For foreign nationals working in Shanghai, navigating the resignation and termination process requires a clear understanding of both employees’ and employers’ rights and obligations under the law.

This guide offers a practical overview of key areas, including resignation certificates, "N+1" compensation rules, permissible liquidated damages, non-compete clauses, and post‑departure procedures for foreign employees.

I. Resignation certificate

An employer must issue a written certificate of revocation or termination of the labor contract after the employment relationship with an employee ends. This is a legal obligation of the employer, not a right of the employer over the employee. If the employer violates this obligation, it must bear the corresponding legal liability.

According to the Regulation on the Implementation of the Employment Contract Law of the People's Republic of China, the certificate of revocation or termination of the labor contract issued by the employer must specify the term of the labor contract, the date of revocation or termination, the job position, and the length of service with the company.

Some employers may think that completing the resignation procedures alone is sufficient and that a written certificate is unnecessary. That is not true. A written certificate plays an important role in unemployment and re-employment.

Unemployment support

The certificate serves as proof that the employee is unemployed and as the basis for registering unemployment and claiming unemployment insurance benefits.

Re-employment

When hiring a new employee, an employer will verify that any previous employment contracts have been revoked or terminated and review relevant documents confirming that the employee has no ongoing employment relationship with another employer. This helps prevent dual employment and potential labor disputes.

If the former employer fails to issue the revocation or termination certificate as required, the employee may be unable to transition smoothly to the new job.

If the employer causes losses to the employee by failing to provide the written certificate, it must bear corresponding liability for compensation.

II. "N+1" financial compensation for terminated employees in China

Under China's Labor Contract Law, employers are required to provide financial compensation to employees under certain conditions when terminating an employment contract.

The amount of compensation is calculated based on the number of full years an employee has worked for the employer, with one month's salary paid for each year of service.

In this context, the "N" in "N+1" refers to the total number of full years the employee has worked for the employer. The "1" represents an additional month's salary that must be paid if the employer fails to provide the required 30-day written notice before terminating the contract. This extra payment is calculated based on the employee's final full-month salary.

For example:

An employee has worked for 5 years and 8 months with an average monthly salary of 10,000 yuan ($1,380) and is laid off without prior notice. The compensation would be:

N = 6 (as 5 years and 8 months rounds up to 6 years)

N + 1 = 7 months of salary

Total compensation = 70,000 yuan

Importantly, the "N+1" compensation does not include regular wages the employee earned during the final working days before departure.

The employer must issue a certificate of contract termination and, within 15 days, complete the employee's file transfer and social insurance settlement. Economic compensation must be paid upon the employee's departure, in accordance with legal requirements and any mutual agreements.

 

III. Liquidated damages for employees' resignation

Under Article 22 of the Labor Contract Law of the People's Republic of China, if an employer provides specialized funding for an employee's professional training, the employer may enter into an agreement with the employee specifying a required service period.

If the employee resigns before the end of the agreed service period, the employee shall pay liquidated damages to the employer as specified in the agreement.

Under the law, the amount of liquidated damages must not exceed the training expenses paid by the employer. Additionally, the liquidated damages claimed by the employer shall not exceed the portion of the training expenses that should be allocated to the unperformed portion of the service period.

An agreement on the service period between the employer and the employee does not affect the employee's remuneration during the service period.

Article 22 provides that an employer and an employee may include provisions in their employment contract regarding confidentiality, specifically to protect the employer's trade secrets and intellectual property.

For an employee with confidentiality obligations, the employer may include non-compete clauses in the employment contract or confidentiality agreement with the employee and agree to provide the employee with monthly economic compensation during the non-compete period following termination of the employment contract.

If the employee breaches the non-compete clauses, the employee shall pay liquidated damages to the employer as agreed.

Article 25 provides that, except in the circumstances outlined in Articles 22 and 23, employers shall not agree to impose liquidated damages on employees.

Therefore, employers may agree with employees on liquidated damages, and employees shall pay such damages if they violate the agreement.

IV. Non-compete agreement and compensation standards

A non-compete agreement is an agreement between an employer and an employee who has a duty to keep trade secrets confidential.

Under a non-compete agreement, the employee is restricted for a certain period after the employment ends from working for a competitor by producing or dealing with similar products, or from starting a business that engages in similar activities.

Who is subject to non-compete agreements

An employer may sign a non-compete agreement with senior management and senior technical personnel who know trade secrets, as well as other personnel who have a confidentiality obligation.

Note: Trade secrets include technical, business, and other commercial information that is not publicly known, has commercial value, and is protected by confidentiality measures implemented by the employer. Information that is considered general knowledge or industry practice and available from public sources does not qualify as a trade secret.

Where an employer enters into a non-compete agreement with other personnel who have a duty of confidentiality, it must inform them of the reasons in advance and specify the trade secrets that need to be kept confidential.

Note: An individual who possesses only general industry knowledge and skills and has been exposed only to general operational information of the employer is not considered a person with a duty of confidentiality.

Compensation standards

The amount of economic compensation is determined by mutual agreement. If not explicitly stated, the law provides guidance. When a labor contract or confidentiality agreement includes a non-compete clause but does not specify compensation, the employer must pay the employee monthly compensation equal to 30 percent of the employee's average monthly salary for the 12 months preceding contract termination.

If this 30 percent is lower than the local minimum wage, the employer must pay at least the minimum wage.

Can non-compete economic compensation be included in regular wages?

After the labor contract is terminated or expires, the employer must pay the employee non-compete economic compensation in cash each month and in a timely manner during the non-compete period.

The employer may not refuse to pay non-compete compensation by claiming it is already part of the employee's regular wages or bonuses. If the employer does not provide the agreed-upon economic compensation during the non-compete period, the employee has the right to file a complaint with the human resources and social security department.

Do employees still need to comply with a non-compete agreement after being dismissed?

Article 23 of the Labor Contract Law of the People's Republic of China provides that, for an employee with a confidentiality obligation, the employer may include non-compete clauses in the labor contract or a confidentiality agreement. The employer may also agree to provide the employee with monthly economic compensation during the non-compete period after the labor contract is terminated or expires. If the employee violates the agreement, they shall pay liquidated damages to the employer as stipulated in the contract.

Article 37 of a relevant judicial interpretation by the Supreme People's Court provides that, where the parties have agreed to non-compete and economic compensation in the labor contract or a confidentiality agreement, and when the labor contract is terminated, unless otherwise agreed, the court shall support claims that the employer requires the employee to perform the non-compete obligation, or that the employee has performed the non-compete obligation and demands that the employer pay economic compensation.

Can employees terminate non-compete agreements if compensation is unpaid?

Yes. Under Chinese law, if an employer fails to pay compensation for three consecutive months after the termination of the labor contract, the employee has the right to terminate the non-compete agreement. Arbitration committees and courts support such requests.

 

V. What to do about tax and permits of foreign employees leaving China?

As per the Shanghai Municipal Tax Service, taxpayers without a Chinese domicile who leave the country before March 1 of the following fiscal year can finalize their tax settlement before leaving. They should bring their identification to the tax bureau where their employers are registered.

According to the Shanghai Municipal Commission of Science and Technology (Shanghai Municipal Bureau of Foreign Experts Affairs), if the contract is terminated early, the employer must apply to cancel the work permit within 10 working days of the termination date. The cancellation application is submitted and processed online through the employer's account on the Service System for Foreigners Working in China.

If the contract expires simultaneously with the employee's work permit, the system's cancellation channel will be closed. In this case, the staff responsible for managing work permits must contact the Shanghai Municipal Bureau of Foreign Experts Affairs. Since the employer handles work permit procedures instead of the employee, it is advisable for the employer to reach out directly to the bureau through its hotline at 400-820-5114.

For visa and residence permit matters, the employee may contact the exit and entry bureau via their hotline: 12367. For other matters, please contact 12345.

 

Disclaimer: This article is for general reference only and does not constitute legal advice. For specific cases, please consult the competent authorities or a qualified legal professional.

 

Sources: Official WeChat account of the Shanghai Municipal Bureau of Human Resources and Social Security (ID: "shrsjwx"); official WeChat account of the Ministry of Human Resources and Social Security (ID: "rsbwwx")

 

 

Updated Aug 12, 2026