State Council confirms reporting requirements for mass lay-offs

Companies must inform the government of their plans for multiple lay-offs, and talk to labour unions at least 30 days in advance, the State Council has reiterated.

The 2007 Employment Contract Law (ECL) says that lay-offs must be reported to local labour authorities. But near the end of 2008, local provincial authorities decided to revise their own rules and made it mandatory for companies to get approval for lay-offs of more than 40 employees.

Now, the central government has issued a statement reminding companies that plans for lay-offs of more than 20 people, or more than 10% of the total workforce, must be submitted in writing to the local labour and social security department.

Article 9 of the State Council's Circular on Promoting Employment under Current Economic Circumstances, dated February 3 2009, almost exactly reproduces Article 41 of the ECL. This provides for certain circumstances under which an employer can reduce the workforce, but goes on to state that the employer can only go ahead with the cutback “after explaining the circumstances to the labour union or all of the staff and workers 30 days in advance, listening to the opinions of the labour union or staff and workers and reporting its personnel cutback plan to the labour administrative department”.

Contrary to recent reports in the China Daily and other official media, there is no time limit specified for the notification to the labour department, only to trade unions and employees.

Lawyers have generally argued that the Law requires only a simple notification – a recent client alert from the Shanghai office of one well-known US firm, for example, states explicitly: “Report to the labour authority is only a procedural requirement, and no approval for the lay-off by the local labour authority is required”.

But some Chinese lawyers think that simply reporting to the local labour administration department may not guarantee the acceptance of the plan.

“Should the department hold that the work reduction plan is not justified … [it] does have the authority to stop the work reduction plan from being implemented by the employer,” said Lu Yunguang of Wang Jing & Co in Guangzhou.

And “loopholes” in the ECL (there are no specifics about the time period for implementation of cutback plans, for example) mean that considerable authority remains with labour departments.

“The local labour administration department has the authority to decide whether the employer avoided the application of [the ECL] when reducing their staff levels,” said Lu.

“If the workforce reduction is deemed to have been implemented illegally, then the employer will be liable for illegal termination of any and all labour contracts with the employees during the workforce reduction.”

David Zhou, senior partner of Boss & Young said that, in practice, when receiving notification of a lay-off plan the government authorities will “mobilise to persuade such companies not to layoff and will try to help such companies to overcome the difficulties”.

Although foreign-invested enterprises are usually able to carry out their plans successfully, there have been cases where domestic companies have been pressured not to implement mass lay-offs and are have been “enticed to take other measures” to maintain employment, said Zhou.