Court Ruled | Foreign Teacher Resigned, Shanghai Kindergarten Claimed for 230k Breach Penalty
Welcome to our new column, where we share real court ruling cases related to expats & mostly foreign employment in China. We hope these cases provide valuable insights into arbitration and judgments concerning foreign workers!
Case: Labor Contract Dispute Between a Shanghai Kindergarten and AMANDA
(Case No. (2020) Hu 01 Min Zhong 2047)
Key Takeaways
Case Summary
AMANDA joined a kindergarten in Minhang District, Shanghai, as a teacher on August 20, 2018, under a fixed-term employment contract valid until August 19, 2019.
The contract stipulated that either party wishing to terminate it had to provide 30 days' written notice. In case of contract violations, a penalty of USD 800–3,000 or 3–10 times the monthly salary was applicable. If both parties deemed necessary, a different amount could be agreed upon in an annex.
A separate English-language agreement specified a two-month resignation notice period and recommended resignations take effect at the end of the academic year to minimize disruptions.
On January 11, 2019, AMANDA submitted her resignation and worked until February 22, 2019. On March 18, 2019, the kindergarten filed for arbitration, seeking RMB 230,000 in penalty and additional compensation.
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Arbitration and Court Rulings
Labor Arbitration Committee:
The Shanghai Labor and Personnel Dispute Arbitration Committee refused to accept the case.
First Trial (Minhang Court):
The court ruled that since AMANDA was employed under a legally recognized labor relationship with an approved foreign work permit, the Chinese Labor Contract Law applied. According to Article 23 of this law, employees are only liable for penalties in non-compete agreements, which was not the case here. Thus, the kindergarten's claim had no legal basis.
The English version required a two-month resignation notice, while the Chinese version required only one month. The court upheld its validity since the work permit application was based on the Chinese contract. AMANDA was found not to have violated the contract's termination notice period and bore no liability.
Appeal (Shanghai First Intermediate Court):
A key dispute in this case was whether parties could agree on penalty clauses in the contract. Based on the "Regulations on the Administration of Foreigners Working in China," foreign employees' labor rights regarding wages, working hours, rest, safety, and social insurance follow Chinese labor standards. However, other contractual terms, including breach penalties, can be determined by written agreements between the parties. Therefore, AMANDA and the kindergarten were legally allowed to include a penalty clause in their contract.
Another key dispute was which contract version should prevail, as the Chinese and English agreements contained inconsistent resignation notice periods (one month in Chinese, two months in English). Since the kindergarten had submitted the Chinese contract when applying for AMANDA's foreign work permit, and as per Article 9, Clause 2 of the Shanghai Labor Contract Ordinance, when Chinese and foreign language contracts differ, the Chinese version prevails unless otherwise agreed. As AMANDA complied with the one-month notice period specified in the Chinese contract, she was not in breach of contract.
Since AMANDA lawfully resigned per the contract terms, she did not breach the agreement. Therefore, the kindergarten's claim for RMB 230,000 in breach penalties was unsupported and dismissed. Other claims made by the kindergarten also lacked legal grounds and were rejected.
Conclusion
This case highlights the importance of contract clarity when hiring foreign employees in China. Employers and employees should:
Clearly define penalties and obligations in compliance with Chinese labor laws.
Ensure all contractual terms are consistent across language versions.
Understand that, by default, the Chinese contract version prevails in disputes.
Stay tuned for more real-life cases that shed light on foreign employment legalities in China!
Source: China Judgements Online
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