Is There Severance Pay In Shanghai?

What I am about to tell you is so secretive that you will only find out about this when you decide to sue your employer one day, and learn the lesson the hard way when you lose the lawsuit.

In this video, I will explain to you what severance pay is, why this rule exists and most importantly, how to get around this annoying problem.

Labour Contract Law article 46 stipulates that severance pay, which is 1 month salary per year of working at a company should be paid if a company fails to renew your contract, you terminate the contract based on social insurance or wages not paid, and if you mutually agree to terminate a labour contract. You get double severance pay if you are fired illegally. I will explain more about this topic in a future video to help you understand how to get severance pay. Just remember that this is written in the law, so it automatically applies to you as long as you are working legally in China.

Now with this in mind, I formally introduce to you something that will blow your mind. Shanghai is the ONLY city where severance pay is NOT given to expats unless written in contract. Article 16 of a local rule – hang on for the long name here please – called the “Opinions on Implementing Rules for the Administration of Employment of Foreigners in China” that was published by the Shanghai Labour Bureau in 1998 says that the liabilities for breach of contract shall be stipulated in contract. This means if there is no severance pay clause in contract, you will not get it as proven by actual judicial practice as this is how the Shanghai 1^st Intermediate Court rules on its cases.

In the past, it was a flip of a coin to whether or not you would get your severance pay as the No. 2 Intermediate Court believes that the new and superior Labour Contract Law which was published in 2007 overrules the old one mentioned above. However, after June in 2022, I was told by an arbitrator that Shanghai unilaterally sticks to the opinion of NOT giving severance pay anymore when it is not stipulated in the contract.

The reasoning behind this rule is that expats, also called foreign experts, are experts and generally get paid much more than locals. Therefore, they should be able to bargain for a better deal, or hire professional help before signing a contract, and it would be their fault if they signed the contract without putting in a severance pay clause. That would be correct 20 years ago when that law was implemented in 1998, as expats were indeed, extremely expensive when compared to locals who only earned on average, 1000 Yuan per month which is less than 150 US Dollars. The average monthly salary for a Shanghai worker now is around 12000 Yuan, which is 1700 USD, more than ten times of the 1998 average.

I am not going to debate on whether this judicial practice in Shanghai is right or wrong, but to offer you an easy solution if you are already working, or would like to work in Shanghai. It is extremely simple. All you need to do is to copy the relevant labour laws about severance pay into your contract, and your employer will no longer be able to exploit this loophole. You should dig out your contract right now to see whether this clause exists.