Employment law Foreign workers
About 8 min read

Termination of Labor Contracts for Foreign Employees in China: Is Economic Compensation Required?

Written by Zhang&Partners · Guangzhou, China

Employment contract and Chinese labor law texts — analyzing economic compensation rights for foreign employees upon termination in China
Foreign employees in China may not automatically enjoy all Labor Contract Law protections. A recent court ruling underscores that economic compensation upon termination can be excluded by contract — only mandatory labor standards apply.
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As more foreign nationals pursue employment in China, labor disputes between foreign employees and their Chinese employers have become increasingly common. Among these, the issue of economic compensation upon termination of a labor contract is particularly prominent.

Many foreign employees assume that the right to economic compensation under China's Labor Contract Law automatically extends to foreign workers. In practice, however, Chinese judicial authorities adopt a differentiated approach. This article examines a typical case to provide an in-depth analysis of this issue.

Case Background

Mr. A, a foreign national, was hired by Company B on April 10, 2021, as Chief Financial Officer. The parties entered into a labor contract with a fixed term from April 10, 2021, to April 9, 2023. On the same date, Company B obtained a Foreigner Employment Permit for Mr. A.

On April 9, 2023, upon expiry of the labor contract, Company B decided not to renew the contract, and the employment relationship was terminated. Mr. A demanded that Company B pay economic compensation in the amount of RMB 64,329.52 in accordance with the Labor Contract Law. Company B, however, relied on an express provision in the labor contract which stated: "Regardless of the cause, in the event of dissolution or termination of the labor contract, the Company shall not be required to pay any economic compensation to the Employee." On this basis, Company B refused payment.

In May 2023, Mr. A filed for arbitration with the Labor and Personnel Dispute Arbitration Commission. The Commission rendered an award requiring Company B to pay Mr. A economic compensation of RMB 64,329.52 for the termination of the labor contract.

Company B refused to accept the arbitral award and brought an action before the court, seeking a judgment confirming that no economic compensation was payable.

The Core Issue

The central issue in dispute was: Is a foreign employee entitled to claim economic compensation under Article 46 of the Labor Contract Law upon termination of the labor contract?

Mr. A contended that the Labor Contract Law does not distinguish between domestic and foreign workers, and that all employment relationships between workers and employers are governed and protected by the Labor Contract Law. He argued that since Company B proposed termination of the labor contract, it should pay economic compensation equivalent to two months' wages based on his length of service.

Company B argued that the parties' labor contract had clearly stipulated the economic compensation arrangement, and that party autonomy should be respected — no economic compensation was payable.

Court Judgment and Legal Analysis

The court held that, pursuant to the Rules for the Administration of Employment of Foreigners in China and relevant judicial interpretations, the following labor standards under Chinese law mandatorily apply to foreigners employed in China: minimum wage, working hours, rest and leave, occupational safety and health, and social insurance. Beyond these mandatory labor standards, other labor rights and obligations may be determined in accordance with the contractual agreement or the actual performance of the contract. Any claim by a party to a labor contract for the application of labor standards or benefits beyond the above two categories shall not be supported.

In this case, Mr. A and Company B had expressly agreed in their labor contract that no economic compensation would be payable upon termination. In other words, the parties had, through the exercise of party autonomy, excluded the application of economic compensation. Accordingly, Mr. A's claim for economic compensation lacked both a legal and a contractual basis. The court ultimately ruled that Company B was not required to pay Mr. A economic compensation of RMB 64,329.52 for the termination of the labor contract.

Relevant Legal Authorities

Rules for the Administration of Employment of Foreigners in China (2017 Revision)

  • Article 21: The wages paid by an employer to a foreign employee shall not be lower than the local minimum wage standard.
  • Article 22: The working hours, rest and leave, occupational safety and health, and social insurance of foreigners employed in China shall be implemented in accordance with relevant state regulations.

Relevant Judicial Interpretations

According to applicable judicial interpretations, the Chinese labor standards that mandatorily apply to foreigners employed in China are limited to: minimum wage, working hours, rest and leave, occupational safety and health, and social insurance. For other labor rights and obligations beyond these categories, the labor dispute resolution authority may determine the parties' rights and obligations based on the written labor contract, specific agreements, other forms of agreement, or the actual performance of the contract. Claims for the application of labor standards or benefits beyond the above shall not be supported by the labor dispute resolution authority.

Conclusion and Recommendations

This case illustrates that not all labor standards and benefits under China's Labor Contract Law automatically apply to foreign employees working in China. While fundamental labor standards — such as minimum wage, working hours, rest and leave, occupational safety and health, and social insurance — are mandatorily applicable, other benefits such as economic compensation may be modified or even excluded through contractual agreement.

Accordingly, foreign nationals seeking employment in China are advised to:

  • Carefully review the specific provisions on economic compensation, liquidated damages, and other terms in the labor contract before signing;
  • Fully understand the statutory scope of Chinese labor standards that mandatorily apply to foreign workers, and negotiate favorable terms through contract discussions for matters falling outside that scope;
  • Consult a qualified legal professional before signing if any contractual provision is unclear, to avoid finding oneself in a disadvantageous position upon termination of the employment relationship.

For employers hiring foreign staff, it is equally important to clearly and comprehensively define the rights and obligations of both parties in the labor contract, in order to effectively manage employment-related risks within the legal framework.

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This article is general information only, not legal advice for your matter. For professional assistance, consult a PRC-licensed lawyer at Zhang&Partners.