Secured Nearly 200,000 RMB of Severance Pay for a Foreigner In Labor Dispute
Our team recently represented a foreigner holding a Chinese “Five-Star Card” (Permanent Residence Permit) in a labor dispute with his employer over labor contract renewal, achieving a favorable resolution. Through precise legal positioning, a robust arbitration strategy, and multiple rounds of professional negotiations, we successfully secured a nearly 200,000 RMB settlement for our client in this labor dispute, effectively safeguarding the legitimate rights and interests of high-level foreign talent in China’s labor market.
1. Case Background: The Foreigner’s Renewal Dilemma
Our client, Mike (pseudonym), was embroiled in a labor dispute when his employer abruptly decided not to renew his second fixed-term labor contract upon expiration, leaving him facing involuntary job loss after several years of consecutive employment with the company.
As a foreign national holding a Chinese Permanent Residence Permit and enjoying its associated benefits, Mike was initially pessimistic about resolving the labor dispute and protecting his rights in the face of his employer’s unilateral non-renewal decision. Before seeking our team’s legal assistance, he had nearly resigned himself to the reality of involuntary termination stemming from the labor dispute.
2. Legal Positioning and Strategic Choice
Upon accepting this labor dispute case, we promptly assembled a specialized labor dispute team and conducted a comprehensive analysis from three key dimensions to address the core issues:
(1) Legal Status Determination in Labor Disputes
According to the “Measures on the Treatment Entitled to Foreigners with Permanent Residence Status in China,” foreign nationals holding a Chinese Permanent Residence Permit enjoy the same labor rights and assume the same obligations as Chinese citizens in labor dispute scenarios (except for specific excluded rights). This meant Mike was directly protected by China’s Labor Contract Law in this labor dispute, granting him equal treatment to Chinese workers. The critical labor dispute point was that Mike had consecutively signed two fixed-term labor contracts—satisfying the Labor Contract Law requirement for an open-ended labor contract.
(2) Arbitration Strategy Formulation for Labor Disputes
Based on Mike’s legal status, we confirmed he was entitled to identical labor protections as Chinese citizens in this labor dispute. The employer’s refusal to sign an open-ended contract (despite Mike’s clear renewal willingness) constituted suspected illegal termination of the labor relationship—an actionable claim in the labor dispute. We calculated Mike could legally seek compensation including illegal termination damages, contract completion bonuses, and unpaid annual leave wages, totaling a substantial sum for this labor dispute.
(3) Evidence System Construction for Labor Dispute Resolution
The team guided Mike to systematically collect three key evidence types critical to resolving the labor dispute:
- Labor relationship proof: Two complete labor contracts, work permit records, and salary payment records (foundational to establishing the labor dispute);
- Renewal intention proof: Email correspondence and renewal survey forms (demonstrating Mike’s clear willingness to renew—an essential factor in the labor dispute);
- Employer breach proof: Records of the company’s explicit refusal to renew (directly supporting the illegal termination claim in the labor dispute).
3. Professional Arbitration and Multi-round Negotiations
(1) Precise Labor Arbitration Application
On the basis of thorough preparation, we filed a labor arbitration application with the local Labor and Personnel Dispute Arbitration Commission, emphasizing three critical points: (1) the employer’s illegal refusal to sign an open-ended labor contract, a core violation in labor disputes; (2) the principle of equal rights for permanent resident foreigners and Chinese workers in labor disputes; (3) clear and reasonable compensation claims aligned with labor dispute regulations.
(2) Multi-round Professional Negotiations in Labor Dispute Resolution
Given the potentially lengthy timeline of labor dispute arbitration and litigation—even if successful, compensation could be significantly delayed—Mike expressed concern. Therefore, after filing the case, we did not merely wait for the arbitration hearing but proactively initiated multiple rounds of professional negotiations to resolve the labor dispute:
- First Round
Clarifying Legal Stance on Labor Dispute. We clearly communicated the special legal status of permanent resident foreigners in labor disputes to the employer’s representative lawyer. Simultaneously, we presented relevant legal bases and similar labor dispute cases, highlighting the severe legal risks of illegal termination.
- Second Round
Presenting Key Evidence for Labor Dispute. We selectively disclosed core evidence to the opposing party, demonstrating our evidential strengths and focusing on the completeness and credibility of the evidence chain in labor dispute cases.
- Third Round
Balancing Interests in Labor Dispute Settlement. We analyzed the pros and cons from various perspectives—including the company’s reputation risks and the impact on foreigner management in labor disputes—and proposed a reasonable and constructive settlement plan tailored to labor dispute resolution.
(3) Breakthrough in Mediation
Facing a strong employer, we seized the optimal timing, maintaining legal pressure while demonstrating sincerity towards mediation. This ultimately led both parties to reach a settlement agreement of nearly 200,000 RMB, far exceeding the client’s initial expectations .
4. Case Outcomes and Value
The successful resolution of this labor dispute case brought the following benefits to our client:
- Secured nearly 200,000 RMB in compensation through the labor dispute resolution, effectively alleviating financial pressure during the employment transition period.
- Protected his dignity and rights via legal channels in the labor dispute, thereby enhancing his confidence in China’s legal environment.
- Achieved rapid labor dispute resolution through settlement, avoiding protracted arbitration and litigation procedures.
For foreign nationals facing labor disputes in China, a professional legal team specializing in labor disputes must not only be well-versed in general labor regulations but also proficient in specific provisions governing foreign-related labor relationships to deliver precise and effective legal services for labor dispute resolution.
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
