Financial Penalty Clauses for Contract Breach
The Legal Position of Financial Penalty Clauses
Simply put, in China it is generally not legal for an employer to impose a financial penalty on an employee for resigning from their job (Article 25 Labor Contract Law). There are two notable exceptions to this rule (Articles 22 & 23 Labor Contract Law) however these rarely, if ever, apply to foreign teachers in China:
Exception 1 (Article 22 Contract Labor Law) - A financial penalty may be legally imposed for training expensesincurred by an employee. However the penalty is limited to specific and actual training expenses incurred (including travel for training) and is reduced according to what percentage of the contract term has already been completed.
Exception 2 (Article 23 Contract Labor Law) - A financial penalty may be legally imposed on an employee for leaving a contract early when there are legally binding confidentiality obligations or non-competition arrangements in the employment contract. However this exception only able to be applied to employees in senior technician or senior management roles and compensation must be paid to an employee during a non-competition period (Article 24 Labor Contract Law).
Legal Position
Despite contract breach penalties not being technically legal, such penalties are unfortunately extremely common in employment contracts of foreign teachers in China. Employers do this because such clauses give an employer immense financial leverage over foreign employees who rarely know that such clauses are actually illegal. Foreign employees are also usually extremely intimidated by the thought of commencing legal proceedings against their employer in a foriegn country that has a confusing legal system that is completely in Chiniese.
What should I do if I have such a clause in my employment contract but want to leave my job?
Having a good strategy when resigning and changing jobs is of critical importance. Although as explained above the law is technically on your side in these types of situations, knowing exactly how and when to resign is a must to make sure your resignation puts you on a strong legal footing and minimises the financial and legal leverage your employer can otherwise have over you if you don't follow the correct process. The exact process you need to undertake in your individual situation depends on several variable factors such as which province/city you are in, your nationality, the wording of your employment contract and other additional factors such as your/your employer's conduct etc. Extreme care should be taken when changing jobs as it is easy to make small mistakes that can have large financial and legal consequences.
Book a free 15 minute online consultation with us to plan how to change jobs in a way which minimises / eliminates financial loss and makes your work permit transfer process as smooth as possible.
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