New Guidelines for Handling COVID-19 Employment Disputes in China

Photo by torbakhopper

Shanghai’s Municipal Human Resources and Social Security Bureau and Shanghai’s High People’s Court together recently released a set of Guiding Opinions on “Handling Labor Dispute Cases Related to the COVID-19 Pandemic.”
Below are some of the highlights from these Guiding Opinions, which though focused on just Shanghai, will be influential — even determinative — throughout China.

The employment authorities and courts will refer to the following principles in hearing labor dispute cases:

  1. Seeking common ground via consultations that seek to resolve labor disputes through mediation and negotiation.
  2. Balancing protections for both employees and employers. This means not only protecting employees’ rights to make a living and to be employed, but it also means striving to create conditions for employers’ survival and development.
  3. Upholding the stability of employment contract relationships, by among other things, denying claims to terminate employment contracts if it is possible for the parties to continue to perform under the contract.
  4. Promoting cooperative performance of employment contracts and encouraging parties to negotiate to amend their contracts so as to enable both parties to continue to perform under their employment contracts.

The above basic yet important principles are not entirely new as Shanghai (and China) employment authorities have always emphasized the importance of job stability. Nonetheless, these Guiding Opinions make clear that the employment authorities and the courts will do everything they can to help employees keep their jobs.

Back in February, the PRC State Council extended the Chinese New Year holiday through February 2, 2020 to curb the spread of COVID-19, which was three more days off than the regular holiday. A question our China employment lawyers keep getting is whether an essential business that required its employees to work during those three days can terminate its employees that did not show up to work during those three days. The short answer is no. The national extension of the Chinese New Year holiday was a special measure taken by the Chinese government in response to the coronavirus outbreak and if an employer required an employee to work overtime during that 3-day-period, it should have consulted with the workers’ union and the employee in accordance with the PRC Employment Contract Law. In the absence of such consent, the employer cannot terminate the employment contract for absenteeism.

With respect to employees not able to take time off during the extended Chinese New Year holiday due to prevention and control of the COVID-19 outbreak, the employer needed to first arrange compensatory time off and if compensatory time off could not be arranged, the employer must pay overtime at a 200% rate.

When reviewing a request to terminate an employment contract affected by the pandemic, the authorities/courts will review the specific reason(s) for such a request. For example, in considering cases where an employee is unable to return to work in a timely manner or the employer failed to timely pay the employee in full or to pay the employee’s statutory social insurance premiums because of the pandemic, the authorities/courts will generally not allow for terminating the employment contract and instead encourage resolution via negotiation and mediation.

Similarly, if an employer’s failure to pay wages in full and on time or to pay statutory social insurance premiums was due to circumstances beyond the employer’s control and an employee demands termination of the employment contract and a severance payment for the termination, the courts generally will not uphold such an employee claim.

China’s top priorities now are as follows:

  • Ensuring the orderly resumption of production and operation.
  • Reducing pressure on employers in sustaining their production and operation.
  • Stabilizing jobs.
  • Maintaining employment.

An employer that reaches agreement with its staff and the workers’ congress, the workers’ union, or employee representatives on matters such as position adjustment and wage reduction, deferred wage payments, staggered shifts and breaks, or suspension of production through consultation in accordance with the procedure required by law, and that agreement is fair and reasonable and is only applicable during the pandemic, can use that agreement with the authorities and the courts to justify its actions.

If an employee is a confirmed or suspected of having COVID-19 or has come into close contact with a confirmed or suspected COVID-19 patient, or is unable to work due to a government quarantine, medical observation, or other government-imposed emergency measures, and the employee’s contract expires during this period, it can be extended until the end of the period of quarantine, medical observation or emergency measures taken by the government. Note that the Guiding Opinions say “can,” but what we are recommending to our China employer-clients is that they extend all contracts of employees in these categories until the applicable period ends.

The government measures relating to prevention and control of the pandemic can be deemed a force majeure event. If a party is unable to participate in arbitration or litigation because of the pandemic, the tolling of the statute of limitations/arbitration/litigation proceeding will be applied in accordance with the applicable law unless otherwise prohibited by law. For a party that provides evidence of having had or having been suspected of having COVID-19, or having been quarantined due to the pandemic and for any of these reasons was unable to apply for labor arbitration or file a lawsuit within the statute of limitations under the applicable law, the courts will grant its request to extend the filing period or the statute of limitations by the amount of time this party was essentially out of commission.

Bottom Line: If you are a China employer, you must keep the above basic principles in mind when making employment decisions. You especially must consider ##3 and 4 when making employee termination decisions.