Answer: The implementation of the Employment Contract Law on January 1, 2008 changed the calculation rules of economic compensation. This piece of legislation specifically provides for a transitional, segmented treatment rule: the length of service of employees before 2008 is treated in accordance with the law before the implementation of the Law, and the length of service after 2008 is treated in accordance with the new rules under the the Law.¹Article 97, “Where an employment contract in existence on the implementation date of this Law is dissolved or terminated after the implementation of this Law, and economic compensation shall be made in accordance with Article 46 hereof, the number of years for economic compensation shall be calculated from the implementation date of this Law. Prior to the implementation of this law, in accordance with the relevant provisions at that time, the employer shall make economic compensation to the worker in accordance with the relevant provisions at that time.”

Specifically, under the following circumstances, the service years for calculating economic compensation shall only count for the period after January 1, 2008 :1) fixed-term contracts expire and dissolute; 2) employees are forced to resign due to employers’ non-compliance in social insurance; 3) employees are forced to resign due to company rules’ illegality; 4) employment contracts are invalid, resulting in employees being forced to resign. Employers are not liable to pay economic compensation for the foregoing four situations under the law before the 2008; However they are under the 2008 Employment Contract law. For example, before 2008, an employer did not have to pay economic compensation for refusing to renew an expired fixed-term employment contract, while being liable if it did so after 2008.

We use a case to explain the aforementioned segmented treatment rule. Mr. Zhang joined a company in 2000. His monthly wage was RMB 8,000 when he was forced to resign in 2020 due to the company’s non-compliance in social contribution. Before the implementation of the Employment Contract Law in 2008, the employee’s resignation due to employer’s non-compliance in social insurance was not statutorily compensable. Therefore, in accordance with the segmented treatment rule, Mr. Zhang’s calculable length of service for economic compensation is only 12 years from 2008 to 2020, instead of 20 years from 2000 to 2020, rendering the compensable number of months being 12 months instead of 20 months. Therefore, his entitled economic compensation should be RMB 96,000 (12 * 8,000).

As for whether the foregoing three types of resignations, due to non-compliance in social insurance, invalidity of employment contract, and of company rules’ illegality, are statutorily compensable forced resignations. Please refer to My company received a resignation letter claiming forced resignation. Are we liable for economic compensation?

It should be noted that, although employers are liable for economic compensation for the foregoing four situations while distinguishing the service years before and after 1 January 2008 (e.g. the segmented treatment rule), the calculation of punitive damages due to illegal termination remains unaffected by the segmented treatment rule.²Article 25 of the Regulations on the Implementation of the Employment Contract Law of the People’s Republic of China, “If an employer dissolves or terminates an employment contract in violation of the provisions of the Employment Contract Law, it shall not pay economic compensation if it has paid punitive damages in accordance with the provisions of Article 87 of the Employment Contract Law. The calculation period of compensation shall be calculated from the date of employment.”That is to say, in the same case as before, if Mr. Zhang is illegally dismissed in 2020, the punitive damages for illegal dismissal should be RMB 320,000 (20 * 2 * 8,000), instead of RMB 258,000 (8 * 8,000 + 12 * 2 * 8,000) following the segmented treatment rule to calculate the economic compensation for the years before 2008 and the punitive damages (which is double the economic compensation) for the period after 2008. ³ Before 2008, employers were only liable for economic compensation in case of illegal termination.

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Mr. Wangdong

Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.

Email: wangdong@royalaw.com

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  Article 97, “Where an employment contract in existence on the implementation date of this Law is dissolved or terminated after the implementation of this Law, and economic compensation shall be made in accordance with Article 46 hereof, the number of years for economic compensation shall be calculated from the implementation date of this Law. Prior to the implementation of this law, in accordance with the relevant provisions at that time, the employer shall make economic compensation to the worker in accordance with the relevant provisions at that time.”
• 2
  Article 25 of the Regulations on the Implementation of the Employment Contract Law of the People’s Republic of China, “If an employer dissolves or terminates an employment contract in violation of the provisions of the Employment Contract Law, it shall not pay economic compensation if it has paid punitive damages in accordance with the provisions of Article 87 of the Employment Contract Law. The calculation period of compensation shall be calculated from the date of employment.”
• 3
  Before 2008, employers were only liable for economic compensation in case of illegal termination.