The severance pay in Chinese labor law (2)

Yuan Shen, Esq*

However, the employer will take every possible measure to circumvent the said provisions so as to evade the severance pay. Also the Employment Contract Law has stipulated that the employer may not make the severance pay to the employee under the following situation:

◆Termination by mutual consent: the employment contract is terminated through mutual negotiation which is initiated by the employee;

◆Termination due to the fault of the employee, if he:

(1) is proved not to satisfy the conditions of employment during the probation period ;
(2) materially violates the employer’s rules;
(3) commits a serious dereliction of duty, practices graft or engage in embezzlement, causing substantial damage to the employer;
(4) simultaneously has an employment relationship with another employer, seriously affecting the completion of his tasks with the employer, or, after having the same mentioned to him by the employer, he refuses to rectify the matter;
(5) causes the employment contract to be invalid due to the circumstance specified in item (1) of the first paragraph of Article 26 of the Employment Contract Law; or
(6) has criminal liability pursued against him in accordance with the law.

◆The termination of the employment contract under special circumstances:

(1) The employee has commenced drawing his basic old age insurance pension in accordance with the law;
(2) The employee deceases, or is declared dead or disappearance by a People’s Court;
(3) The employment contract which expires upon completion of a certain job is terminated due to the expiration of the agreement;.
(4) The fixed–term agreement has expired, the employee does not agree to renew the contract even though the conditions offered by the employer are the same as or better than those stipulated in the current agreement;

The above mentioned article 1 (termination by mutual consent), clause 2 of article 2 (Materially breaches the employer’s rules and regulations) are the grounds most exploited by the employer. For example, the employer modifies its internal regulations and the employee will be discharged if he is late for work more than three times; or if the employee is found being making a phone call during work hour etc. Furthermore, there are other instances, such as forcing the employee to resign by virtue of relocating him to a more remote area, postponing the payment of wages, humiliating the employee in the presence of his colleagues and so on.

The latter situations can be found in English law: the so called “constructive dismissal”, which is not defined in Chinese law. We also can not find any analogues concept in any current labor related Chinese laws or administrative regulations. Under such circumstances, the employee usually tenders his resignation voluntarily as a result of his relatively weak position and his rights and interest are hard to be protected. However, it does not mean that the employee could not do anything about it. For example, in case of the “relocation to a remote area”, it pertains to the situation of modifying the employment contract unilaterally. In this connection, the employment contract can not be amended unless the prior consent of the two parties. If the negotiation fails, the employer could dissolve the agreement provided that he must pay the severance pay.

2. The calculation of the severance pay
Pursuant to the provisions of the Employment Contract Law, an employee shall be paid severance pay based on the number of years worked with the employer at the rate of one month’s wage for each full year worked. Any period of not less than six months but less than one year shall be counted as one year. The severance pay payable to an employee for any period of less than six months shall be one-half of his monthly wages.

If the monthly wage of a employee is greater than three times the average monthly wage of employees in the employer’s area as published by the People’s Government at the level of municipality directly under the central government or municipality divided into districts of the area where the employer is located, the rate for the severance pay paid to him shall be three times the average monthly wage of employees and shall be for not more than 12 years of work.

It's worth noting that the Labor Contract Law simply restricts the terms and the radix of the severance pay in respect of the high-income earners and there is no such restriction on the ordinary employee. There is no ceiling so long as the employee’s monthly wages in not higher than three times the average monthly wage of employees in the employer’s area as published by the People’s Government at the level of municipality directly under the central government or municipality divided into districts of the area where the employer is located

In conclusion, it can be said that the Labor Contract Law legally and fully protects the interests of the employee and make sure that the employee could obtain the severance pay in time. However, faced with the increasingly tough economic situation and for the purpose of mitigating the burdens of the enterprise in difficulty, the Ministry of Human Resources and Social Security, the Ministry of Finance and the State Administration of Taxation jointly has issued a notice on the mitigation of the burdens of the enterprise and maintaining the stability of the employment situation on December 21, 20008. This notice permits the enterprise in difficulty to pay the severance pay in installment or with other mode of payment. In this respect, this notice will release the enterprise from economic pressures to a certain extent and thereby maintain more jobs.

These interim policies really reflect the current economic situation and it would possibly be modified when the economic situation is getting better.