the agreement’s content and legal consequences. Therefore, even if a female employee was unknowingly pregnant at the time of signing and only discovered the pregnancy afterwards, this will generally not constitute a “major misunderstanding” sufficient to revoke the agreement.

In judicial practice, courts generally do not support claims seeking restoration of the labour relationship or invalidation of the agreement on this basis.

For example, Article 69 of the Answers (I) on the Trial of Labour Dispute Cases issued by the Beijing High People’s Court and the Beijing Labour and Personnel Dispute Arbitration Committee states:

“Where a female employee negotiates termination of her labour contract with the employer and subsequently discovers she is pregnant, requests to revoke the agreement or continue performing the original contract will generally not be supported.”

Similarly, in case (2017) Hu 0106 Min Chu 49949, the court held that the employee, as an adult, should have foreseen the legal consequences of signing a negotiated termination agreement. The court found that the agreement represented the true intentions of both parties and involved no fraud, coercion, exploitation of difficulties, or manifest unfairness. The employee’s lack of awareness of her pregnancy did not constitute a legally recognised “major misunderstanding”.

3. Illness Diagnosed or Worsening After Signing

In practice, some employees seek revocation after being diagnosed with an illness or experiencing a worsening condition following execution of a negotiated termination agreement.

Such situations are generally treated similarly to pregnancy-related claims and usually do not constitute a “major misunderstanding” unless the employee can demonstrate that the illness materially affected their cognitive capacity or ability to understand the agreement at the time of signing.

However, special caution is required where the employee worked in a role involving occupational disease hazards.

For example, in case No. 962 (2015) Hu Erzhong Min San (Min) Zhong Zi, the court held that an employer’s statutory obligation to arrange occupational health examinations for employees exposed to occupational hazards is not automatically waived simply because the parties agree to terminate the labour contract.

Where the employee had not expressly waived the right to a pre-departure occupational health examination, the labour relationship could not automatically terminate before the occupational disease assessment was completed.

This case demonstrates that while illness itself does not automatically invalidate a negotiated termination agreement, employers must strictly comply with statutory occupational health obligations.

4. Compensation Considered Manifestly Unfair

In practice, some employees later argue that agreed compensation fell below statutory standards or omitted items such as unused annual leave pay, bonuses, or overtime payments, thereby rendering the agreement obviously unfair.

In case (2020) Su 05 Min Zhong 10175, the Suzhou Intermediate Court held that where compensation under a negotiated termination agreement amounted to only 61.19% of the statutory economic compensation entitlement, the agreement was clearly unfair.

The Jiangsu High Court later further noted that the employer had used its stronger bargaining position and quickly drafted a unilateral agreement, supporting a finding of manifest unfairness.

Although Chinese law does not prescribe a specific threshold below which compensation automatically becomes “grossly unfair”, courts typically consider:

• statutory compensation standards;
• who initiated the termination;
• the bargaining power of the parties; and
• the circumstances surrounding execution of the agreement.

(2) Employer Regret and Judicial Determinations

Some employers, after signing and performing a negotiated termination agreement, later discover employee misconduct through audits or whistleblowing investigations and attempt to revoke the agreement on the basis that the employee concealed disciplinary violations.

However, negotiated termination agreements are legally binding once effective. As managers of the employment relationship, employers are generally expected to supervise and investigate employee conduct before signing termination agreements. Failure to do so will usually prevent unilateral revocation later.

For example, in case (2022) Hu 02 Min Zhong 3721, the Shanghai No. 2 Intermediate Court held that employers bear management responsibilities for employees and should ordinarily be aware of disciplinary violations before signing termination agreements.

Conversely, in case (2026) Min 01 Min Zhong No. 780, the Fuzhou Intermediate Court allowed revocation where senior management personnel had concealed serious abuses of power causing significant losses, and the employer could not reasonably have discovered the misconduct before signing the agreement.

A key factor in such disputes is timing:

• If the misconduct occurred before signing, courts examine whether the employer reasonably should have discovered it.
• If misconduct occurred after signing but before the resignation date, employers may be better protected if the agreement expressly reserves the right to withhold or recover compensation in cases of disciplinary violations.

3. Conclusion

The primary purpose of negotiated termination agreements is to resolve the termination of employment relationships amicably, reduce disputes, and minimise time and cost burdens for both parties.

In practice, employers often expressly specify the components of compensation within the agreement, including economic compensation, bonuses, overtime payments, and unused annual leave wages, while also including clauses confirming that no further labour disputes remain outstanding.

Based on the principle of good faith, the legal effect of negotiated termination agreements cannot easily be overturned.

Under China’s current legal framework, revocation of such agreements remains limited to statutory circumstances under the Civil Code, including fraud, major misunderstanding, and manifest unfairness. Whether sought by the employee or employer, revocation claims carry a substantial burden of proof.

At present, judicial practice has not yet established entirely uniform standards regarding manifest unfairness or revocation claims. Courts therefore continue to assess such disputes on a case-by-case basis, taking into account the specific facts and evidence presented.

Anjie Broad, China, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact china@transatlanticlaw.com

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