China’s Labor Contract Law defines what constitutes a “mass layoff” (“经济性裁员”) as one of the following:
- An employer reduces its workforce by twenty or more employees, or
- A workforce reduction that exceeds 10% of the entire workforce.
Under the Labor Contract Law, an employer may initiate mass layoffs only under one of the following four circumstances:
- The employer undergoes a reorganization in accordance with the PRC Enterprise Bankruptcy Law.
- The employer experiences significant difficulties in its business operation.
- The employer switches production, adjusts its business model, and after modifying its labor contracts, still needs to lay off employees,
- The employer has experienced other significant changes that modified the economic circumstances which formed the basis for its having signed the labor contracts, and it is unable to perform under the contracts.
For purposes of Chinese labor law, a mass layoff is treated as termination without cause. This means that the employer must comply with the applicable provisions for such a termination, including the prohibitions against terminating certain employees including those who are pregnant or nursing.
At least thirty days before initiating a mass layoff, the employer must present its layoff plan to the labor union or to all of its employees. The employer must then consider any comments it might receive and revise and improve the plan accordingly, and file a report with the relevant authorities.
During a mass layoff, the employer must consider keeping an employee who:
- Has a relatively long-term fixed-term labor contract;
- Has an open-term labor contract; or
- Is the only one working in the household and needs to support elderly or minor dependent(s).
If the employer wishes to bring new employees on board within six months after it has issued a mass layoff, it must notify and give preference to its former employees in hiring.
In December 2014, China’s Ministry of Human Resources and Social Security issued Draft Regulations on Corporate Mass Layoffs. Among other things, these Regulations will, if enacted, make government subsidies available to employers that take effective measures to prevent or minimize the scale of its layoffs. The goal is to help employers pay for employees’ living allowances, social insurance, new position training, skill enhancement training and other expenses. The relevant labor bureaus will provide guidance and support services to qualified employers.
These Draft Regulations are expected to help clarify matters that the current rules have left open to interpretation. If and when new rules are implemented, we will write about them.