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HR Concerns during Restructuring Operations in China

September 4, 2015

Restructuring could also mean that the employees will need to be laid off, however as employees get terminated, the liabilities incurred by a company differs depending on the situation. It goes without saying that companies will have to clear off the dues and social security contributions.

Employers have to be aware of the fact that, not paying salaries of terminated employees during the restructuring process for more than three months constitutes to a crime.

If an employer and an employee decide to end the agreement with mutual consent, then it’s advisable that both parties work out a compensation agreement for the employee’s temporary loss of livelihood.

Termination by Employer in China

An employer can only terminate a labour contract in China for certain specific reasons, and there is no such termination ‘at will’ as per the Chinese law. This in most cases means the employer has to pay the terminated employee a severance payment.

When it comes to termination with a 30days notice period, the following grounds have to be applicable for the case to be valid. They are:

  • The employee is incompetent for the position, even after training or job transfer.
  • The employee can no longer work after period terminally ill for a period or is injured to an extent that work cannot be assigned to the individual.
  • The objective premise on which the labour contract was based has changed significantly. However in case of restructuring this reason, can be least implacable as it could include – change of market circumstances, relocation of the company, moving of assets, revamping production, change in production tasks of a factory and cancellation of project.

See: Rising Demand for English-Speaking Candidates in Multinational Corporations in China

The minimum statutory severance payment is one month’s salary for each year the employee has worked, for up to twelve years. For time less than a year but more than six months, a month’s salary is also paid. For time less than six months, half a month’s salary needs to be paid.

The average monthly salary figure is capped at three times the local monthly average salary as declared by the government of the municipality or city. This figure is amended every year, usually in July. For example, the current average salary for Beijing is RMB 5,793, so the cap amounts to RMB 17,379. This cap was only introduced from January 2008 and does not apply to employment prior to that date. When moving to terminate an employee’s labour contract, the company must either give 30 days’ notice or give an additional month’s severance pay.

There are five instances wherein an employer can terminate an employee in China immediately if, in case of grave employee misconduct, committing criminal offense or making up fake lies during the employee application process.

In case of mass layoffs, that generally happen during the restructuring processes, wherein 10 percent of the staffers ie, more than 20 employees are terminated, some of the serious HR concerns at this hour are:

  • The company has to be restructured as per the Chinese Bankruptcy law
  • The company should be able to testify serious difficulties faced during operations and productions.
  • The objective premise on which company operates has changed due to changes in the economic climate, which is making continued employment impossible.

During mass layoff, the company should explain the circumstances and gravity of the situation to its labour union or directly to the staffers, 30 days prior to intended implementation. The company then hears the labour union and employees opinions on how to navigate through the situational crisis and taking this into account, initiates mass layoffs if required.

The mass layoff action has to be communicated to the local labour administration department, and on expiry of the 30-day period the company still has to pay employees their severance payments.

Also read: China Salary Guide 2015 for HR Professionals

News source: china-briefing.com

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