On 31 December 2014, the Ministry of Human Resources and Social Security of PRC (“MOHRSS”) published the draft Rules on Mass Dismissal by Enterprises (the “Draft”) for public comment. The Draft clarified the procedures and the penalties for failing to follow statutory procedures for mass dismissal.

General legal framework for mass dismissals

Chinese law generally restricts employer’s rights to individual and mass dismissals. Only under statutory situations such as bankruptcy, production and operation difficulties, etc. and by following statutory procedures, an employer may unilaterally dismiss 20 or more employees, or 10% or more of the total headcount.

Measures to be taken before implementing mass dismissals

According to the Draft, under statutory causes of mass dismissal, the employer shall first consult with the trade union or employee representative and take measures to avoid any dismissals or to reduce the number of employees to be laid off before implementing any mass dismissal.

Different measures shall be taken to avoid mass dismissals or reduce the number of employees to be dismissed, such as transferring employees to new positions and providing training to improve their skills where they are subject to a change in production or operating method, and taking measures such as providing on-the-job training, reducing working hours, adjusting salary, arranging working by shift, etc. in other statutory causes of mass dismissal.

Labour authorities will provide subsidies to the employer if they have succeeded in avoiding mass dismissals or have reduced the number of employees to be dismissed as a result of adopting effective measures.

Steps for implementing mass dismissals

The employer shall take the following steps before dismissing employees under statutory causes of mass dismissal:

Step 1: Explanation by the employer

The employer is required to explain the dismissals to the trade union or all employees (if there is no trade union) 30 days in advance. The explanation shall include the specific statutory cause of mass dismissal, the reasons the specific statutory situation has occurred and shall provide materials on the production and operation status of the employer as well as relevant supporting documentation. The employer shall further explain the extent to which the production and operations of the employer have been impacted by the specific statutory situation, the scope of impact (including to the various departments and positions, etc.) as well as the measures already taken by the employer to reduce the number of employees to be dismissed.

Step 2: Formulating the preliminary mass dismissal plan

As the second step, the employer is required to formulate the preliminary mass dismissal plan, which shall include the following contents:

  • Specific statutory situation for mass dismissals;
  • Scope of mass dismissal, the number and percentage of employees to be dismissed;
  • Criteria on determining which employees are to be dismissed;
  • Timing and steps for implementing mass dismissals;
  • Method and standard for paying severance to employees to be dismissed.

Step 3: Listening to comments and publishing the mass dismissal plan

Upon completion of the preliminary plan, the employer shall distribute it to the trade union or the employees and is required to listen to their reasonable comments. Based on this, the employer may finalise and publish the mass dismissal plan and the list of employees to be dismissed.

Step 4: Submitting the mass dismissal plan with labour authorities

After finalising the mass dismissal plan, the employer is required to submit to the local labour authorities a written mass dismissal report, which must include the following documentation and information:

  • Mass dismissal plan;
  • List of employees to be dismissed, according to the mass dismissal plan;
  • Supporting documentation proving that the employer has explained to employees the situation in advance, has listened to the trade union’s or employees’ comments (if there is no trade union);
  • Whether the salary, severance and social insurance premiums can be paid in full in a timely manner (corresponding solution measures or plans shall be submitted), measures already taken by the employer to reduce the number of employees to be dismissed and stabilize their positions; and other matters as required to be reported by local labour authorities.

Step 5: Dismissing employees

The employer may only dismiss employees after 10 days from when it obtains the receipt issued by the local labour authorities.

The trade union or employees are entitled to request the employer to go through the corresponding steps if the employer fails to take Step 1 or Step 3.

Mutual termination under statutory situations of mass dismissal

In statutory situations of mass dismissal, if the employer terminates the employment relationship with employees by reaching a mutual agreement instead of implementing mass dismissal following the statutory procedures, the employer shall still inform the trade union or all the employees (if there is no trade union) 30 days in advance, and meanwhile report the number of employees to be dismissed to the local labour authorities.

Liabilities

According to the Draft, in cases of non-compliance by the employer with the Draft, the local labour authorities may order the employer to rectify their breaches. Penalties ranging from RMB 2,000 to 20,000 may also be imposed if the employer fails to rectify as ordered by local labour authorities.