An employee resigns due to wage arrears, whether he can demand economic compensation?

Pursuant to Articles 38 and 46 of the Labor Contract Law, if an employer fails to pay wage in full and on time, an employee may terminate the labor contract and demand the employer to make up the wage difference and pay economic compensation.

In practice, employees may terminate the labor contract and demand economic compensation on the grounds of wage issues, such as, late wage payment, non-payment of overtime pay, salary reduction after job reassignment, and so on. Whether an employer shall pay economic compensation due to such wage issues?

Let’s see a case. In 2017, Wang joined a company, and his salary consisted of a base salary and variable remuneration, with the variable part paid based on performance assessments. In January 2023, the company updated the performance appraisal plan, abolishing fixed-performance wages and replacing them with floating performance wages. In November 2024, Wang terminated the labor contract on the grounds that the company failed to pay wage in full and on time, and claimed unpaid performance wages and economic compensation. The labor arbitration commission upheld all of Wang’s claims, but both the first-instance and second-instance courts only supported Wang’s claim for the performance wage difference and rejected his claim for economic compensation (see (2025) Hu 02 Min Zhong 11106 for details).

Therefore, the answer to the above question is not positive.

The legislative purpose of Article 38 of the Labor Contract Law is to prevent employers from maliciously defaulting on wage. Therefore, in judicial practice, whether the employer acted with malice must also be considered. Three factors are keys on the determination of malice:

  1. Reasons for Wage Arrears

Article 4 of the Supplementary Provisions on Issues Related to the Payment of Wages (Tentative Provisions) issued by the former Ministry of Labor stipulates two scenarios where wage payment may be appropriately delayed: (1) The employer encounters force majeure such as natural disasters or wars beyond human control; and (2) The employer faces genuine production and operation difficulties or cash flow problems, and may temporarily delay wage payment after obtaining the consent of the company’s labor union. The maximum delay period shall be determined by the local labor administrative departments based on local conditions. For scenario (2), special attention must be paid to the procedural requirement of obtaining consent of the labor union and the local regulations on the maximum delay period.

  1. Duration of Wage Arrears

Article 7 of the Payment of Wages (Tentative Provisions) mandates that wages shall be paid on the agreed date, and if the payment date falls on a holiday or rest day, payment shall be made in advance on the nearest working day. However, some local departments have established reasonable delay period. For example, Article 12 of the Regulations on Wage Payment for Employees in Shenzhen allows a 5 days delay with justifiable reasons. Article 54 of the Answers to the Trial of Labor Dispute Cases (I) issued by the Beijing Higher People’s Court and the Beijing Labor and Personnel Dispute Arbitration Commission stipulates that the latest payment date shall not exceed 7 days after the agreed date.

In practice, even with local regulations, the reasonable delay period may be extended in individual cases, especially during economic downturns. For instance, in Case (2022) Jing Min Shen 5584, the labor contract stipulated wage payment by the 10th of each month, but wages were actually paid around the 15th or at the latest the 23rd, which was late for around 13 days. Nevertheless, the court did not uphold the claim for economic compensation. Given that the Payment of Wages (Tentative Provisions) generally requires monthly wage payment, claims for economic compensation are less likely to be supported if the arrears period does not exceed one month in individual cases.

  1. Scope of Wage Arrears

Article 9 of the Opinions on Several Issues Concerning the Application of the Labor Contract Law issued by the Shanghai Higher People’s Court stipulates that failure to pay in full and on time due to unclear or disputed calculation standards cannot serve as a basis for an employee to terminate the labor contract. This is also the judicial logic behind the aforementioned case.

There are divergent views in practice regarding the scope of wage arrears. For example, in cases related to insufficient payment of annual leave wages, courts in Beijing, Shanghai, and Guangdong have rejected such claims (see (2022) Jing 03 Min Zhong 2232, (2024) Yue Min Shen 18941, and (2024) Hu 01 Min Zhong 11005). However, courts in Chongqing have supported such claims (see (2023) Yu 01 Min Zhong 1976). In cases related to insufficient payment of high-temperature subsidies, courts in Shanghai and Qingdao have rejected such claims (see (2023) Hu 0117 Min Chu 6207 and (2022) Lu 02 Min Zhong 712). In contrast, Article 6 of the Notice on Adjusting High-Temperature Allowance Standards issued by Jiangxi Province stipulates that if an employee terminates the labor contract due to the employer’s arrears or deduction of high-temperature subsidies, the employer shall pay economic compensation in accordance with the Labor Contract Law.

In conclusion, when an employer genuinely faces payment difficulties due to objective circumstances, it is recommended to assess the risks based on the specific situation and take necessary measures accordingly.