Are foreigners eligible for economic compensations when their contracts are expired and terminated？

It is common sense that Chinese citizens are protected by the Labor Contract Law of the People's Republic of China (the Labor Contract Law), and that when the current contract is expired and terminated as a result of the employer’s refusal to renew the contract, the employee shall be given an economic compensation calculated based on the number of years they have worked for the employer, at the rate of one month's salary for each full year he worked. Any period of not less than six months but less than one year shall be counted as one year. The economic compensations payable to an employee for any period of less than six months shall be one-half of his monthly salary. Are foreigners eligible for economic compensations when their contracts are expired and terminated as a result of the employers’ refusal to renew the contracts? It’s not necessarily the case. There have been completely opposite rulings in Shanghai. Let’s take a look at the rulings made by Shanghai No.1 Intermediate People's Court and Shanghai No.2 Intermediate People's Court in 2018.

1、(2018) No. 2454 ruling made by Shanghai No.1 Intermediate People's Court

A company named TransPak helped Edmond obtain a work permit initially valid from Jul. 10 2014 to Jun. 30 2015 then renewed to Jun. 30 2017. On Jun. 14 2017, TransPak issued the Notice of Labor Contract Termination to Edmond and specified on the Notice that “due to expiration of the labor contract and the work permit”, TransPak decided to terminate Edmond’s labor contract starting from Jun. 30 2017.

Shanghai Municipal Employment Dispute Arbitration Committee ruled “Pay”: TransPak shall pay the economic compensation due to labor contract termination.

The first instance of the People's Court of Pudong New District of Shanghai Municipality ruled “No Pay ”: The labor contract does not specify whether the company shall pay economic compensations after its termination. Since it is not expressly stipulated in the labor contract, Edmond’s request for an economic compensation due to labor contract termination is unfounded. It was thus ruled that TransPak does not pay for economic compensation due to labor contract termination.

The second instance of Shanghai No.1 Intermediate People's Court ruled “No Pay”: Since both parties did not agree upon whether an economic compensation is applicable when the labor contract is terminated, the court upheld the initial ruling.

2、(2016) No. 9210 ruling made by Shanghai No.2 Intermediate People's Court

Cornelia and German School Shanghai have concluded a labor contract valid from Jan. 10 2011 to Jul. 31 2014. On Feb. 26 2014, the two parties signed a Temporary Service Contract valid from Aug. 1 2014 to Jul. 31 2015. On Apr. 14, German School Shanghai sent an e-mail to Cornelia, notifying her of her upcoming labor contract’s termination on Jul. 31 2015.

Shanghai Municipal Employment Dispute Arbitration Committee ruled “Pay”: German School Shanghai shall pay the economic compensation due to labor contract termination.

The first instance of the People's Court of Qingdu District of Shanghai Municipality ruled “No Pay”: Regarding the economic compensation for the termination of the labor contract, foreigners working in China are only eligible for the benefits of the five areas stipulated in the basic Chinese labor laws, i.e. minimum wage, working hours, rest, holidays, labor safety and health, and social insurance. Any other issues shall be determined according to mutual agreement or actual performance by the two parties. As the current labor contract expired, and the two parties did not agree on economic compensation for the termination of the labor contract, Cornelia's request for the Shanghai German School to pay economic compensation is unfounded and will not be sustained.

The second instance of Shanghai No.1 Intermediate People's Court ruled “Pay”: The Labor Contract Law of the People's Republic of China expressly stipulates the circumstances where the employer shall pay the employee economic compensations. Cornelia has obtained the work permit for foreigners and has been working in China since then, therefore she and German School Shanghai have concluded a legal contractual labor relationship and such relationship shall be protected by the Labor Contract Law. Since the two parties did not clearly stipulate in her contract the legal consequences when the labor relationship terminates, both parties shall follow the clauses in the Labor Contract Law. According to the Law, the employer shall pay employee an economic compensation when his labor contract has expired and is not to be renewed. Therefore, Cornelia’s request for an economic compensation paid by German School Shanghai is founded and shall be sustained.

The above two rulings were made by Shanghai No.1 Intermediate People's Court and Shanghai No.2 Intermediate People's Court in 2018. Shanghai High People’s Court has issued the Answers to Several Issues Relating to Trials of Labor Dispute Cases (2006) No. 17, where its Article 2 provides as follows:

1、The labor dispute settlement bodies may uphold any request where the minimum wage, working hours, rest, holidays, labor safety and health, and social insurance stipulated in the Article 22 and Article 23 of the Regulations on the Management of Employment of Foreigners in China apply.

2、Apart from the items provided in Article 22 and Article 23 mentioned above, other labor rights and obligations agreed upon or actually performed by foreigners and their Chinese employers may be determined by the labor dispute settlement bodies based on the written labor contracts, individual agreements, other forms of agreements between the two parties and the content of actual performance by the two parties.

3、In addition to the circumstances listed in (1) and (2), labor dispute resolution bodies shall not sustain any argument where applicable labor standards and labor treatment requirements are proposed by the two parties.

In conclusion, the question of whether foreigners are eligible for economic compensations when their contracts are expired and terminated as a result of employers’ refusal to renew the contracts comes down to whether they are fully applicable to the national treatments given by the Labor Contract Law of the People's Republic of China. In judicial practices in Shanghai, labor arbitration bodies, basic, intermediate and higher people's courts have held different opinions and have set different precedents. Therefore, the issue is highly disputed and challenging for lawyers. If foreigners ask our lawyers to review their contracts when signing them, make sure the following clauses are included in the Labor Contract to avoid debatable issues commonly seen in lawsuits:

1、When the labor contract is terminated, the employer shall pay an economic compensation according to relevant calculation standards;

2、Any issues not stipulated in the Contract shall be subject to the Labor Contract Law of the People's Republic of China.