Layoff In China: What To Do And Not To Do With Your Staff

The layoff in China has become more common in recent times, as more companies suffer from competition and difficult economic situation.

Regardless of the motivation that drives companies to fire employees, there are reasons and rules to follow for a proper downsizing of the business.

Fortunately, there are also solutions that allow you to avoid layoff staff or keep the company active after layoff.

Continue to read to learn more about layoff in China!

3 Reasons To Lay Off Employees In China

Layoff refers to the group dismissal of employees by the employer in a legally specified period. A layoff is a way for companies to save themselves in times of crisis, although this method has to withstand huge external pressure.

We can observe that a company makes layoff decisions for the following reasons:

  1. Reduction of staff due to the adjustment of production and operation structure or business model;
  2. Reduce loss, increase profitability, or reduce labor costs;
  3. Personnel integration due to mergers and acquisitions.

Layoff Best Practices

The three “be rules” are your best guide in the layoff process when it comes the time to inform employees:

  • Be honest: Tell the employee why he or she is being laid off, even if it’s for poor performance. You’re not doing the employee or yourself any favor by concealing the reason. You may cushion the poor performance assessment in a variety of ways, but the truth must be told. For any layoff due to poor performance, a recent record of poor performance reviews will support your decision and justify it to the employee. It may also be used as evidence if a wrongful dismissal suit is filed against the employer.
  • Be compassionate: Being laid off can be painful. Show the terminated employee some compassion and understanding. If your firm has the capability, provide outplacement or job counseling services to cushion the blow. Keep the employee’s ego in mind—it may need a hefty boost at this time, and you can provide it by praising previous accomplishments.
  • Be quick: A quick and surgical dismissal, while keeping the above recommendations in mind, is the most humane way to handle a layoff. You may want the employee to clean out his or her desk that day.

What Not To Do During a Layoff in China

The manager firing employees should never express anger, show too much disappointment or threaten to imperil the employee’s chances of finding another job.

Depending on circumstances, you may want to tell terminated employees that they might work as outside consultants, work as part-time employees without benefits, or be hired back at a later date when economic and financial conditions improve.

That said, employers are urged neither to make promises of any kind nor to make statements that can be interpreted as promises.

layoff-china

Are There Any Alternatives to Layoff in China?

There are two main alternatives that the employer can use to replace the layoff:

Negotiate a salary cut:

The employer’s unilateral salary reduction may lead to corresponding illegal consequences. However, if the labor contract stipulates that part of the bonus and benefits are linked to the economic benefits of the company, the employer will not pay the part of the bonus and benefits when the overall benefits decline, which is not a unilateral salary reduction but an implementation of the labor contract.

The so-called negotiated salary reduction is decreasing the current salary for a certain percentage based on two parties’ negotiation. This method is based on the mutual agreement of the employer and the employee, and therefore there is no legal risk. However, the employer must retain the agreement with the worker during the operation. Documentary evidence, such as labor contract modification agreement, labor compensation modification agreement, etc., needs to be kept.

Reduce working hours:

Employers can negotiate with employees to shorten working hours. For example, it was originally a five-day work with a two-day break. Now the schedule changes to a four-day work with a three-day break. This reduces the working hours that occur in employees’ wages. Of course, employees can also be encouraged to take voluntary leaves (without pay).

In Which Cases The Employer Has To Reimburse The Employee?

Laying off staff can be a painful experience for both parties. Beyond the loss of income and whatever other benefits the employer provided, the terminated worker often feels a loss of self-esteem.

For the employer, the experience of laying off a worker may be equally uncomfortable, although it is different.

Both of these painful consequences seem inevitable, but the intention can be reduced if the employer follows the three “be rules” cited above and determines judiciously who should be terminated.

In the situation of a mass layoff, a standardized package may be offered, in which case an employer is less likely to deviate from the severance offered. However, in many other cases, severance can be negotiated.

In the table below, you can have a look at the different reimbursement situation.

Please note that N stands for the years of employment to present the economical reimbursement in the labor law. The period before 01/01/2008 needs to be calculated separately.

Method Initiator Economical Reimbursement Applicable Circumstances
Negotiated termination Employer N Negotiated termination can be conducted regardless of the type of contract and without any condition.
Ad-hoc informed termination Employer 0 Failed to reach the expectation during the trial period; serious in-disciplinary action; failed to perform; cheating; creating a serious loss for the employer; additional employment post negative influence to the current position or/and refusing to comply; employment contract is made under means of cheating and threatening; legal action is taken.
Informed in advance termination

(not performance-related)

Employer N+1 Sickness and/or unable to perform due after work injury recovery period, and also cannot perform other works; unable to perform even after change of position; objective change after signing the employment contract, which the contract cannot be fulfilled anymore. A new agreement cannot be made after the change.
Layoff Employer N+1 Bankruptcy; operational difficulties; transfer of the asset, major technology renewal or business mode change;  objective change make contract unable to be fulfilled, a layoff can be conducted after legal procedures.
Voluntary leave Employee 0 Regardless of the contract type and pre-conditions, formal employees can leave the position with a 30-day notice. 3-day noticed is needed for employees in the trial period.
Ad-hoc leave Employee N The employer failed to provide labor protection and benefit; employer failed to pay the full amount of the salary on-time; failed to pay the mandatory social security; employment rule violate employers’ legal rights; employment contract is made under means of cheating and threatening, or other circumstances determined by the law.
End of employment contract Employer

Employee

Needed

0

The employer refuses to renew the contract; the employer lowers the benefit in the new contract and the employee refuses to accept; calculated from 01/01/2008.

The employee refuses to renew the contract.

Bankruptcy Employer N The company is declared bankruptcy, or the operational license is revoked, informed to shut down; or the employer decided to dismantle the organization in advance.
Retirement or death employer 0 The retired employee starts to enjoy the retirement benefit, or the employee is dead, announced the death, or missing.

How FDI China Can Help To Keep Your Business Active After You Laid Off Your Staff

As we have seen, layoff in China can be negative from the point of view of the staff and the company itself.

For some companies, closing the business and lay off employees is sometimes the only possible way.

But there are two solutions that can keep the company active after closure, and they are solutions that have lower costs and lower risks.

The first solution is called an Employer of Record.

This solution allows you to keep previous employees or hire new ones without having a legal entity in China.

It’s a low-cost, low-risk solution where basically an HR agency like FDI helps you in all your employment relationships, from signing a local contract to managing payroll and benefits for the employees.

The other solution that is applicable in case the company needs more time to close the business is called a Company Secretary.

The company secretary can be defined as the administration of a company, specifically aligning the business operations in compliance with the law and regulations.

Basically, after your company laid off all the employees, we can assist you in the maintaining of all the statutory registers and documents, and in dealing with the government and tax bureau relationships.

Contact us if you want to know more about our services!