PRC: Draft Rules issued on employee redundancy

Employee redundancies have become more common in recent times. In response, the Chinese Ministry of Human Resources and Social Security has issued the draft Rules regarding Employee Redundancy by Enterprises (the "Draft"). The Draft was issued on 31 December 2014.

Background

By way of background, under existing PRC law, if an employer wants to make redundant no less than 20 employees or 10% of the company's total workforce, the employer shall comply with the following statutory procedures (in sequence) ("Redundancy Procedures"):

• Explanation to labour union or all employees – explain the redundancy situation to the labour union or all employees (if the company does not have a labour union) 30 days in advance;
• Consultation with labour union or all employees – consult with the labour union or all employees (as the case may be) on their opinion regarding the redundancies; and
• Redundancy plan application with local labour authority – submit the redundancy plan to the local labour authority, following which the employer may proceed with the redundancy plan.

The Draft introduces an additional step of pre-redundancy consultations and provides detailed guidelines with regard to employee redundancies. The Draft is expected to be officially promulgated later this year. Employers should monitor the legislative progress of the Draft and prepare accordingly if they have any redundancy plan.

An additional first step – pre-redundancy consultations

In addition to the existing procedural requirements (see above), the Draft requires an employer to take the initial step of consulting with the labour union or employee representatives to avoid or reduce the need for redundancies.

If an employer is facing bankruptcy restructuring, significant difficulty in operation or a material change in objective economic situations, then actions to avoid or reduce redundancies may include:

• training employees for new positions or improving work skills; or
• reduction of working time, salary or shift work.

The Draft also provides that the relevant PRC authorities may grant incentives to employers that take effective measures to avoid or reduce redundancies.

Detailed guidelines

The Draft sets out detailed requirements as to the information and documentation to be provided by employers during the Redundancy Procedures. The detailed requirements, if adopted, may increase the burden on employers wishing to make employees redundant. However, they will help establish consistent practice regarding the Redundancy Procedures.

The detailed guidelines, among other things, include:

• Explanation to labour union or all employees – employers need to provide proof that the statutory circumstances for redundancy have occurred, the impact on the workforce and operation of the company due to such circumstances, as well as measures that the employer has taken to avoid or reduce the redundancies.
• Consultation with labour union or all employees – employers need to provide a draft redundancy proposal to the labour union or all employees and solicit their opinion. The draft redundancy proposal should cover the applicable statutory circumstances for the redundancies, scale of the redundancy, standards for determining the employees to be made redundant, time table and steps for the redundancies as well as the economic compensation for the employees to be made redundant.
• Redundancy plan application submitted to the local labour authority – employers need to submit the final redundancy plan as well as documents proving that they have duly complied with the statutory requirements for the redundancies before the application. Employers may only proceed with the redundancies 10 days after the local labour authority accepts the redundancy plan.

Procedures for large-scale consensual terminations

The Draft, for the first time, introduces notification and reporting requirements for the consensual termination of 20 employees or more. This differs from redundancies because the employees are agreeing to their termination.

Under the Draft, employers are required to notify the labour union or all employees about any large-scale consensual termination and report the same to the local labour authority 30 days before the terminations are effective.