Many foreign companies with employees in China are looking to reduce their China workforce for obvious reasons. This is especially true in those cities where companies have employees who cannot work because of Chinese government mandated lockdowns and company shutdowns. But now is a not a good time for downsizing your China employee workforce, unless your plan is to leave China and never ever return.
Because China has not issued much new regarding how to treat employees during COVID times, our China employment lawyers have been relying mostly on Chinese government notices from the beginnings of COVID.
In January, 2020, China’s PRC Ministry of Human Resources and Social Security issued a nationwide “notice on the proper handling of labor relations during the period of epidemic prevention and control.” The below is a summary of this national notice, applicable for all of China.
If an employee is a patient with the virus, suspected patient, or has come into close contact with a coronavirus patient or suspected patient, or is unable to work due to the government quarantine or other government-imposed emergency measures, the employer must provide the employee with remuneration during this period. The employer is also not permitted to unilaterally terminate an employee in accordance with Article 40 (unilateral termination of an employee not caused by employee wrongdoing) or 41 (mass layoff) of the PRC Employment Contract Law. In addition, if an employee’s contract expires during this period, it will be automatically extended until the end of the period of medical leave/medical observation/quarantine/emergency measures taken by the government. Though this term extension is automatic according to this notice, you still should document it in writing. Remember, as always, document everything.
If an employer experiences difficulty in production and operation due to the coronavirus outbreak, the employer may, after consultation with the employee and after obtaining employee consent, adjust employee salaries, rearrange employee shift rotations, reduce working hours, or implement other methods to stabilize its workforce. However, the employer should try not to initiate a layoff or reduce its workforce. If an employer suspends production within a wage payment cycle, the employer must pay employee wages in accordance with the standard provided in the employment contract. If it goes beyond a wage payment cycle, the employer must pay wages to an employee who provides normal labor at a rate of no less than the local minimum wage. If the employee does not provide normal labor, the employer must pay living expenses as required by the applicable law.
If a party is unable to apply for labor arbitration before the statute of limitations runs out due to the outbreak, the statute of limitations will be suspended and will continue to run again when the cause of suspension is eliminated. If the employment arbitral body is unable to hear a case due to the coronavirus outbreak, it may postpone the hearing accordingly.
If you are a China employer, note the key words from these notices: “enhanced employee protection and enforcement.” And be very careful with any employment decisions (especially any employee terminations) you make during this time. And, as always, monitor notices from your local employment bureau and stay in good touch with your local employment bureau.
China has not since 2020 issued new employment laws or regulations that might supersede the above notice and so the above still generally applies employer-employee relations in this, China’s second COVID era.
China employers must continue to pay their employees who cannot work because they have COVID or are quarantined. Employers are “encouraged” to pay leave time to those employees who cannot work (remotely or otherwise) due to a lockdown/shutdown. If an employee has exhausted all of his or her leave time and the employer must reduce costs for business reasons, it may be able to reduce employee salaries or to put an employee on reduced or low-pay leave.
However, it is important to note that the inability of a China employee to work due to COVID or a lockdown is not a legal basis for terminating that employee. It is also important to note that China’s national and local employee overtime rules still apply to your employees working at home and so it is more important than ever that your employer manual (a/k/a employee rules and regulations) explicitly mandate prior written approval for any overtime work.
Now that you know the basics and the vagaries of the employment laws most relevant to China’s ongoing lockdowns and shutdowns, it is important you remember that this is China and in nearly all instances its government agencies, courts, and administrative bodies will favor a Chinese employee over a foreign company. In Want to Get Sued in China? Your Employees Can Make that Happen, we explained how common it is for Chinese employees to sue their foreign employer and why the costs and reputational risks of these lawsuits usually make quick settlement an employer’s best course of action.
But not being sued at all is far preferable. The best way to not get sued by your China employees is by not terminating anyone unless you have a really good reason that is not directly related to COVID. And even then, it will probably make sense for you to wait. We had a client recently ask our law firm about putting a dozen of its Shanghai employees on a one-month leave of absence. After one of our China employment lawyers explained the legal research necessary to determine how best to initiate these leaves and their inherent risks, the employer chose not to “even bother.” Our employment lawyer concurred with this decision.
In another January, 2020, post of ours, China’s Coronavirus Impacts Everything: What Your Business Should Do NOW, we gave the following advice:
Be very careful with any employment decisions (especially any employee terminations) you make during this time. And, as always, monitor notices from your local employment bureau and stay in good touch with your local employment bureau.
This same advice holds true today.