China Labor Contract Law sets forth the conditions to carry out a personnel cutback involving at least 20 persons or a personnel cutback involving less than 20 persons but accounting for at least 10% of the enterprise’s workforce. For example, a mass layoff could be conducted if the employer is experiencing serious difficulties in its production and operations – please note that there is no guidance to appreciate such criteria.
In such case, the employer shall present the circumstances to the labor union or all of the staff and employees 30 days before submitting its report to the labor bureau, obtain the written opinion of the employees representative or of the labor union, report its personnel cutback plan to the labor administrative department and pay a severance pay in consideration of termination.
The relevant labor bureau (as defined in the Circular on Report by Employers on Implementation of Workforce Downsizing issued by Shanghai Municipal Human Resources and Social Security Bureau on January 8, 2009) will issue a written receipt.
According to the Circular on Report by Employers on Implementation of Workforce Downsizing issued by Shanghai Municipal Human Resources and Social Security Bureau on January 8, 2009, the employer who contemplates a downsizing shall provide supporting documents and information to the labor bureau justifying the need for a downsizing and details of such plan. The reporting done by the employer to the labor bureau is for registration and not for approval from the labor bureau. However, the labor bureau may refuse to issue the written receipt of the report and order the employer to rectify its project.
According to our experience and to our consultations with our contacts with several labor bureaus in Shanghai, the labor bureaus have a very strict appreciation when deciding whether the reporting done by the employer complies with the conditions set forth by Chinese law for mass layoff. Chinese administrations can arbitrarily decide whether to accept or reject an application that is submitted to them. The labor bureaus informed that there is little chance that they accept to issue the written receipt of the report approving the mass layoff. In practice, it means that mass-lay off are generally still not implemented in China. Companies still negotiate with each of their employees a mutual termination agreement in case of mass lay off.
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