Answer: According to Article 40 of the Employment Contract Law, an employer must give one month’s notice in advance to terminate their employee on the grounds of the employee’s health incompetence and ability incompetence and major changes in objective situation. The employer must pay one month’ wages in lieu of notice if it fails to give the one month’s notice in advance or choose immediate termination without continue the one-month notice period.
The Labor Law and the Employment Contract Law do not stipulate the calculation method for the one-month wage in lieu of notice. At present, courts around the country take several approaches.
The first type is that the payment in lieu of notice is the same monthly wage standard for calculating economic compensation, held by Guangdong Provincial High Court, Shenzhen Intermediate Court, and Guangzhou Intermediate Court. Specifically, the payment in lieu of notice is based on the employee’s average wages from the 12 months immediately before the termination. However, if this average wages exceeds three times the local employees’ average wage of the previous year, the payment in lieu of notice is set at three times the local employees’ average wage of the previous year.1Labor Dispute between Li Gaoqin and Philips Jinkewei (Shenzhen) Industrial Co., Ltd. Civil Judgment of Shenzhen Intermediate People’s Court of Guangdong Province (2015) S.Z.F.L.Z.Z. No.648. Zhang Zhixiang and Ruiyunda Trading (Shanghai) Co., Ltd. Civil Judgment of the Second Instance of Labor Dispute Civil Judgment of Guangzhou Intermediate People’s Court of Guangdong Province (2020) Yue 01 Min Zhong No.25000 and No. 25001. Lv Yue and Huizhou Chuangcheng Development Co., Ltd. Civil Judgment of Second Instance of Labor Dispute Civil Judgment of Guangdong Provincial People’s High Court (2019) Yue Min Zhong No.1592.Please see “How to calculate economic compensation?”
The second approach refers to the employee’s average wages from the 12 months immediately before the termination without the capping restriction, typically taken by Xiangtan Intermediate Court and Hunan Province.2Hunan Yipu Electric System Co., Ltd., Shuxiong, Sound Group Co., Ltd. Civil Judgment of Second Instance of Labor Dispute Hunan Xiangtan Intermediate People’s Court Civil Judgment (2019) Xiang 03 Min Zhong No.2178. Guo Jingshen et al. And Cao Xing et al. Labor Dispute Civil Judgment of Second Instance Beijing First Intermediate People’s Court Civil Judgment (2021) Jing 01 Min Zhong No.7032.The third approach is under the Regulations on the Implementation of the Employment Contract Law, which determine it as per the employee’s wages of the previous month before the termination, including overtime wages. This amount is not subject to the cap and the average wage from the previous 12 months.3 Article 20 of the Regulations on the Implementation of the Employment Contract Law of the People’s Republic of China: “If an employer chooses to pay an additional month’s wage to terminate the employment contract with an employee according to article 40 of the Employment Contract Law, the additional wage shall be determined according to the wage standard of the previous month of the employee.”
Article 41 of the Employment Contract Law stipulates that an employer must notify the trade union or employee congress one month in advance when implementing economic redundancy, but it does not stipulate whether the employer is liable for payment in lieu of notice if it fails to notify. At present, the prevailing court decisions appears to refer to the practice of Article 40 of the Employment Contract Law. That is, if the employer does not give 30 days’ notice in advance, it is liable for one-month wage in lieu of notice.4Cen Dongming and Guangxin Maritime Heavy Industry Co., Ltd. Civil Judgment of Second Instance of Labor Dispute Civil Judgment (2021) Yue 20 Min Zhong No.3226 of Intermediate People’s Court of Zhongshan City, Guangdong Province, Guangxin. “The company has notified Cen Dongming to terminate the employment relationship one month in advance, so there is no legal basis for payment in lieu of notice claimed by Cen Dong Ming, and the court of first instance rejecting the claim is rightful.”However, few courts, such as Shenyang Intermediate Court, held that employer is not liable for payment in lieu of notice in economic redundancy.5Cai Heping, Shenyang Shidoke Electric Power Equipment Co., Ltd. Civil Judgment of Second Instance of Labor Dispute Civil Judgment of Shenyang Intermediate People’s Court of Liaoning Province (2021) Liao 01 Min Zhong No.11092.
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- 1Labor Dispute between Li Gaoqin and Philips Jinkewei (Shenzhen) Industrial Co., Ltd. Civil Judgment of Shenzhen Intermediate People’s Court of Guangdong Province (2015) S.Z.F.L.Z.Z. No.648. Zhang Zhixiang and Ruiyunda Trading (Shanghai) Co., Ltd. Civil Judgment of the Second Instance of Labor Dispute Civil Judgment of Guangzhou Intermediate People’s Court of Guangdong Province (2020) Yue 01 Min Zhong No.25000 and No. 25001. Lv Yue and Huizhou Chuangcheng Development Co., Ltd. Civil Judgment of Second Instance of Labor Dispute Civil Judgment of Guangdong Provincial People’s High Court (2019) Yue Min Zhong No.1592.
- 2Hunan Yipu Electric System Co., Ltd., Shuxiong, Sound Group Co., Ltd. Civil Judgment of Second Instance of Labor Dispute Hunan Xiangtan Intermediate People’s Court Civil Judgment (2019) Xiang 03 Min Zhong No.2178. Guo Jingshen et al. And Cao Xing et al. Labor Dispute Civil Judgment of Second Instance Beijing First Intermediate People’s Court Civil Judgment (2021) Jing 01 Min Zhong No.7032.
- 3Article 20 of the Regulations on the Implementation of the Employment Contract Law of the People’s Republic of China: “If an employer chooses to pay an additional month’s wage to terminate the employment contract with an employee according to article 40 of the Employment Contract Law, the additional wage shall be determined according to the wage standard of the previous month of the employee.”
- 4Cen Dongming and Guangxin Maritime Heavy Industry Co., Ltd. Civil Judgment of Second Instance of Labor Dispute Civil Judgment (2021) Yue 20 Min Zhong No.3226 of Intermediate People’s Court of Zhongshan City, Guangdong Province, Guangxin. “The company has notified Cen Dongming to terminate the employment relationship one month in advance, so there is no legal basis for payment in lieu of notice claimed by Cen Dong Ming, and the court of first instance rejecting the claim is rightful.”
- 5Cai Heping, Shenyang Shidoke Electric Power Equipment Co., Ltd. Civil Judgment of Second Instance of Labor Dispute Civil Judgment of Shenyang Intermediate People’s Court of Liaoning Province (2021) Liao 01 Min Zhong No.11092.