The Measures Concerning Financial Compensation for Breach and Termination of Labour Contract (circular No. 481) issued by the former Ministry of Labour was rescinded by a circular of the Ministry of Human Resources and Social Security dated 24 November 2017. There are three major differences between circular No. 481 and the Labour Contract Law:
MAJOR DIFFERENCES
Additional compensation. According to circular No. 481, if an employer fails to pay wages or overtime pay, or if a wage paid to an employee is lower than the local minimum wage, then in addition to the overdue amount or difference payable, the employer must also pay financial compensation equal to 25% of the overdue amount or difference payable. Where an employer fails to pay severance as stipulated after a labour contract is terminated, then in addition to a full payment of the severance, the employer must also pay additional financial compensation equal to 50% of the severance amount. Article 85 of the Labour Contract Law, however, requires an employer to pay additional compensation “above 50% to below 100% of the amount payable” under the above circumstances, if and when “the labour administration orders [the employer] to pay compensation within a prescribed period but the employer fails to comply with the order”.
PATRICK GU
达辉律师事务所合伙人
Partner
DaHui Lawyers
Severance payment. The calculation base of severance payment, according to circular No. 481, should be “the average monthly wage during the 12 months immediately preceding the termination of the labour contract”. Where a labour contract is terminated because the employee is neither able to resume his original work nor engage in any other work arranged for him by the employer after the expiration of the prescribed medical treatment period for an illness or non-work-related injury, or because of a material change in the objective circumstances that underlie the labour contract, or because of an economic layoff of the employer, then in as far as the average monthly wage of the employee is lower than the average monthly wage of the employer’s staff as a whole, the severance must be calculated based on “the average monthly wage of the employer’s staff”.
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Patrick Gu is a partner at DaHui Lawyers
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