As China transitions from an export-driven hub for cheap manufacturing to a domestic base of value-added consumerism, while at the same time experiencing a multi-year economic slowdown, companies are being forced to make difficult choices.
The Chinese government has significant influence on the process of firing workers through its numerous rules and regulations, and Chinese labour laws highly protect employees themselves. Therefore, the wrong approach by HR managers can lead to costly problems, such as workplace disruptions, labour disputes, and refusals from government officials to support a company in its hour of need.
Article 41 of the Chinese Labour Contract Law (amended 2012) details the laws around redundancy of employees for economic reasons. Employers can use this ground as long as they terminate either 10% or more of the total workforce, or at least 20 employees. To be eligible, employers are required by the law to meet one of the following specific conditions, which are meant to protect employees:
When downsizing on a large scale in China, companies need to follow a strict schedule as outlined below:
The conditions of eligibility for executing an economic redundancy are very general. To minimise the risk that individual employees will challenge a redundancy programme in labour arbitration, it is critical to obtain support in advance from the supervising labour administrative authorities at a local level. In practice, many companies start with step four (above), and get an informal green-light to proceed. Also important to note are the regional differences in the local officials’ willingness to support mass layoffs; for example, Shanghai is unofficially known to be much more lenient and expeditious than Beijing.
Where support is not forthcoming, an alternative approach may be considered. Companies may terminate not for economic redundancy but on other legal grounds, such as with mutual consent (subject to higher payments).
The most significant practical disadvantage to economic redundancy is that employees must be notified well in advance, which means that they have more opportunities to be disruptive to the business. Therefore, some companies choose to bypass the economic redundancy altogether, and directly negotiate a termination of the employment contract with employees – as a group or individually.
In any case, companies should expect heightened emotions involved in the process of terminating 20 or more people from the payroll. Security should be prepared (physical safety along with digital and cyber-related) and precautions taken well in advance of any announcement as upset employees may seize assets. A plan to approach key employees beforehand can lead to a smoother process.
Close coordination with staff – both the ones who will remain employed and those being terminated – will produce the smoothest-possible transition for restructuring. HR professionals should be sensitive to the following:
Seeing a large number of colleagues suddenly disappear may well affect the morale of the employees who still have jobs. Moreover, these employees may start to doubt their job security, fearing that the next round of terminations is just around the corner. The following are a few more ideas for managing the sentiment of those left standing:
Companies need to prepare for the courses of action that proceed economic redundancy and implement plans and strategies that ensure smooth transitions from both a legal and a practical standpoint.