Employment law in China is in constant flux, but changes to the
law - or to how the law is interpreted - are generally quite
limited. Recent Interpretations by the Supreme
People's Court (SPC) are the exception; international companies
that operate in China, need to take notice and prepare for
action.
When China introduced its first Labor Contract Law in 2008, the
legislation brought long-needed structure to employment
relationships. Two aspects were especially significant:
- It defined specific legal grounds under which
an employer may unilaterally terminate an employee.
- It set out clear formulas for severance and
compensation, reducing uncertainty for both parties.
Among these provisions, one rule in particular increased
predictability for employers: the caps on economic
compensation when a termination is found without legal
grounds (i.e. unlawful). Under the law, economic compensation
equals twice the statutory severance, with severance
calculated as:
