A common question that often arises is whether employers can terminate employees due to adverse business conditions. The answer to this question is not a straightforward yes or no but rather depends on various factors and legal considerations.
First and foremost, it’s crucial to understand that labor laws in many jurisdictions, including China, prioritize the protection of employees’ rights. This means that, generally, employers cannot simply let employees go solely because of a challenging business situation.
Here are some essential points to consider regarding this matter in accordance with the Labor Contract Law of the People’s Republic of China:
1.Employer Responsibilities:
1) Full and Timely Payment:
Regardless of the circumstances, employers are legally obligated to pay their employees in full and on time.
2) Compensation According to Law:
In situations where employee termination becomes necessary, the employer must provide compensation in accordance with the law.
3) Advance Notice:
If an employer needs to terminate the contracts of more than twenty employees or if this constitutes more than 10% of the total workforce, they are required to provide a 30-day advance notice to all employees and inform the local labor administrative authority. This notice period allows time for consultation with the labor union or workers and reporting the plan to the labor administrative department.
2. Specific Circumstances for Termination:
The Labor Contract Law of China outlines specific circumstances under which employee termination may be justified, such as:
- Enterprise Revitalization: When a company is undergoing revitalization in accordance with the Enterprise Bankruptcy Law.
- Serious Business Problems: If the business faces serious production and operational difficulties.
- Significant Changes: When the enterprise undergoes significant changes in its products, technological processes, or business operations that necessitate workforce reduction even after modifying labor contracts.
- Objective Economic Changes: If the objective economic circumstances, upon which the labor contract was based, have significantly changed to the extent that the contract cannot be fulfilled.
3. Economic Compensation:
In certain situations, employers are required to provide economic compensation to workers. These include cases such as:
- When a worker terminates the labor contract as per Article 38 of the Labor Contract Law.
- When an employer intends to terminate the labor contract with a worker as per Article 36 and both parties reach consensus through negotiations.
- When the employer terminates the labor contract under the provisions of Article 40.
- When the employer terminates the labor contract as per the first paragraph of Article 41.
It’s important to note that labor laws can be complex, and their interpretation may vary depending on the specific circumstances. Therefore, both employers and employees should seek legal advice when facing such situations to ensure that their rights and obligations are properly understood and upheld.
4. Related provisions in Labor Contract Law of the PRC:
Article 41 In the case of any of the following circumstances, if the employer needs to cut down above 20 workers, or if it needs to cut down less than 20 workers but which accounts for 10 percent or above of the total number of the workers, the employer shall make an explanation to the labor union or to all workers 30 days in advance. After it has solicited the opinions of the labor union or of the workers, it may have the reduction after reporting the plan to labor administrative department:
(1) It is under revitalization in accordance with the Enterprise Bankruptcy Law;
(2) Serious problems in production and business operation occurs;
(3) The enterprise has changed products, made significant technological renovation or adjusted the form of business operation, and it still needs to have reduction after the labor contract is altered; or
(4) The objective economic circumstance, on which the labor contract is based, has altered significantly and it is unable to perform the labor contract.
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Article 46 In the case of any of the following circumstances, employers shall make an economic compensation to the workers:
(1) Any worker discharges the labor contract according to Article 38 of this Law;
(2) Any employer intends to discharge the labor contract with the workers according to Article 36 of this Law and reaches consensus with the workers through consultations;
(3) The employer discharges the labor contract pursuant to Article 40 of this Law;
(4) The employer discharges the labor contract subject to the first Paragraph of Article 41 of this Law;
(5) The labor contract is a contract with a fixed period, which is terminated in accordance with Paragraph (1) of Article 44 of this Law, except that the worker disagrees to renew the contract even though the conditions offered by the employer are the same as or better than those stipulated in the current contract;
(6) The labor contract is terminated in accordance with Subparagraphs (4) and (5) of Article 44 of this Law; or
(7) Other circumstances as prescribed by laws and administrative regulations.
For a complete English version of the Labor Contract Law, please refer to this link.
 If you prefer to read the law in Chinese, you can access it here.
