China Employment Law Update

18 February 2015

Provisions on the Redundancy by Enterprises (Draft for Comment)

In an effort to ensure stable employment, the Ministry of Human Resources and Social Security issued a Circular on the Draft Provisions on the Redundancy by Enterprises (the "Draft") on 31 December 2014. The Draft, which closed for public comments on 31 January 2015, expands upon the existing procedures that must be followed during a redundancy process, as previously set out under the PRC Labour Contract Law.

The scope of the Draft follows the same application as provided in article 41, section 1 of the Labour Contract Law, affecting enterprises seeking to make redundant 20 or more employees or otherwise less than 20 employees, but accounting for not less than 10% of the total workforce. Additionally, it also applies to economic redundancies by enterprises' branches holding business licenses. The Draft sets out a more in-depth procedure for redundancy that is to be followed in addition to the less comprehensive provisions contained under the Labour Contract Law. It contains a list of statutory content and basic information about redundancy, which an enterprise is obligated to communicate to all employees in advance of filing a redundancy report to the relevant labour authority. The Draft further obligates the enterprise to solicit and listen to the employees' opinions regarding the redundancy. A failure to do so will entitle the employees to require the enterprise to repeat the redundancy process.

A range of optional measures which enterprises facing a redundancy situation can undertake are detailed under the Draft. The enterprise may discuss these measures and enter negotiations with its trade union or employee representatives in order to minimize the scale of the proposed redundancy. One of the measures relates to cases where an enterprise alters its services or operations which leads to having unqualified or unsuitable employees. The measures allow the enterprise to provide certain training to enhance the skillset of an employee who becomes incompetent for their posts as a result of the business provision change. Where an enterprise is restructured in accordance with the Enterprise Bankruptcy Law, suffers serious difficulty in production, or encounters material change occurring from external circumstances which renders the employment contract unenforceable, the enterprise may, after consultation with its trade union or employee representatives, take steps to avoid or reduce the proposed redundancy, including training, reduction of working hours, salary adjustment and introducing shift patterns.

As an encouragement for enterprises to exercise the measures and as a further bid for steady employment, the Draft confirms that labour authorities will provide subsidies and guidance to enterprises that operate redundancy policies in support of the new rules.

Another change under the Draft relates to mutual termination, which enterprises currently rely on in cases of redundancy to avoid having to meet statutory formality requirements. The Draft sets more hurdles by stipulating that in cases of mutual termination of 20 employees or more, the enterprise should inform its trade union or all its employees, as well as provide the number of targeted employees to the local labour authority 30 days before the execution of the mutual termination.

Amendment to Collective Contract Provision (Draft)

The Standing Committee of the Shanghai Municipal People's Congress has issued a draft Amendment to the Shanghai Collective Contract Provision (the "Draft"). The draft was open for public comments from 8 to 23 January 2015. Compared to the previous legislation, which was effective from 1 January 2008, the amendment is more detailed and exhaustive. It contrasts with its recently promulgated counterpart in Guangdong, effective from September 2014, which is less conservative.

The Draft's notable elements are as follows:

  1. It specifies the subjects generally covered by collective bargaining for salary, including salary distribution systems, salary standard and salary payment methods, the annual salary adjustment range, bonuses and allowances and subsidies, etc;
  2. Certain elements are entailed thereunder to be referenced for collective bargaining for salary, including enterprises' production proficiency and business performance, the total salaries and average salary of enterprises over the previous year, the workforce cost of enterprises and the industry, the average salary of the city and the industry, the guiding line for enterprises' salary increase, the minimum salary standard of the city and the urban consumption price index, etc;
  3. The Draft deals with trade secrets concerns by granting employers the right to sign a confidentiality agreement with a relevant bargaining representative;
  4. Similar to its Guangdong counterpart, under the Draft, employers and employees are subject to certain restrictive obligations. For example, enterprises are not allowed to restrict freedom of employee bargaining representatives or humiliate, threaten or physically hurt them. On the other hand, employees are forbidden to cease working, in breach of their employment contract, or to compel other employees to be absent from work or disrupt the normal working order of the employer;
  5. Under this Draft, trade collective bargaining is extended to other industries than just architecture and food & beverage. The trade union of the industry may select representatives to bargain with trade association for the execution of a trade collective contract. For the neighbourhood and industrial parks where small and micro-sized enterprises which are not capable of collective bargaining are located, the related trade unions are entitled to select representatives for collective bargaining and execute a regional collective contract; and
  6. In light of disputes that occur in the course of collective bargaining, the Draft prescribes that employees and enterprises may seek instruction from the upper-level trade union and enterprise association to achieve resolution. This differs from previous legislation where the local labour authority would be the sole organisation responsible for the resolution of a dispute.

There is a sense that the Draft in some ways mirrors the latest Guangdong Provisions on Collective Contract but it falls short of provisions on mechanisms to start collective bargaining and deadlines for the completion of collective bargaining. That being said, both Shanghai and Guangdong Provisions discussed set out that in the course of collective bargaining, employees are not allowed to cease work or compel co-workers to be absent from work in breach of their employment contracts or employers' internal rules. In this sense, the government is making an effort to encourage collective bargaining and collective contract executions to the extent that strikes are actively discouraged.

Government's First attempt at Deploying Human Resource Service Industry

As reported by People's Daily on 22 January 2015, the Ministry of Human Resources and Social Security, together with the National Development and Reform Commission and the Ministry of Finance, have released an Opinion regarding Quickening Development of Human Resource Service Industry (the "Opinion"). As detailed in the Opinion, by 2020, the employees working in this industry will reach 200,000; the market scale amount to 2000 billion Chinese Yuan and a wholesome, professional, information-based, industrial and globalized human resource service system will be set up. As at the end of 2013, there were 26,000 organisations with a combined total of 358,000 employees, providing human resources services for 430,000,000 employees and 2,002 business entities.

Opinions on Quickening Development of Service Outsource Industry

On 16 January 2015, the State Council issued the Opinion regarding Driving Fast Development of Service Outsource Industry (the "Opinion"). The Opinion indicates that up until 2020, the service outsource industry will target, at an increase in scale and optimized industrial structure, a greater competitive ability of enterprises in the global market. In light of the Opinion, software, information technology, research and development, internet and energy will be the major areas for promoting service outsource. This is the first time that the State Council has made an entire deployment to quicken the development of the service outsource industry.

Authors

Walsh-Pádraig

Pádraig Walsh

Partner
China and Hong Kong

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Image of Ying Wang

Ying Wang

Partner
China and Hong Kong

Call me on: +86 21 2312 1288
de Silva-Susan

Susan de Silva

Consultant
Singapore

Call me on: +65 6534 5266