In late 2022, I was contacted by an American educator, whom I will refer to as Jake for confidentiality purposes. Jake came to me upon the recommendation of another former client who had expressed satisfaction with the legal services provided by our firm.

Jake presented me with a fairly uncomplicated issue — his previous school had elected not to renew his employment contract. As per the legal stipulations, this decision necessitated the discussion of severance compensation.

Jake had been employed at a school in Guangzhou for nearly eight years, working across three different departments. He was keen on renewing his contract and had begun requesting a renewal as early as late 2021. Despite his repeated attempts to secure a new contract through emails, WeChat messages, and in-person discussions, the school failed to extend an offer, continually delaying the issue from month to month as the expiration date approached.

When Jake received a job offer from another school in February, he notified his current school one final time of his intent to continue his employment with them. However, once again, he was met with indifference. Faced with this lack of response, Jake decided he could wait no longer and accepted the new position.

The crucial aspect of securing severance pay when a contract is not renewed hinges on demonstrating one of the following: 1) the employer disregards your requests for contract renewal, 2) the employer presents a less favorable offer, such as a reduced salary, or 3) the employer explicitly informs you that you will need to seek employment elsewhere after the current contract concludes.

Given that Jake had amassed a substantial amount of written proof of his requests for contract renewals, I was confident we had a strong case. We formally commenced work on the case in November.

By early December, the school had been notified of the lawsuit, and we entered the negotiation phase. Typically, the arbitration committee prefers to encourage a settlement between the parties to reduce their caseload. The initial negotiation was scheduled for mid-December; however, due to a COVID outbreak, everyone involved fell ill—including my associates, the school’s representatives, and the arbitrators. Consequently, the meeting was postponed to January 6th.

My associates traveled to Guangzhou and engaged in face-to-face discussions with the school’s legal team. Initially, they proposed a severance of only 70,000 RMB, erroneously claiming that Jake had been employed by the company for merely two years. They were mistaken, and we were equipped with work permit records and contracts that demonstrated Jake’s continuous service across linked entities within the company.

After three hours of negotiation, the school’s representatives conceded, recognizing that their position would likely not hold up before an arbitrator. They put forth a new offer of 170,000 RMB, which significantly exceeded the amount Jake had initially anticipated winning. This sum was in line with what we realistically expected to secure through arbitration, and we collectively agreed that it represented an excellent settlement.

It is crucial to understand that settlement agreements endorsed by the arbitration committee are legally binding. By “legally binding,” it means that should the employer fail to honor the agreement, we have the recourse to request court enforcement, which entails the court having the authority to directly withdraw the owed funds from the defendant’s account. This underscores the risk for expatriates of reaching a settlement without the arbitration process. There have been instances where our clients agreed to terms with their employer, only to later discover that the employer would not uphold the agreement.

When it comes to severance pay, the standard calculation is one month’s salary for each year of service at the company. However, there is a limit to this calculation, which is three times the average monthly salary of the city where the company is located. For instance, if the average monthly salary in Guangzhou is about 10,000 RMB, the maximum severance pay would be capped at approximately 30,000 RMB per year of service. If the salary in question is below this cap, then the calculation for severance pay would be based on the average of the employee’s actual salary over the past 12 months. This figure includes all components of the compensation package such as basic salary, various allowances, bonuses, flight ticket reimbursements, and commissions.