Mass layoffs and collective redundancies guide

As COVID-19 continues to impact the global economy in unprecedented ways, companies that have had to scale back or shut down operations are bracing for what the next few months will bring, and what this means for their workforces. While the hope is that most workforce measures will be temporary – whether that’s furlough, short-term closures, hiring freezes etc. – given the scale and fluidity of the pandemic, other longer term measures may become necessary over time. Even though these current circumstances are extraordinary, employers remain subject to important legal obligations when considering permanent layoffs, which vary significantly across countries. In this publication, we examine key considerations for employers looking to make permanent reductions in force across the Asia Pacific region. 3 DLAPIPER.COM Generally, is it permissible for companies to conduct mass layoffs and/or collective redundancies in your jurisdiction? Australia It is permissible for companies to conduct mass layoffs and/or collective redundancies in Australia. The Fair Work Act 2009 oversees most Australian workplaces and sets out the minimum redundancy procedure that an employer must follow. However, particular state legislation and industrial instruments (such as awards and enterprise agreements) may apply to entities that are not covered by the federal industrial relations system (most commonly state civil servants) and may stipulate a separate procedure for redundancy. China It can be difficult for an employer to establish sufficient grounds for redundancy in China. Where an employee is made redundant in China, the provisions of the Employment Contract Law (ECL) must be complied with. In practice, to avoid future dispute and legal exposure, employers should seek a mutual termination with employees subject to Art. 36 of ECL. Hong Kong In the absence of any procedural unfair dismissal regime in Hong Kong and provided impacted employees are not within a protected category, termination of an employment contract by reason of redundancy, is generally considered to be fairly straightforward. The Employment Ordinance sets out the concept of redundancy and prescribes minimum statutory provisions and a statutory entitlement to a severance payment in cases of redundancy for eligible employees. India Yes, but this is subject to procedures prescribed under the Industrial Disputes Act, 1947 (IDA). The IDA is the primary law in India that governs an employer’s ability to ‘lay-off’* and also undertake redundancies (i.e., retrenchment or termination). The termination procedure under the IDA applies only to employees who fall within the definition of ‘workmen’ (i.e., individual contributors). For other categories of employees (i.e., those primarily in supervisory or managerial roles), ‘lay-off’ and termination is governed by their employment contract and/ or the shops and establishments (S&E) Act of the relevant State. The IDA procedures to be followed for commercial establishments for both a lay-off and a retrenchment is to notify the State government authorities of the same. However, for factories with workmen beyond a particular threshold, it requires the State government’s prior permission. * Note: Under the IDA, ‘lay-off’ is specifically defined to mean an employer’s failure/refusal/inability to provide work on account of pre-defined reasons such as, shortage of coal/power/raw materials, accumulation of stocks, breakdown of machinery, natural calamity, etc. In case of a ‘lay-off’ under the IDA, the employment relationship would continue to exist, and employers would be required to pay compensation (at 50% wages) during the lay-off period. Hence, the non-provision of work in case of a layoff is only temporary. ** A ‘workman’ is broadly defined as any person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. This definition excludes those employed mainly in a managerial or administrative capacity; those employed in a supervisory capacity drawing monthly wages in excess of INR 10,000; and sales employees engaged in certain industries. 4 MASS LAYOFFS AND COLLECTIVE REDUNDANCIES GUIDE Indonesia There is no specific definition of redundancy or layoff. Employers seeking to make employees redundant should ensure that they provide valid evidence as grounds for the redundancy. All dismissals on redundancy grounds require approval from the Industrial Relations Court – “IRC” (if not mutually agreed). A consultation process must be completed before notice of termination is given to employees. Where a redundancy occurs, the employer must pay the employee a termination package consists of severance pay, term of service recognition pay (if applicable) and compensation pay. Under the Manpower Law, the employees may be made redundant for the following reasons: a. Article 164 (1): the company is closing the business in which the employees are employed because the company has suffered a loss for at least two consecutive years evidenced by the audited financial statements, or due to force majeure which is not defined further. The termination package should be: 1x Severance Pay (Pesangon) + 1x Term of Service Recognition Payment (Penghargaan Masa Kerja) + Compensation b. Article 164 (3): the company is permanently closing the business in which the employees are employed because the company wishes to improve efficiency. The termination package should be: 2x Severance Pay (laborPesangon) + 1x Term of Service Recognition Payment (Penghargaan Masa Kerja) + Compensation In practice, terminations for efficiency without the company closing down permanently are acceptable, particularly if efficiency or redundancy is covered by the employment agreement, Company Regulations, or Collective Labor Agreement which will serve as the legal basis on which the company terminates some employees due to redundancy. Japan It is very difficult to dismiss an employee in Japan, even in a redundancy situation. There is no statutory definition of redundancy. Dismissals due to economic conditions are not prohibited in Japan, but the right to do so is severely limited by the Labor Contract Act and court precedent. Japanese law provides that if a termination lacks objectively reasonable grounds and is not considered appropriate under standard social norms, it will be deemed an abuse of an employer’s right to dismiss the employee. New Zealand It is permissible for companies to conduct mass layoffs and/or collective redundancies in New Zealand. There are no specific requirements for collective redundancies, as opposed to individual. For all redundancies, employers must use a fair and reasonable process when implementing a redundancy. An employer needs to show that there is a genuine commercial reason for any redundancy decision. 5 DLAPIPER.COM Philippines There are no specific mass layoff rules. Layoff, used interchangeably with retrenchment or redundancy, would be a valid ground for termination, if the company meets the statutory requirements for retrenchment or redundancy. For both redundancy and retrenchment, there must be fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers. Singapore It is lawful to terminate an employee’s employment by reason of redundancy in Singapore, subject to any restrictions under the contract of employment and any applicable collective bargaining agreement/union agreement. The Tripartite Guidelines on Managing Excess Manpower and Responsible Retrenchment issued by the Ministry of Manpower are used for guidance in redundancy situations and are often followed by employers in Singapore, but are not legally binding. South Korea Mass layoffs are lawful, provided an employer fulfils the following statutory requirements: (i) urgent business necessity, (ii) fair criteria for selecting the employees to be laid off, (iii) every effort to avoid layoffs, and (iv) 50 days’ prior notice and good faith consultation with a labor union (if there is no such union, then with a representative of the majority of employees). The urgent business necessity standard means that a company must demonstrate losses over a considerable period of time (at least one or two years). The performance of the company as a whole, will be examined. In addition, a business line or division closure may constitute an urgent business necessity if such closure is resulted from restructuring or reorganization of a company to improve productivity, strengthen competitiveness, change the business of the company, or change the organizational structure of the business or industry. The employer must engage in good faith consultations as to possible measures to avoid dismissals and the selection criteria for dismissals. If a certain threshold number of employees is to be laid off (generally 10%), a layoff report must be filed with the Ministry of Employment and Labor (MOEL) at least 30 days prior to the effective date of the layoffs. Measures a company is required to take to avoid layoffs include the following: salary freezes, freezes on new hiring, reductions of work hours and elimination of overtime, rationalization of the work system, cost-cutting measures, transfers of employees to other departments or for education or training, temporary suspensions, and seeking voluntary resignations. If within three years after a layoff the employer decides to reinstate jobs from which employees were dismissed, the employer must first offer those jobs to the previously dismissed employees before hiring new employees. 6 MASS LAYOFFS AND COLLECTIVE REDUNDANCIES GUIDE Taiwan The Mass Layoff Protection Act applies depending on the number of employees affected and the time-frame anticipated and imposes notification and consultation requirements. The Mass Layoff Protection Act will be triggered when one of the following is met: • Where a site in an enterprise of fewer than thirty (30) employees intends to lay off over ten (10) employees within sixty (60) days; • Where a site in an enterprise of thirty (30) employees or more but fewer than two hundred (200) employees intends to lay off over twenty (20) employees within one day or over one-third (1/3) of the total number of employees within sixty (60) days; • Where a site in an enterprise of two hundred (200) or more but fewer than five hundred (500) employees intends to lay off more than one-fourth (1/4) of the total number of its employees within sixty (60) days, or more than fifty (50) employees within one day; • Where a site in an enterprise of five hundred (500) or more employees intends to lay off one-fifth (1/5) of the total number of its employees within sixty (60) days, or more than eighty (80) employees within one day; or • Where a site in an enterprise intends to lay off more than two hundred (200) employees within sixty (60) days or more than one hundred (100) employees within one day. Thailand In Thailand the Labour Protection Act (“LPA”) regulates termination of employment and is applicable in redundancy situations. The LPA contains provisions relating to suspension, dismissals for cause, notice requirements and explains when an employer is liable to pay severance payments to its employees. Vietnam Mass layoff rules apply in cases of termination of employment due to restructuring, change of technology or changes for economic reasons. If the employer is unable to create new jobs and must make employees redundant, such employer may have to pay severance allowances to those employees. 7 DLAPIPER.COM Are temporary workplace closures and lay-off allowed during COVID-19? Australia In Australia this is commonly referred to as a ‘stand down’. The legislation in Australia allows employers to stand down workers without pay in certain circumstances including where there is a stoppage of work for any cause for which the employer cannot reasonably be held responsible and where the employees cannot be usefully employed in some other way. The stand down can continue for as long as the stoppage of work continues. While the employee is stood down the employment relationship is otherwise maintained. The Government has also implemented the JobKeeper wage subsidy scheme under which qualifying employers may be able to issue ‘JobKeeper enabling stand down directions’ to eligible employees to not work on a day or days on which the employee would usually work, work for a lesser period than the employee would ordinarily work on a particular day or days, or work a reduced number of hours (compared with the employee’s ordinary hours of work) which can include reducing the employee’s working hours to nil. China Where an employer has encountered difficulties in its business operations due to the coronavirus outbreak, it may close its business short-term. The authorities have the entire discretion to decide whether the employer is qualified for short-term closure or not. Where an employer suspends its operations during a wage payment period, the employer should pay wages to its employees according to the standards set out in the employment contract. For those employees who are unable to work as normal, the employer should pay for living expenses – the standards for living expenses are set by measures of the province, autonomous region or municipality directly under the Central Government. Hong Kong There are no statutory provisions allowing (or preventing) employers from laying-off employees or closing the workplace temporarily specifically as a result of COVID-19. If this happens, it will trigger redundancies and liability to pay statutory severance to eligible employees in the normal manner. Any agreement to work less hours/receive less compensation/be furloughed requires employee consent. Failure to obtain consent can give rise to claims including: unreasonable variation of employment terms, breach of trust and confidence, failure to pay wages and/or constructive dismissal. Failure to pay wages is a criminal offence and there can be personal liability for directors, officers and senior managers in certain circumstances. Having said that, the practical risk of these claims is generally lower in the current climate given that the alternative for employees is often redundancy. 8 MASS LAYOFFS AND COLLECTIVE REDUNDANCIES GUIDE India It is possible to undertake temporary workplace closures or ‘lay-off’ employees temporarily. Lay-off: This would be allowed (with 50% salary) only for the specific predefined reasons under the IDA (including shortage of coal, power, raw materials, breakdown of machinery, natural calamity, etc.). A notification to the State government or the State government’s permission is required depending on the nature of the establishment and number of workmen employment. Temporary closure: While a company could close its offices/premises for a temporary period during COVID-19, it would need to make regular salary payments to its employees. Further, if an establishment/factory is not permitted to operate due to its being situated in a containment zone, it would need to remain closed – in such case again, there would be a requirement to pay regular salary. If this closure is temporary and is covered as a ‘lay-off’ under the IDA, then the employer would have an obligation (in addition to paying 50% salary) to obtain the State government’s permission (in case of factories). Employers and employees can independently (or with the involvement of labour authorities) enter into negotiations to resolve disputes around salary payments (for the period their establishments were closed during the COVID-19 lockdown). Indonesia Temporary workplace closure as a preventive measure to the spread of COVID-19 is allowed during the pandemic. Lay-off during COVID-19, in theory, should be the last resort in line with Ministry of Manpower Circular Letter No. SE-907/MEN/PHI-PPHI/X/2004 on the Prevention of Mass Termination which provides for the following measures to be carried out before deciding on mass termination: