China: Constructive Termination Due to Employer’s Default on Social Insurance Contribution

The Jordanian worker (“employee”) established employment with a company in Hangzhou City (“employer”) and obtained his work permit effective since July 2010. The employee requested the employer to contribute social insurance for him in 2019, but the employer failed to do so. The employee then sent a letter to the employer to terminate the employment and filed suit against, claiming that he was constructively terminated and should be compensated with severance. The employer argued that the employee was aware of the social insurance default, and that the foreign nationality of the employee posed a barrier to process the contribution to the social insurance.

The Intermediate Court of Hangzhou City, Zhejiang Province ruled in favor of the employee and opined that: (1) it is employer’s legal obligation to contribute to the social insurance of its employees, including foreign workers; (2) as the employee had obtained the necessary work permit, his employment was thus deemed to be valid under PRC law; (3) the employer’s rebuttals were unreasonable and, as a result of the employer having failed to contribute the social insurance for the employee, the Court found that a constructive termination had occurred; and (4) therefore the employer shall bear the liability for the constructive termination, the penalty of which is payment of severance to the employee.