Coronavirus and China Employee Layoffs? Think Again

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, none of them want to see employees getting laid off now.

In the United States, we are somewhat used to employee layoffs. The termination letter might say that the layoff has nothing to do with the employee’s performance, the employee will be provided with a small severance (maybe 2-8 weeks pay) and maybe some support for the laid off employee during the transition. This is a unilateral notice and it usually takes effect the same day it is provided to the employee. In other words, it does not matter what the employee says; the termination decision has been made.

In China layoffs are also a unilateral termination, but layoffs in China are very different from the U.S. For example, to initiate a mass layoff in China (defined as a reduction by twenty or more employees or by more than 10% of the workforce), the employer must meet a bunch of 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 labor 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. This means that in China merely sending a termination notice is far from sufficient for a mass layoff. Normally, China employers just need to file their proposed layoff plan with the labor authorities and does not need to seek the authorities’ approval on its plan. But with all that has been going on with the coronavirus in China, the employment bureau authorities in most Chinese cities are getting more proactive in reviewing and approving layoffs.

The difficulty in initiating layoffs in China at this time extends to smaller scale layoffs as well. 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. China employers 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 a layoff termination. 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 additional month’s wage when the objective circumstances which formed the basis for the parties’ having executed the employment contract have significantly changed, causing 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 here comes the big question: can an employer say that the coronavirus outbreak and the subsequent government measures to deal with that outbreak constitute significant changes in the objective circumstances such that an employment contract can no longer be performed? The short answer is that this is simply not yet clear in most Chinese cities and at this point our China employment lawyers expect the following sort of reactions from the Chinese government to proposed and actual layoffs:

  1. The current operational problems facing employers in China due to the coronavirus is just temporary and therefore employee non-performance is also temporary.
  2. Employers have alternatives to laying off their employees in China. For example, they can pay the minimum wage to their employees who are not working.
  3. Employers should talk to the employees they wish to lay off about amending their contract and figuring out a way these employees can continue to perform under their contract.
  4. Stabilizing the workforce is China’s number one priority right now.
  5. The Chinese government has and will continue to help reduce employer burdens so there is no need to lay off workers now.

Also, don’t 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. It is also important to mention that the employer bears the burden of proving it has complied with the law on any employee termination. Seeing as how terminating an employee based on the employment contract no longer being able to be performed was difficult before the coronavirus outbreak, our China employment attorneys have no doubt that it will be extremely difficult now.

Any type of unilateral termination will be viewed as problematic by China’s employment authorities at this time and, if at all possible, should be avoided.