A legal first-aid kit for the wave of redundancies

Over the past few months announcements of redundancies have come one after another from the major companies — JD.com, Zhihu, Smartisan, Didi, Douyu, Meitu, Meituan, Mobike, Ele.me and others. None has been spared, and workers caught in the flood seem to feel the chill at first hand. "Redundancy" has become the word of this winter.

In recent years China's growth has slowed and sales at many companies have fallen year on year, while the new social insurance rules and the tax reform in force from 1 January 2019 have raised the cost of employment. All this has led many companies to consider economic redundancy as a way of cutting operating costs and improving the quality of their staff, and so

of improving their results.

There is nothing objectionable in a company reducing staff to become leaner and more efficient, but handled badly it not only infringes employees' lawful rights and interests but readily provokes mass litigation or even strikes. Knowing the conditions and the procedure for redundancy is therefore what allows a company to ride out the storm and avoid

the risks that may arise; and for employees, knowing the relevant laws and regulations means being prepared, responding calmly and protecting their own rights and interests.

1. When an employer may make economic redundancies

Under Article 41 of the Labor Contract Law of the People's Republic of China:

(a) The substantive conditions

"An employer may reduce its staff where any of the following circumstances occurs:

(1) it undergoes reorganisation under the provisions of the Enterprise Bankruptcy Law;

(2) it faces serious difficulties in production and operation;

(3) it changes its products, adopts major technological innovation or adjusts the way it operates, and still needs to reduce staff after the employment contracts have been modified;

(4) other major changes in the objective economic circumstances on which the employment contracts were concluded make those contracts impossible to perform."

The law lays down relatively strict conditions for economic redundancy: reorganisation requires a court ruling; serious difficulties in production and operation must be proved; and a major strategic adjustment allows redundancy only where staff still have to be cut after the contracts are modified. The final

catch-all provision nonetheless leaves room for a company's autonomy in business.

(b) The procedural conditions

"Where twenty or more employees are to be made redundant, or fewer than twenty but not less than ten per cent of the employer's total workforce, the employer shall explain the situation to the trade union or to all the employees thirty days in advance, and, having heard the views of the trade union or the employees, may reduce staff once the redundancy plan has been reported to the labor administrative department."

Where the number reaches the threshold set by law, the company must carry out the corresponding information procedure, in practice usually in the form of a meeting, and should record attendance and the views expressed against the day they are needed. The trade union, as a social organisation protecting employees' rights and interests, has both the duty and the responsibility to review the lawfulness of the employer's

redundancy procedure.

2. Employees who may not be made redundant

(a) Employees to be retained first

Article 41 of the Labor Contract Law:

"In reducing staff, the employer shall retain the following employees in priority:

(1) those who have concluded a fixed-term employment contract with the employer for a relatively long period;

(2) those who have concluded an open-ended employment contract with the employer;

(3) those with no other person in employment in the household and with elderly persons or minors to support.

Where an employer reduces staff under the first paragraph of this article and recruits again within six months, it shall notify the employees who were made redundant and give them priority in recruitment on equal conditions."

(b) Employees who may not be made redundant

Article 42 of the Labor Contract Law:

"(1) an employee engaged in work exposed to occupational disease hazards who has not undergone the occupational health check before leaving the post, or a person suspected of an occupational disease who is being diagnosed or kept under medical observation;

(2) an employee who has contracted an occupational disease at the employer or suffered a work-related injury there and has been confirmed as having lost all or part of his capacity for work;

(3) an employee who is ill or injured other than at work and is within the prescribed period of medical treatment;

(4) a female employee during pregnancy, confinement or the nursing period;

(5) an employee who has worked continuously for the employer for fifteen years and is less than five years from the statutory retirement age;

(6) other circumstances provided by laws and administrative regulations."

In making economic redundancies a company should follow these provisions strictly, settle the list of those to be made redundant reasonably, retain in priority those carrying a heavy family burden, and refrain from making redundant the old, the weak, the sick, the pregnant and the disabled. Where the circumstances are special and a reduction is necessary, it should proceed by agreement to terminate the employment contract and

must not skirt the edges of the law.

3. Severance pay in economic redundancies

Economic redundancy is one of the ways in which the law allows an employer and an employee to end the contract. Under Article 46 of the Labor Contract Law, an employer that terminates an employment contract by reason of redundancy shall pay the employee severance; and Article 47 provides that the employer shall pay according to the employee's

length of service, one month's wage for each full year, a period of six months or more but less than a year counting as a full year, and half a month's wage where the period is less than six months. (The monthly wage here means the employee's average wage over the twelve months before the contract is terminated or ends.)

In practice, however, many employers use the employee's minimum wage or basic wage as the basis for severance, which in fact infringes the employee's lawful rights and interests. Article 27 of the Implementing Regulations of the Labor Contract Law provides that the monthly wage for severance is calculated on the wage to which the employee is entitled,

including time wages or piecework wages and monetary income such as bonuses, allowances and subsidies. Employers readily overlook this rule.

An economic redundancy usually involves a considerable number of people, and mishandled it readily provokes a backlash among the staff. Fortunately, the conditions and procedure are governed by the Labor Contract Law and by other regulations and policies at national and local level, so that there are rules to follow and law to rely on. A company that chooses economic redundancy to lighten

its burden is acting reasonably, but in the process it should hold to the bottom line of the law and protect employees' lawful rights and interests; only so can it achieve better economic and social results.