The effects of the COVID-19 outbreak in China have left many businesses struggling to stay afloat, let alone make a profit as costs remain the same or may have even increased, and revenue for most industries has taken a hit. At times like this, companies need to manage their expenses better to survive. While no company wants to lay off their employees, for many, downsizing may be the only viable option to keep their business afloat during this pandemic. The Chinese government has discouraged companies from resorting to this strategy and instead, is asking them to negotiate with their employees on salary adjustments and working hours. Unfortunately, if all else fails, companies may need to resort to layoffs to survive.
If your company is really considering staff layoffs as a last-ditch effort to get through the current market volatility, you need to understand China’s employment laws. The country has strict procedures that must be followed to initiate layoffs for your WFOE in China amid COVID-19.
Legal conditions to discontinue employment in China
Under China’s labour laws, a reduction of 20 or more employees or by more than 10% of the workforce is considered a ‘mass layoff’. Foreign companies in China should be especially prudent when planning a mass layoff to avoid labour disputes. If not carried out properly, the government may fine your company, and allow employees to claim additional compensation.
In China, your company, whether foreign or local, can only initiate a mass layoff if you have experienced one of the following scenarios:
- Significant financial difficulties with sufficient proof to support this (e.g. via financial and tax statements)
- Restructured your business under the enterprise bankruptcy law
- Adjusted your business operations, and it is necessary to lay off employees after changing their labour contract
The steps for carrying out a mass layoff
Once you’ve met a condition to initiate laying off your employees, you need to follow these steps to ensure compliance with China’s labour regulations:
1. File your decision with the labour bureau
Mass layoffs require pre-approval from the local labour bureau. When you file for redundancy with your local labour bureau, you need to show sufficient evidence of at least one of the legal conditions as previously mentioned to support your claim. A report from the company is required when the company files the redundancy with the Labour Bureau. The report needs to have both the chairman’s signature and the company labour union chop before you can carry out the next steps.
2. Provide 30-days notice before layoffs
Under Chinese law, you will need to provide at least 30-days notice of the impending layoffs. It is recommended that redundancy termination is conducted in several batches to normalise the process.
3. Individual negotiation & discussion
This is an essential step in the process. You will need to engage in negotiations and discussions with your staff to talk about future arrangements for them, including entitlement to compensation and severance for each of the laid-off employees.
If an enterprise has experienced financial difficulties, they will just have to file a report showing sufficient evidence of this to relieve them of their legal obligations to pay compensation or severance to laid off staff.
Handling labour relations in China during the pandemic
It is important to follow all the guidelines when implementing layoffs in your WFOE, as failure to comply may result in penalties and fines. Those intending to conduct staff layoffs in China should consult an experienced professional to ensure that all prerequisites have been met. Seeking advice from a professional business service provider like Hongda can help avoid wrongful activity when downsizing your business.
Hongda can provide assistance with labour laws if you intend to conduct layoffs to better manage your expenses. For more information on terminating employment contracts in China, please feel free to reach out to our team for a FREE consultation.