Help, what is my severance pay?

If you are entitled to severance pay, how exactly is it calculated in the PRC?

In the PRC, severance pay is calculated in a bifurcated manner. The old labor law (“Old Law”) applies to the term of employment before January 1, 2008 and the new PRC Labor Contract Law (“New Law”) applies to the period from January 1, 2008.

1. For term of service after January 1, 2008.
According to the New Law, severance pay is generally 1 month’s salary for each year of employment (or ½ month salary for employment of less than 6 months).

“Monthly Salary” = the employee's average monthly salary in the preceding 12 months prior to termination, which includes base salary and also any bonuses, allowances, subsidies, etc.

**If however, the Monthly Salary is more than three times the average monthly salary of all employees in the jurisdiction (“Average Local Salary”), then the Monthly Salary will be capped at 3x the Average Local Salary. For example in Shanghai the Average Local Salary in 2008 was RMB 3,292, and three times that equals RMB 9,876. Therefore, suppose your monthly salary is RMB 35,967 a month from January 1, 2008 – January 1, 2009, your severance will be capped at RMB 9,876.

2. For term of service before January 1, 2008.
According to the Old Law, the term of employment before this time period is not subject to the Average Local Salary cap. Therefore, employees fair much better with regards to severance pay for the term worked prior to January 1, 2008. So following the example above, you will be able to use your Monthly Salary (i.e., RMB 35,967) to calculate severance pay.

(***this is not legal advice! talk to a friendly lawyer friend -- you may also be able to get more or nothing at all, depending on your individual circumstances)

Don't Forget Employer's Duties When Drafting Non-Compete Clauses

A Beijing Court recently rejected an employer’s claim for RMB 300,000 for a former employee's breach of a non-compete agreement.


Employer and Employee signed a Confidentiality and Non-Compete Agreement, which basically stipulated that during the term of the labour employment and the effective period thereafter, Employee should not hold a part-time job or otherwise affiliate itself with a competitor or lure employees or customers away from employer (pretty general terms). The agreement did not however mention the Employees ‘rights’ or otherwise the Employer’s ‘duties’ with respect to the above obligation to not compete. Employee eventually left the position, and Employer paid Employee the non-compete compensation; but then appealed to the Beijing Arbitration Committee for the RMB 300,000 for the alleged breach. The appeal was rejected and the Employer brought the case to court.

The Court held....
In a Confidentiality and Non-Compete Agreement “both parties should be entitled to equal rights and responsibilities”. Since the agreement only stated the Employees responsibilities and failed to state the rights to which Employee is entitled to for compliance with its obligations, the contents of the agreement were deemed to be unfair and unbinding on the Employee. (Even though the Employer did infact remit the non-compete compensation)

Another example of how careful drafting can save the day.
* This is not legal advice