Can I claim severance pay in China? This question has been frequently asked these years. Many foreign friends consulted Chinese lawyers and got positive answers.
So they are eager to have a try when their employment contract is terminated. Would their claims be supported by Chinese courts?
1. What is severance pay?
Severance pay is a kind of compensation pay for the employee when the employer terminates the employment contract; or when the employee terminates the employment contract due to the employer’s breach of the Labor Contract Law.
2. When an employee has a right to severance pay?
The normal circumstances that could warrant a severance pay include layoffs, job elimination and mutual agreement to part ways, etc. The key governing legislation is the Labor Contract Law. In its Section 46, it specifies each situation when an employer have a right to severance pay.
a. When the employee terminates his or her employment contract because the employer breached the employment contract or violated the labor law (Known as unilateral termination by an employee);
b. When the employer proposes a termination and the employee agrees (Known as Termination by Agreement);
c. When the employer makes an employee redundant;
d. When the employer terminates an employee because he or she is not capable of doing her work;
e. When the employer terminates an employee because it is impossible to perform the employment contract due to significant change of circumstance;
f. When an fixed term employment contract expires on the expiry date; ( Expiry)
g. When the employer’s registration certificate is revoked;
h. When the employer closes as a business.
3. When an employee has no right to severance pay?
An employee is not entitled to the severance pay if he or she refuses to renew a contract when his or her employer offers a renewal on the same as or better than the terms and conditions of the current contract.
He or she will not have such a right if his or her employer unilaterally terminates his or her contract with good cause, usually due to his or her breach of contract or law.
4. How to calculate the amount of severance pay?
The basic rule under the Employment Contract Law is that for each year (which is any period longer than 6 months) an employee has worked for the employer, he or she is entitled to one month’s wages in severance.
For any period of employment of less than 6 months, the employee is entitled to half a month’s wages. If an employee’s monthly wage exceeds 300% of the local average monthly wage for the preceding year, the local average can be used to calculate the severance payment. In this situation, the number of years of service used to calculate statutory severance is capped at 12 years.
5. Can I claim severance pay as a foreign employee?
There are different points of view towards this question in judicial practice. In previous cases before 2010, some Chinese courts held that the Labor Contract Law could be applied to foreign employees, so foreigners got their severance pay when their employment contracts terminated or expired.
But recent cases indicate some judges have changed to another point of view. They admitted the particularity of the employment contract with foreigner as a party and didn’t support the severance pay for foreigner provided that the employment contract provides otherwise.
In a case of Shanghai in 2015, two tiers of courts held that under the Regulations on the Administration of Employment of Foreigners in China, the wages foreigners employed in China should not be lower than the local minimum wage.
The working hours, rest and vacation, and labor safety, health and social insurance are carried out in accordance with relevant state regulations.
The courts held this list is an exhaustive list, and labor rights and obligations other than those mentioned above may be determined in accordance with employment contracts or other agreements between the two parties.
(1) When you sign the employment contract, demand for the standard version issued by the local Bureau of Human Resources and Social Security, which includes the severance pay provisions. In that case, you may get a good ground for your claim in the future.
(2) As there is no authoritative interpretations by the Supreme Court, if you are not in Shanghai, and feel angry and resentful about your boss, you can try to sue or arbitrate for severance pay. However, as the outcome is uncertain, you shall sign the contingency fee agreement with your lawyer.
If you have more questions about China labor/employment laws, welcome to contact me.