Application of economic compensation in practice

It is common for company employees to receive economic compensation after leaving their jobs. In practice, the application of economic compensation and how to calculate the specific amount of economic compensation have received a lot of attention. On the afternoon of September 20, 2024, at Denghu Classroom, our partner lawyer Peng Mingen explained the above issues to everyone based on the case he handled.

Firstly, Lawyer Peng reminds that there is no legal basis for 2N+1 or 2 (N+1), only three situations are specified: N, N+1, and 2N. Among them, the normal economic compensation is N, mainly including four situations: (1) if the employee terminates the labor contract in accordance with Article 38 of this Law; （2） If the employer proposes to terminate the labor contract with the employee in accordance with Article 36 of this Law and reaches a consensus with the employee to terminate the labor contract through consultation; （3） The employer terminates the labor contract in accordance with Article 40 of this Law and (4) other statutory circumstances.

The situation where the economic compensation is N+1, that is, the payment of notice in lieu of notice, mainly includes: (1) If the worker is sick or injured outside of work and cannot engage in the original work or work arranged by the employer after the prescribed medical treatment period expires; （2） The worker is not competent for the job and, after training or adjustment of the job position, still cannot perform the job; （3） The objective circumstances on which the labor contract was based have undergone significant changes, resulting in the inability to perform the labor contract. After consultation between the employer and the employee, no agreement has been reached on changing the content of the labor contract.

In addition, there are cases where the economic compensation for illegal termination of labor contracts is 2N.

Next, Lawyer Peng discussed with everyone the calculation method of 'N' and analyzed how economic compensation should be calculated if there are abnormal work situations such as sick leave, work stoppage, and vacation. There are two viewpoints in practice. The first viewpoint holds that the average salary of the employee should be based on their normal working condition for twelve months before the termination of the labor contract, excluding abnormal working periods such as medical treatment. The second viewpoint holds that it is sufficient to calculate directly based on the average salary received for the 12 months prior to termination.

Finally, Lawyer Peng interpreted the Supreme People's Court's (2023) Supreme People's Court Judgment No. 2918, which stated that the viewpoint that the average salary of the employee for the past twelve months should be the average salary of the employee under normal working conditions before the termination of the labor contract, excluding wages during abnormal working periods such as company holidays and medical periods, lacks legal basis. Lawyer Peng suggests that in the future, when encountering issues with calculating economic compensation, one can refer to the perspective of this ruling.

After listening to Lawyer Peng Mingen's interpretation, every colleague felt that they had benefited greatly. Thank you very much for Lawyer Peng Mingen's sharing today. We look forward to learning more useful knowledge through Denghu Classroom!