Non-Renewal of Labor Contract in China: Can Foreigners Claim Severance Pay?
Here’s a scenario every foreign employee working in China should have on their radar: your fixed-term labor contract is approaching its expiration date, and your employer tells you they won’t be renewing. The question that follows is almost always the same — do I get severance pay?
The honest answer is: it depends on where you’re working. Chinese law doesn’t offer a single, explicit nationwide rule on this, and judicial practice varies sharply from one jurisdiction to another. Below is a practical breakdown of how the law applies and what you should watch for.
I. The Baseline: Chinese Law Applies — But the Details Are Local
One foundational point worth keeping straight: under Article 43 of China’s Law on the Application of Laws to Foreign-related Civil Relations, labor disputes involving foreigners are governed first by the law of the workplace. In other words — if you hold a valid work permit and you’re employed legally in China, any fight over your employer’s refusal to renew runs through Chinese law and, just as importantly, through the local court’s prevailing habits.
China’s Labor Law and Labor Contract Law don’t carve foreign employees out. But the Regulations on the Employment of Foreigners in China only go so far — they lock in five baseline protections aligned with Chinese standards: minimum wage, working hours, rest and leave, occupational safety, and social insurance. What they don’t spell out is economic compensation when a contract expires or gets terminated. That silence is exactly what leaves the door open for regional divergence.
II. How the Major Cities Actually Rule: Two Competing Camps
1. Shanghai: Contract Language Carries the Day — No Automatic Statutory Pay
Shanghai sees a huge slice of China’s foreign workforce, and its courts have settled into a fairly steady line over the last several years. The reasoning goes like this: beyond those five baseline rights, everything else hinges on what you and your employer actually put in writing. The economic-compensation provisions of the Labor Contract Law don’t kick in by default.
A few practical ripple effects:
- If your contract explicitly says “economic compensation will be paid upon non-renewal” or “relevant matters shall follow the Labor Contract Law,” you can claim per the agreement.
- If the contract is silent, or the wording is fuzzy, or it flat-out says “no compensation will be paid,” Shanghai courts generally won’t stretch to hand you statutory severance — even though the employer is the one walking away.
- The Shanghai High People’s Court flagged this in a retrial ruling: where the contract stipulated “the employer will not pay any compensation for terminating the contract for any reason,” the court held that without a clear contractual hook, the employee had no basis to claim — even in a scenario that might otherwise look like unlawful termination.
The takeaway if you’re Shanghai-based: your contract is doing the heavy lifting, not the statute.
2. Beijing, Guangdong, Jiangsu, Chongqing: Labor Contract Law Applies in Full
Most other major jurisdictions go the opposite direction. Courts in Beijing, Guangdong, Jiangsu, and Chongqing tend to put foreign employees on the same footing as Chinese hires and apply the Labor Contract Law wholesale. Their logic: if you’re legally employed, you get the same compensation rights — no carve-out.
Beijing is especially explicit about it. In 2023, the Beijing Municipal Bureau of Human Resources and Social Security released a bilingual (Chinese–English) Model Labor Contract for Foreigners — Article 18 expressly provides that “contract rescission, termination, and renewal shall comply with the Labor Contract Law and national/Beijing regulations.” That’s a policy-level nudge pushing both sides toward statutory standards. In practice, Beijing courts have repeatedly held that the Regulations on the Employment of Foreigners don’t displace the Labor Contract Law, so foreigners can claim non-renewal compensation or damages for unlawful termination under it.
Guangdong and Jiangsu track the same line. The Guangdong High People’s Court noted in a retrial ruling that legally employed foreigners have a valid claim to Labor Contract Law compensation. Jiangsu courts have clarified that an employer refusing renewal without a valid reason triggers statutory pay. Chongqing courts go a step further conceptually: the Labor Contract Law is a detailed supplement to the Labor Law and should naturally extend to foreign-related labor disputes — otherwise you’d be left with a legal gap that defeats the statute’s purpose.
III. What to Do Up Front (and Along the Way)
Given the split, here’s how to protect yourself across the contract lifecycle — signing, performance, and exit:
- Get the contract language right before you sign. This is make-or-break if you’re in Shanghai. Explicitly spell out the “compensation standard for non-renewal upon expiration” and how liabilities split on rescission/termination — don’t leave it ambiguous. Outside Shanghai, it still helps to reference compliance with theLabor Contract Lawin the contract; it reinforces your position even where the statute already leans your way.
- Know the local stance before you relocate. Before joining a new employer, run a quick check — either through a PRC labor lawyer or via the judicial document platforms — on how courts in that city actually treat foreign-employee non-renewal claims. The regional difference isn’t academic; it shows up in the award (or denial) of several months’ salary.
- Keep the paper trail alive. Hang onto your labor contract, work permit, payslips, and anything tied to renewal or termination — negotiation emails, the non-renewal notice, any written communication. If a dispute lands, those are the exhibits that carry the case.
Wrapping Up
There’s no unified judicial interpretation in China yet on severance when a foreign employee’s contract runs out, and the regional split isn’t going away in the near term. The safest play is the one that travels well across jurisdictions: agree clearly up front, document as you go, and enforce in line with the rules where you’re sitting. If the situation in front of you looks like it’s drifting toward a dispute, a brief conversation with counsel who knows the local labor bench can usually tell you whether you’ve got a real claim — and what it’s worth — before things get expensive.
Contacts:
Saway Wang
Tel: +86 18017682422
Email: sawaywang@billionslawyer.com
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
Am I Entitled to Severance Pay in China?
KEY TAKEAWAYS
(1) The employee is entitled to severance pay (“N” or “N+1”) under the circumstances of legal bilateral termination, failure of renewal, mass-layoff, bankruptcy, dissolution, health issues or injury, incompetency, significant changes.
(2) The employee is entitled to “2N” of severance pay when the employer’s termination is not permitted under the law or violates the law.
(3) Even if the termination is initiated by the employee, the severance pay (typically “N”) shall be paid by the employer in the event of the employer’s termination of open-ended labor contract, failure of paying remuneration or social security premiums and the employer’s fraud, coercion, violence or other conducts contrary to laws and regulations.
1. When You Are Entitled To Severance Pay?
Under Article 46 of the Labor Contract Law of PRC (“LCL”), the employer may terminate the labor contract but has to pay severance pay to the employee in the following circumstances:
- Legal Bilateral Termination (Article 36 of LCL)
When a company desires to terminate the labor contract, the LCL allows the company to enter into a mutual agreement with its employee on termination of employment relationship.
In such circumstance, a severance package (normally “n” or “n+1”) shall be involved in this termination agreement. The bilateral termination agreements are often used in the event of downsizing as it may avoid conflicts between both parties and legal costs for the potential legal proceedings.
- Failure of renewal
When a fixed-term employment contract expires, and the employer is not satisfied with the employee’s performance, it may choose not to renew the contract. However, a severance (typically “n” or “n+1”) has to be paid by the employer.
This rule changes when the second fix-term contract expires, in which case the contract becomes an open-term labor contract, and the employ has no right to not renew the contract, otherwise, it shall pay a severance of “2n” to the employee.
- Mass-layoff (Article 41 of LCL)
Under Article 41 of LCL, a mass-layoff refers to the collective termination of more than 20 employees or 10% of the total employees. A legal mass-layoff requires notification and explanation to labor union and all employees in advance, report to the labor administrative department for review.
Without the above procedures, the mass-layoff will be deemed as illegal termination which means the employee will likely be entitled to severance pay of up to “2N”. If the mass-layoff is approved by the labor administrative department, the employer still has to pay severance (normally “N” or “N+1”) to all the employees who were terminated.
- Bankruptcy, dissolution, cancellation
When the labor contract is terminated due to the employer’s bankruptcy, dissolution and cancellation, the employee is entitled to “N” or “N+1” of severance pay (Cause 4 and 5, Article 44 of LCL).
- Employer’s legal unilateral termination
The LCL (Article 40) allows the employer, in any of the following circumstances, to lawfully terminate the labor contract by either sending the employee a written notice 30 days in advance and paying severance of “N” or paying severance of “N+1” instead of 30 days’ written notice in advance:
(1) Health issues or injury:
A worker suffers from an illness or a non-work-related injury and, after the expiry of the prescribed medical period, is unable to fulfil his/her original work or fulfil the work that has been otherwise arranged by the employer;
(2) Incompetent in work
A worker is incompetent in performing his/her work and remains to be incompetent in performing the work after training or adjusting the position; e.g. the employee fails to meet the standard of performance appraisal for several times.
(3) Significant Changes
The objective circumstances under which the labor contract was concluded have significantly changed (e.g. enterprise migration, department abolishment), making it impossible to perform the contract, and the employer and the employee fail to reach a mutual agreement on changing the contents of the labor contract after negotiation.
- Employer’s illegal unilateral termination
The employer’s illegal unilateral termination will make the employee entitled to a severance pay of “2N”, and it refers to the following circumstances:
(1) Termination of an open-ended labor contract by the employee;
An open-ended labor contract has no expiration date and will continues until either the employer or the employee terminates the contract. If the employer and employee have entered into two consecutive fixed-term labor contracts, or if the employee has worked continuously in the company for 10 years, regardless of the labor contract, the employer and employee will automatically enter into an open-ended labor contract.
(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 engaged in work exposed 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) Dismiss the employee who has been working for 15 years consecutively with the employer and will retire in less than five years;
(6) Any other dismissal that is unlawful or prohibited by law.
2. When You Are NOT Entitled To Severance Pay？
However, the severance pay shall not be payable in the following circumstances:
(1) The employee does not satisfy the recruitment criteria during the probationary period;
(2) The employee commits serious violation of the company rules and regulations.
(3) The employee commits gross negligence in duties or malpractice, thus causing significant damage to the employer;
(4) The employee simultaneously works for another company without consent of the current employer, which seriously affects the fulfillment of the current employer’s work tasks, or who refuses to rectify the situation upon the employer’s request;
(5) Where the labor contract is rendered void under the circumstances stipulated in item (1) of the first paragraph of Article 26; or
(6) The employee has been held criminally liable pursuant to the law.
3. Are You Entitled To Severance Pay Even If The Termination Is Initiated By Yourself.
Under Article 38 of LCL, the employee is also entitled to severance pay of “N” even if the termination is initiated by the employee in the following circumstances:
(1) The employer fails to provide labor protection or working conditions as defined in the labor contract
(2) The employer fails to pay remuneration in full and on time;
(3) The employer fails to pay social security premiums for employees;
(4) The rules and procedures of the employer are contrary to laws and regulations to the detriment of the employee’s rights and interests.
(5) The employer induces the employee enter into the labor contract against the employee’s true intention by illicit means such as fraud, coercion, or taking advantage of the employee’s unfavorable position, which ultimately leads to the invalidity of the labor contract;
(6) If an employer forces an employee to work by means of violence, threat or unlawful restriction of personal freedom, or if an employer violates the safety regulations and instructs an employee to engage in hazardous work and that jeopardizes the employee’s personal safety, the employee may terminate the employment contract immediately without prior notice to the employer.
(7) Other circumstances stipulated by laws and regulations.
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
