I have written many blog posts on how the coronavirus has impacted China employment law and management issues. This post is an update and a summary of those prior posts and it is intended to serve as a sort of one-stop shop for how to deal with various employment law issues arising from the coronavirus situation in China today.
The first thing you should realize is that the rules for employers have drastically changed because of the coronavirus. China and most larger cities in China have issued all sorts of new employment laws and regulations for dealing with the coronavirus situation. That is in many ways the easy change. The more difficult change is how China’s employment authorities and courts and arbitration tribunals are interpreting China’s pre- and post-coronavirus laws.
What we have seen so far is that Chinese government authorities (pretty much all of them everywhere) are focused on doing what they can to keep Chinese citizens in their jobs, even if that means allowing foreign company employers to reduce their pay or their hours. Since the coronavirus outbreak, many new employment rules have been released on both the national and local levels to cover new employment issues that have arisen due to the virus. With China’s economy significantly damaged and pressure coming from the central government to maintain stability, China employers are finding it difficult to strike a balance between employee protections and maintaining the profitability or even existence of their China businesses. Though different locales are handling their coronavirus related employment issues differently, all of them are doing what they can to preserve jobs and protect employees. Keeping Chinese citizens employed is the singular focus of the Chinese employment authorities right now.
1. Layoffs and Terminations.
China has always made layoffs difficult and that is even truer today. Even before the coronavirus, a mass layoff in China (defined as a reduction by twenty or more employees or by more than 10% of the workforce), required the employer to satisfy many legal requirements (such as proving it has experienced significant difficulties in its business operation by showing its financial and tax statements etc.) and jump through a bunch of hoops (such as submitting its redundancy plan to the local authorities). And even if clears all these hoops, there are a still bunch of legal restrictions on things like who may be laid off and who may not—e.g., a pregnant employee. In China, sending a termination notice is not sufficient for a mass layoff. Normally, China employers just needed to file their proposed layoff plan with the employment authorities without even needing to seek the authorities’ approval on its plan. But the coronavirus in China, the employment bureau authorities in nearly all Chinese cities are starting to get much more proactive in reviewing and approving layoffs.
Due to the coronavirus and China’s economic problems, the difficulty in initiating layoffs in China now extends even to smaller scale layoffs. Even with layoffs that are not large enough to constitute a mass layoff, employers cannot simply send a layoff letter to each terminated employee saying the employee is being permanently laid off, effective immediately. You cannot do this because a “layoff” is not grounds for an employee termination under Chinese employment laws. Instead, you as employer need to refer to a legal basis under China’s employment laws for any layoff. One of the commonly used grounds is that the law permits an employer to terminate an employee with either thirty days’ written notice or one month of wages when the objective circumstances which formed the basis for the parties’ having executed the employment contract have significantly changed and caused the contract to be unable to be performed, and after negotiations, the parties are unable to reach agreement on amending the contract (provided the termination does not otherwise contradict the law).
So the big question these days is whether an employer say that the coronavirus outbreak and the subsequent government measures to deal with the virus constitute significant changes in the objective circumstances such that an employment contract can no longer be performed. The answer is not yet clear in most Chinese cities but based on what we have seen so far and on our past dealings with the Chinese government on these sorts of issues, our China employment lawyers expect the Chinese government to take the following positions:
- The current operational problems facing employers in China due to the coronavirus are temporary and therefore employee non-performance is also temporary.
- Employers have alternatives to laying off their employees in China. For example, they can pay them the minimum wage and perhaps even reduce their hours.
- Employers should talk to the employees they wish to lay off about amending their contract and they should together figure out a way these employees can continue to perform under their contract.
- Stabilizing the workforce is China’s number one priority right now.
- The Chinese government has and will continue to help reduce employer burdens so there is no need to lay off workers now.
No matter what though, you should not forget that the employer and the employee need to first attempt to amend the employment contract and only if they are unable to reach an agreement can the employer unilaterally terminate the contract on this basis. There is no doubt that for months to come in China, any unilateral termination will be viewed unfavorably by China’s employment authorities and therefore should be avoided if at all possible.
2. Coronavirus and China Employee Management.
As workers in China start heading back to work our China employment lawyers have been keeping getting a steady stream of questions from employers and employees regarding their rights, obligations and options. Our general advice is to monitor developments and stay in compliance as best you can. Above all else it is critical that you know exactly what is expected in your particular locale because what is required in one city may not be sufficient to meet the regulations in another.
You as China employer need to do your best to be legally compliant. Make sure you have someone you trust keeping up with local requirements. It is also important you be aware of the local measures that address employer concerns and ease employer burdens, such as extensions of deadlines for social premium payments, delayed raises on social insurance bases and government-provided subsidies for maintaining a stable workforce. Because so many new rules are being rushed out, their level of detail is not great and therefore it is advisable to seek clarifications from the local authorities. It does however bear mentioning that the local authorities did not just invent new rules out of the blue; they are relying on existing rules so it is important you also know the rules and practices and policies that were in place before the outbreak.
Now, more than ever, is not the time to apply an approach or take an action which may be considered okay in your home country but not proper for each specific locale in which you have employees in China.
3. Coronavirus and What China Employers Should be Doing (and Not Doing) Now.
Just as we discussed above regarding layoffs and employee management, when it comes to the normal day-to-day employment law matters you face in China these days, it is critical that you know all the rules and you not take any action without first ensuring that it will be a legal one.
Take vacation pay. Should you count as a vacation the time your employees did not work when you were closed because of the coronavirus? Our general advice is that employers should provide their employees their normal pay during China’s extended holiday/time off period. Unless explicitly permitted by their specific locale, China employers should not ask their employees to use their accrued vacation time or take unpaid leave for time that they simply could not work because of the virus. Think about it this way. Most Chinese employees do not have many vacation days banked and if you require they take them all at once, they likely will not have vacation time left for the rest of the year. Some places (e.g., Guangdong) require employers obtain employee consent to take vacation days if the employee is unable to return to work due to the outbreak. In any event, employers should check the relevant regulations and talk with the local employment law authorities before stripping their employees of vacation time.
Because so much has changed in China and because so much still remains in flux, many of the employment law questions we are getting these days are not susceptible to quick answers. Most require we gather up all the facts, review the relevant employment contracts and the employer’s rules and regulations, research the relevant laws and talk with the relevant government authorities.
Mark Cuban is famous for his Rule Number One on Investing: “When you don’t know what to do, do nothing.” That rule, slightly modified, fits China’s current employment law situation right now. If you don’t know exactly what the Chinese national and provincial and local laws say and what your local employment authorities are feeling and doing, you are probably better off just holding tight and doing nothing.