How Much Severance Pay Am I Entitled To in China?
KEY TAKEAWAYS
1. The severance pay will vary between “N”, “N+1” and “2N” depending on the specific circumstances of termination.
2. “N” is calculated by multiplying the monthly average salary for the twelve months prior to terminating the labor contract with years of employment.
3. “N+1” = standard severance pay (N) plus one month’s average salary.
4. The severance pay is limited to three times the average monthly salary in the local area, with the calculation period capped at twelve years.
5. In addition to severance pay, you may also claim unpaid bonuses, commissions, overtime wages, wages for unused annual leave, compensation for refusing to sign a written labor contract, and compensation for non-competition if applicable.
6. Not all courts in China will uphold the termination of a foreigner’s contract. However, it is worth noting that the majority of courts do so, with the exception of the ones in Shanghai.
1. What does “N” stand for?
The term “N“ typically denotes standard severance pay. Article 47 of the Labor Contract Law (“LCL”) outlines that standard severance pay is calculated by multiplying the monthly average salary of the twelve months leading up to the termination of the labor contract by the length of employment. (“the monthly average salary of the twelve months leading up to the termination of the labor contract” hereinafter referred to as “average salary”)
If an employee has worked for less than six months, their severance pay will be calculated based on half a year; if they have worked for more than six months (including six months) but less than one year, their severance pay will be calculated based on one full year.
For example, the average salary amounts to CNY 10,000, with a working period of 3 years and 4 months. As a result, the corresponding severance pay of “N” is CNY 35,000.
Another instance shows an average salary of CNY 10,000 and a working period of 3 years and 9 months, leading to a severance pay (“N”) of CNY 40,000.
2. What does “N+1” refer to?
Article 40 of LCL mandates that employers must either provide one month’s prior notice to employees or pay one month’s salary as compensation in lieu of notice to terminate labor contracts legally and unilaterally. This implies that in the event of legal termination without one month’s prior notice, the employer must offer an additional one month’s salary as severance pay. Conversely, one month’s salary is not mandatory.
Therefore, “N+1” refers to the standard severance pay plus an additional month’s average salary (to compensate for the absence of a notice period).
For example. If the average salary is CNY 10,000, and the employee has worked for 3 years and 4 months. The severance pay of “N+1”=CNY 10,000×3.5+CNY 10,000 =CNY 45,000.
3. What does “2N” stand for
If the employer violates the law by terminating the labor contract, the employee has the right to either request the reinstatement of the labor relationship or demand that the employer pay double the standard severance pay, which is 2N.
For example, if the average salary is CNY 10,000 per month and the employee’s total working period is 3 years and 9 months, then the severance pay of 2N would equal CNY 80,000.
4. Scenarios for “N”, “N+1”, “2N”
For the sake of clarity, we provide the following summary of the scenarios pertaining to “N”, “N+1”, and “2N” as presented in our previous article:
- Scenarios for “N” or “N+1”
(1) Legal bilateral termination;
(2) Failure of renewal;
(3) Mass-layoff
(4) Bankruptcy, dissolution, cancellation;
(5) Employer’s legal unilateral termination (health issues or injury, incompetent in work, significant changes);
(6) The employee’s legal termination (ONLY “N”)
“N+1” only applies in situations where the employer fails to provides the employee with 30 days’ prior notice of termination.
“N” applies when the employer has given the notice period mentioned above, or when employees terminate the labor contract as per Article 38 of LCL.
- Scenarios for “2N”
As previously stated in our article, the employer is obligated to compensate the employee “2N” under the following circumstances:
(1) Terminating an open-ended labor contract by the employer (“open-ended labor contract” does not apply to foreign employees as the employment period can not exceed 5 years.)
(2) Dismissing a female employee during her pregnancy, confinement or nursing period.
(3) Dismissing an employee who suffers from sickness or non-work-related injury within the prescribed medical treatment period.
(4) Dismissing the employee who has worked in conditions exposing them to occupational disease hazards during employment without a pre-employment occupational health examination, or dismissing an employee suspected of suffering an occupational disease during the period of diagnosis or medical observation;
(5) Dismissing the employee who has been working for 15 years consecutively with the employer and will retire in less than five years; or
(6) Any other dismissal that is unlawful or prohibited by law.
5. Is there a limit for severance pay?
Certainly. Severance pay shall be capped at three times the local average salary where the employee’s average salary exceeds three times the average monthly salary of the previous year. Additionally, the calculation years of severance pay shall be limited to twelve years.
6. What else you may claim for?
- Unpaid bonus,allowance, commission, etc.
As long as these are agreed in the labor contract or other agreement.
- Overtime wage
Overtime wage on working days = hourly wage x overtime hours x 1.5
Overtime wage on weekend = daily wage x overtime days x 2
Overtime wage on statutory holiday = daily wage × overtime days ×3
- Wages for unused annual leave
Wages for unused annual leave=daily wage × overtime days ×3
- Compensation for failing to sign a written labor contract
If the employer fails to sign a written labor contract within the period of more than one month but less than one year, it has to compensate the employee double salaries every month (generally capped at 11 months).
- Compensation for non-competition
Only when the employer and employee have entered into a non-competition agreement.
7. Will the court uphold the severance pay of a foreign employee?
- Judicial Practice of Shanghai
(1) In the event that both parties have expressly agreed in the labor contract that the foreign employee is entitled to severance pay, the Shanghai courts will uphold the severance pay as per the Answers of Shanghai High People’s Court to Several Issues Concerning the Trial of Labor Dispute Cases (“ALDC”);
(2) Otherwise, most Shanghai court may not uphold the severance pay pursuant to the ALDC as they believe that foreigners are not eligible to apply the LCL since there are no laws explicitly stating that foreigners can apply the LCL.
Therefore, it is highly advised that foreign employees negotiate with their employer to cover a severance payment clause in the labor contract.
- Judicial Practice of Beijing, Guangzhou, Jiangsu, Zhejiang
Courts in Beijing, Guangzhou, Jiangsu, and Zhejiang province typically support the severance of foreign employees by arguing that the Administrative Provisions on Employment of Foreigners in China do not grant foreigners an exemption from the LCL. Thus, foreigners are eligible to cite the LCL.
Q&A
Q： How should I claim for severance pay?
A： You can initiate a labor arbitration procedure at the Labor Dispute Arbitration Committee where the labor contract is implemented or where the employer is located. For foreign employees in Shanghai, the labor arbitration procedure must be commenced at the Shanghai Municipal Labor Dispute Arbitration Committee.
Q： If I’m not satisfied with the arbitration verdict, what should I do?
A： You may file a lawsuit in court. Otherwise, the arbitration verdict will be enforced. When you are unsatisfied with the court judgment, you may initiate a second instance by submitting an appellate petition.
Q： If the employer fails to comply with the verdict or judgment, what should I do?
A： The employee may apply for enforcement once it takes effect.
If you would like us to assess whether you are entitled to severance pay, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Help ! Someone Punched Me In The Face.
If you were assaulted by someone in China, what would you do first? Sara (pseudonym) faced this problem just last month.
Sara was a foreign teacher in an international school until she received a termination notice from the school where she had been working for almost one year.
“However, when I arrived at the school for the handover, I found that the termination and compensation agreement was totally different with the one that I had signed a few days earlier, some pages were replaced. I was so angry that I wanted to tear up the agreement. When I grabbed the agreement, the HR punched me in the face!” Sara said, showing me a photo of her bruised face.
As an English-speaking lawyer specialized in providing legal services for expats in China (see my profile), I instructed her to press charges at police station and try to reach a settlement for compensation if possible. Although the HR denied punching Sara, through negotiation and the mediation of the police officer, both parties eventually agreed on compensation of RMB 10,000.
Sara may be just one of those cases. This article will give you some guidance on what to do if you are assaulted in China.
1. First step: reporting to the police
The first step is to go to the local police station nearest to the place where you were assaulted to report the assault. In most cases, the policeman may not understand English, you can hire an English-speaking lawyer to visit the police station with you (find our contacts in the website) and ask for the lawyer’s support.
If you are unable to visit the local police station for the reason that you are too injured to move or you are afraid of the assailant running away, then you may also call 110 (the police emergency number) and report the assault. The police officer will usually show up within 30 minutes and help you file a report.
2. Provide Information to the police
At the police station, the officer will require you to provide the following details about the assault and assailant:
(1) Your name, nationality, passport number, address.
(2) The assailant’ name, ID number, phone number; if you don’t know the above information, then provide his appearance description as accurately as possible.
(3) When and where the assault occurred.
(4) What happened during the assault (the course of events).
(5) Whether you were injured, and show the injuries.
(6) Whether there were any witnesses.
(7) Anything else about the assault.
3. Collect necessary evidence
- Obtain a hospital report on injury
If you’ve suffered a physical injury from the assault, you’d better go to hospital for examining the injury and getting a hospital report on injury. It can prove the severity of the injury and therefore, to some extent, affect the punishment that the assailant may receive if no medicolegal expertise is taken.
- If necessary, apply for medicolegal expertise
If necessary, you may apply to the police for medicolegal expertise and request a medico-legal report in order to preserve evidence. For an assault case, unlike the hospital diagnostic report, the medicolegal expertise can provide an authoritative assessment of the severity of injury and directly determine whether the assailant will face criminal or administrative sanctions.
- Gather potential witnesses
If the assault took place in the presence of witnesses, contact those witnesses and ask them to testify to the assault, their testimony will be vital for police to investigate the case.
- CCTV camera footage
Find out if there is a CCTV camera that recorded the entire assault, try to obtain the footage or ask the policeman to investigate the footage. It will help you to prove the assault when the assailant denies it.
4. Possible penalties of assault
- Administrative penalty for minor assault
For the minor assault that does not meet the criteria for a criminal offence, the assailant shall be detained for not more than 10 days and shall, in addition, be fined not more than 500 RMB, pursuant to Article 43 of Law on Administrative Penalties for Public Security (Revision 2012).
However, under the following circumstances: (i) gang-fighting; (ii) assaulting a disabled person, pregnant woman, or a person who is under 14 years old or over 60 years old; (iii) assaulting for more than two times, or assaulting more than two persons once, the assailant shall be detained for not less than 10 days but not more than 15 days, and shall be fined more than 500 RMB but less than 1000 RMB.
- Criminal penalty for serious assault
If the police determines that the injury resulting from the assault has constituted minor injury in criminal concept after inspection or medicolegal expertise, which has constituted the crime of intentional injury, the assailant shall be sentenced to fixed-term imprisonment of up to three years, criminal detention or public surveillance. However, for the assault causing severe injury, disability or even death, the assailant shall be sentenced to fixed-term imprisonment of more than three years, or even life imprisonment or death penalty.
5. Compensation from the assailant
- Settle with the assailant at police station
In the case of minor assault that does not meet the criteria for a criminal offence, the police officer will, if necessary and possible, try to persuade both parties to reach a settlement. Typically, the settlement will involve the assailant paying compensation to the victim, and victim withdrawing the charge against the assailant. The compensation usually includes the hospital treatment expense for injury and other compensation determined by both parties. Once the settlement agreement is reached and the assailant pays the compensation, the assailant will not face any penalties.
- File a civil case
If the parties fail to reach a settlement on compensation, the victim may file a civil case against the assailant. The compensation may include the cost of hospital treatment, nursing care, transportation and nutritional fee, hospital meal allowances, the reduction of income due to the injury, as well as compensation for mental injury (not exceeding RMB 5,000), the disability compensation (if disability results) or death compensation (if death results).
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
