The global economic downturn has impacted employers in China and, as with their U.S. counterparts, some of them are conducting mass layoffs in order to reduce costs. In addition to complying with layoff-related requirements under the PRC Labor Law, employers in China should take note of new local laws related to layoffs, and take steps to ensure compliance therewith.

Many local jurisdictions have issued their own measures relating to employee layoffs. In general, these local measures require that before an employer implements layoffs, it must:

  • Reduce an employee’s work hours;
  • Request that an employee take a leave of absence and receive a “living” subsidy; and
  • Negotiate with an employee regarding any reduction in salary, or suspend an employee’s employment contract for a certain period of time without payment.

Most of the newly issued local rules also provide detailed procedural requirements for reductions in workforce of 20 or more persons, and for reductions in workforce of less than 20 persons but of 10 percent or more of the total number of the enterprise’s employees. In order to comply with such requirements an employer must typically:

  • Submit a layoff plan in writing to the local governmental authority;
  • Provide the reasons for the layoff plan to either the relevant trade union or to all employees 30 days in advance of its implementation date;
  • Provide prior notice to the relevant branch of the Ministry of Human Resources and Social Security that the layoff plan will be implemented; and
  • Conduct certain follow-up work after the layoff plan has been carried out.

Once an employee is laid off, the employer must submit a report to the relevant government authority verifying that the employer has undertaken the layoffs in accordance with the local measures.

An employer that fails to be in full compliance with the applicable local and/or national laws regarding layoffs will potentially be subject to labor arbitration, and in some cases, unwanted attention from the China media. As such, it is important for employers to understand applicable local layoff procedures and requirements in addition to the national labor law.