international employment law firm alliance L&E Global

6. Cost-Reduction Strategies

To what extent can employers implement the following cost-reduction strategies as a result of COVID-19, and what are the primary limitations on each? 

  • Furloughs.

Chinese law does not recognise the concept of suspension. Employers may refer to regulations on “Suspension of Work and Production” and negotiate with employees who fail to provide labour after using up all leaves, according to the salary standards of Suspension of Work and Production, that is, in the first salary payment cycle, normally, the first month, the employer pays their normal salary; from the second month, the employer may pay basic living costs (equal to or less than the minimum monthly salary) according to local regulations.

  • Salary reductions.

Guiding Opinions issued by High Court of Shanghai Municipality stressed that during this special period to combat the COVID-19 pandemic, employers may reduce the salary after reaching an agreement with their employees through democratic consultation with the staff representatives’ congress, trade union, or staff representatives.  Otherwise, the employer can only reduce salary with the employee’s consent.

  • Redundancy.

Redundancy only applies to the four situations specified under Article 41 of PRC Employment Contract Law and where more than 20 or 10% of the total employees are dismissed. In any event, the employer shall complete the consultation procedures and file the redundancy plan with the local labour administration authority.

  • Facility closure.

An early dissolution of a legal entity is statutory cause for an employer to terminate the employee’s employment contract. Under this scenario, the employer’s shareholder shall resolve the termination, file the liquidation committee, and conduct liquidation and deregistration, afterwards.

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