In an effort to ensure stable employment, the Ministry of Human Resources and Social Security issued a Circular on the Draft Provisions on the Redundancy by Enterprises (the "Draft") on 31 December 2014. The Draft, which closed for public comments on 31 January 2015, expands upon the existing procedures that must be followed during a redundancy process, as previously set out under the PRC Labour Contract Law.
The scope of the Draft follows the same application as provided in article 41, section 1 of the Labour Contract Law, affecting enterprises seeking to make redundant 20 or more employees or otherwise less than 20 employees, but accounting for not less than 10% of the total workforce. Additionally, it also applies to economic redundancies by enterprises' branches holding business licenses. The Draft sets out a more in-depth procedure for redundancy that is to be followed in addition to the less comprehensive provisions contained under the Labour Contract Law. It contains a list of statutory content and basic information about redundancy, which an enterprise is obligated to communicate to all employees in advance of filing a redundancy report to the relevant labour authority. The Draft further obligates the enterprise to solicit and listen to the employees' opinions regarding the redundancy. A failure to do so will entitle the employees to require the enterprise to repeat the redundancy process.
A range of optional measures which enterprises facing a redundancy situation can undertake are detailed under the Draft. The enterprise may discuss these measures and enter negotiations with its trade union or employee representatives in order to minimize the scale of the proposed redundancy. One of the measures relates to cases where an enterprise alters its services or operations which leads to having unqualified or unsuitable employees. The measures allow the enterprise to provide certain training to enhance the skillset of an employee who becomes incompetent for their posts as a result of the business provision change. Where an enterprise is restructured in accordance with the Enterprise Bankruptcy Law, suffers serious difficulty in production, or encounters material change occurring from external circumstances which renders the employment contract unenforceable, the enterprise may, after consultation with its trade union or employee representatives, take steps to avoid or reduce the proposed redundancy, including training, reduction of working hours, salary adjustment and introducing shift patterns.
As an encouragement for enterprises to exercise the measures and as a further bid for steady employment, the Draft confirms that labour authorities will provide subsidies and guidance to enterprises that operate redundancy policies in support of the new rules.
Another change under the Draft relates to mutual termination, which enterprises currently rely on in cases of redundancy to avoid having to meet statutory formality requirements. The Draft sets more hurdles by stipulating that in cases of mutual termination of 20 employees or more, the enterprise should inform its trade union or all its employees, as well as provide the number of targeted employees to the local labour authority 30 days before the execution of the mutual termination.