According to the Employment law in China, the calculation of compensation for companies illegally termination of employment contract is:

Average monthly salary within the previous 12 months × years of working in the company × 2

Compensation for circumstances such as non-renewal after contract expiration, incompetence after probation period, lay-off due to serious difficulty in production and/or business operations

Average monthly salary within the previous 12 months × years of working in the company

* Please be noted that the Labor Contract Law of PRC imposes conditions on the procedure of the termination of employment contract and compensation. Want to know more? Better call Li & Li

A real case:

Martin joined Company A on July 1st 2015 as marketing director and worked in Shanghai. In June 2018, the Company told him that due to the poor sales he would be degraded as regional manager and would be sent to Guangzhou. Martin did not agree.

The company terminated his contract on July 30th, 2018 without any compensation. Martin contacted Li for legal support. We acted as Martins lawyer to submit labor arbitration against the Company.

The arbitrator deemed that the Company’s termination was not lawful because:

Company failed to proved that the low sales were attributable to Martin.

Even if the Company deemed that Martin was not competent, the Company should have provided training or change Martin’s position first, and the Company could only terminate the contract provided that Martin was still not competent after the training or change of position, and compensation would also be mandatory for this termination.

The change of work place location constituted a material change to the employment contract which should be subjected to the consent of Martin. The arbitrator granted the verdict in October 2018 and wrote that the Companies termination was not lawful and that the Company should compensate Martin as per the Labor Contract Law of China (see below). After losing in arbitration, the Company sued in court, and the court granted the same ruling.