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China Labor Contract Law Layoffs Related Provisions

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China Labor Contract Law Layoffs Related Provisions

Due to the impact of the overall economic downturn and other factors, many enterprises are facing cost pressure and hope to tide over the difficulties by reducing staff and increasing efficiency. If the issue of layoffs is not handled properly, enterprises will face labor disputes. "Labor Contract Law of the People's Republic of China" has made clear provisions on enterprise layoffs, and Kaizen has summarized the relevant provisions as below for its clients' reference.

  1. Precautions for layoffs

    Under any of the following circumstances, if the number of employees to be laid off is more than 20 or the number of employees to be laid off is more than 10% of the total number of employees of the enterprise, the employers shall explain the situation to the labor union or all employees 30 days in advance, listen to the opinions of the labor union or employees, and report the plan of staff reduction to the labor administrative department before they can lay off staff.
    The enterprise is re-organized in accordance with the provisions of the bankruptcy Law.
    Serious difficulties have occurred in the production and operation of the enterprise.
    The enterprise has changed its production or major technological innovation, or the business mode of the enterprise has been adjusted, it is still necessary to reduce staff after the labor contract is changed.
    Other significant changes have occurred in the objective economic conditions on which the labor contract was concluded, resulting in the failure to perform the labor contract.

    In the event of staff reduction, enterprises shall give priority to the retention of the following personnel:
    Staff who have entered into a fixed term labor contract with the unit for a longer period.
    Staff who have entered into an open-ended labor contract with the enterprise.
    There is no other labor force in the staff's family, and there are only elderly or minors in the family who need to be supported.

    The reduction of the following personnel may be judged as illegal termination of the labor contract:
    Staff who are engaged in work exposed to occupational disease hazards and have not undergone pre-departure occupational health examination.
    Staff suspected of occupational disease during diagnosis or medical observation.
    Staff who are ill or suffer non-work-related injuries and are currently in the prescribed medical treatment period.
    Female staff in pregnancy, perinatal period, and breastfeeding period.
    Staff who have worked for the company continuously for at least 15 years and are less than 5 years away from the statutory retirement age.

    If the employer has reduced its personnel due to reorganization in accordance with the provisions of the bankruptcy Law, and the employer needs to hire new personnel within 6 months, the employer shall give priority notice to the personnel who have been reduced and give priority to hiring the previously reduced personnel under the same conditions.

  2. Payment standards for economic compensation

    After the redundancy plan of the enterprise is approved by the labor union or agreed by the employees, and the enterprise reports the redundancy plan to the labor administrative department, enterprises shall pay economic compensation based on the number of years the employees have worked at the enterprise. The standard of economic compensation stipulated in the labor contract law is as follows:

    The employee shall be paid one month's wage rate for each full year of work. More than 6 months but less than one year, based on 1 month's wage standard. Less than 6 months will be calculated at 0.5 monthly wage standard.

    Monthly wage refers to the average wage of the employee in the 12 months before the termination of the labor contract.

    If the monthly wage standard of an employee is three times higher than the monthly wage standard of the employee in the previous year published by the people's government of the municipality directly under the central government or the city divided into districts where the employer is located, the employer may pay compensation at the amount of three times the average monthly wage of the employee in the previous year, and the maximum number of years for the employer to pay economic compensation to the employee shall not exceed 12 years.

    It should be noted that if the reason for layoff is "due to significant changes in the objective economic conditions based on which the labor contract was concluded, the labor contract cannot be performed", in this case, if the employer and the worker negotiate on the modification of the labor contract but do not reach an agreement on the content of the modification of the labor contract, the employer may terminate the labor contract only after notifying the employee in writing 30 days in advance or paying the employee an additional month's wages in accordance with the law. The monthly wage here shall be determined according to the wage standard of the employee in the previous month.

KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advice and services in respect of the formation and registration of company, application for various business licenses and permits, any compliance, tax planning, audit, and accounting in China. Please call and talk to our professional consultants for details.


All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.

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