The best ways to handle large-scale layoffs

The past year has seen a large number of layoffs with the economic downturn forcing many businesses to cut costs or fold up. This has led to employment practitioners handling many more downsizings as the number of active worker movements increases.

“It isn't just layoffs – we've worked on more liquidations as companies in general have been cutting back,” said Lesli Ligorner of Simmons & Simmons. Reduced exports and increased manufacturing and labour expenses have led a large number of businesses to move their factories overseas, she added.

The latest example is at Shenzhen Artigas Clothing & Leather, which makes products for Uniqlo, Armani and Ralph Lauren. Hundreds of workers have been on strike since June 8 after the termination of long-term employees and the reported removal of some equipment sparked fears that the base would be shut down.

They also went on strike back in December because of unpaid social insurance claims. “They issued a request for collective bargaining, but on the day they were supposed to negotiate, the company had the police come in and arrest the leader of the strike,” said Kevin Jones of Faegre Baker Daniels. Workers have lost faith in the collective bargaining mechanism and have taken matters into their own hands, he said.

“Companies should not call the police unless there is impending physical danger or damage to property,” said Ligorner. “Also, when conducting large scale layoffs, it is important to prepare a very detailed execution and action plan so that everything is addressed from IP to security to employee discussion.”

The December event occurred just before the release of the Guangdong Enterprise Collective Contract Regulations, which state that employees must request for collective bargaining first with the labour or trade union, which then raises the request with the employer. The company has 30 days to respond to each issue and begin the bargaining process with the workers.

“The regulation itself is a good one,” said Nancy Sun of Dacheng Law Offices. “It provides detailed procedures for collective bargaining, while the government acknowledged labour costs are increasing and employers have justified claims to decrease salaries when profits go down.”

When dismissing many workers, mutual agreement is always the best way, but also the hardest, said Sun. Some employee representatives ask for too much, making it harder to bridge the gap and reach an agreement between parties.

It is important that companies – even those planning to exit the China market completely – comply with local laws when letting go of their workers. “Closing the gates and leaving one day unannounced is one way to do it, but that's never advisable and those who do so are blacklisted,” said Jones.

There are different approaches to informing employees. Some choose to announce the decision collectively while others recommend talking to each individual separately, because “speaking in town hall situations can cause issues as it is harder to control larger groups,” said Ligorner.

However, this has to be done carefully because it can sometimes lead to too many demands and complicate resolutions, said Dacheng's Sun.

Then there are the problems of dealing with the government.

In liquidation, a company can submit its corporate dissolution documents to the authorities and have the right to legally terminate all its employees without notice (all employment contracts automatically go void). “But if you give the employees advance notice and release them through mutual agreement, it's a much smoother process,” said Ligorner.

“Mass layoffs can sometimes become political issues and the rights of companies can become diluted,” she said.

The statutory procedure for mass layoffs usually involves notifying the employees and trade union, presenting them the action plan, collecting their comments and submitting the proposal and feedback to the labour bureau.

The proposal should include details such as who is going to get laid off, the dates, severance amounts and what efforts the company made to avoid the situation.

Although current laws do not explicitly state that companies need to seek the authorities' approval to terminate employees, in practice, they have long had to do exactly that. The draft Provisions for Personnel Cutbacks by Enterprises issued on December 31 2014 puts this requirement in writing, making clear that companies planning layoffs