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Chinese Labor Law During COVID-19 Part 2

Jul 07, 2020

 

By Normand Gauthier, Yiwei Su

As the epidemic now pandemic is sweeping China and the world, this unfortunate event brings the planet to a halt and creates many unprecedented issues. One main concern is labor, in these difficult times, how to protect the labor rights of our fellow laborers whilst also supporting enterprises’ survival? This is truly a fine line for legislators, the situation is terrible for everyone and employees require protection but if there are no enterprises, then labor rights do not matter. This article will explore how the People’s Republic of China manage this delicate balancing act. As per usual, my article aims to provide a summary as labor law is local and complex. In many cases, the new regulations surrounding COVID-19 are not very clear in terms of practical implementation, however, throughout the text I will share links to other in-depth articles by River Delta Law Firm for the readers who wish to have a better understanding of specific issues.


The first article explored prevention and control. In case you missed it, click the blue text below to read more↓↓↓

Chinese Labor Law During COVID-19 Part 1

This second article of two will explore wages, flexible work arrangements, exemptions and reductions, and termination.


Wages Issues

The special situation raises some questions regarding wages of workers during the pandemic. The government, trying to balance the rights of laborers with the survival of enterprises, implemented some circumstances under which workers are entitled to their wage. Wages during isolation and shutdown are to some extent mainly protected under the Notice of the General Office of the Ministry of Human Resources and Social Security on Properly Handling Labor Relation Issues During the Period for Prevention and Control of the Novel Coronavirus-infected Pneumonia Epidemic (Ren She Ting Fa Ming Dian (2020) No. 5) (herein after Notice No. 5) and the Opinions on Stabilizing Employment Relationship During the Period for Prevention and Control of the Novel Coronavirus-infected Pneumonia Epidemic to Support Enterprises in Resuming Work and Production (Ren She Bu Fa No. 8) (hereinafter Notice No. 8). Regarding isolation, the clearest information can be found in the first article of the Notice No. 5 states that:


Where an employee of an enterprise is unable to provide normal work as a result of being isolated and treated or under medical observation because that he/she is a patient with pneumonia, a suspected patient or in close contact with a person with the novel coronavirus infection, or as a result of the government's implementation of isolation measures or other emergency measures, the enterprise shall pay the employee remuneration during such period, and shall not rescind the employment contract with the employee in accordance with Articles 40 and 41 of the Employment Contract Law[1]. During this period, if the employment contract expires, it shall be extended to the expiration of the employee's medical treatment period, medical observation period, isolation period or the end of the emergency measures taken by the government.(Emphasis added)


Under this article, we can note a protection on the wage and the labor relation under three potential conditions. The first condition is medical observation for those infected, suspected of infection or in close contact with an infected individual. The second condition is government isolation measures and the third condition is a government emergency measure. Practically speaking, it means that not every employee who is unable to come to work is entitled to a wage, it will depend on whether the employee incapacity to provide labor falls under one of the three conditions. What defines exactly these conditions is a fascinating but long topic, for more information I invite you to read River Delta’s article “Wages of Workers Under Isolation and Emergency Measures” (also available in Mandarin).




Another important aspect of wages during the pandemic is the worker’s right to be paid one payment cycle during the delayed resumption of work or non-return to work due to the epidemic followed by a living wage. However, the definition of payment cycle is not clarified and as with everything related to labor law in China, is highly local. The three main interpretations of payment cycle are (1) the calendar month when the production ceased, so until the first of the next month; (2) according to the usual enterprise pay cycle; or (3) one month from the date of the shutdown (according to the agreed pay cycle duration, usually it is one month). Once again, a very interesting topic which this summary article cannot explore further, I suggest our reader to look at River Delta’s article “Money During the Post-Epidemic Period Part 1” (also available in Mandarin) for more information.


Flexible work arrangement

As business is slowed down at best and completely closed at worst, so is the company cash flow, and it is reasonable to consider how to mitigate this issue through flexible work arrangements. In fact, the Chinese government itself promotes flexible work arrangement in the Notice No. 8. It is very important to note that most of these arrangements cannot be unilaterally decided by the employer, it has to be done through individual or collective negotiation. If an employer does not respect the principles of negotiation and attempts to force flexible arrangements, it is at risk not only that those arrangements be void, but also for the employees to claim illegal termination and its associated economic compensation due to not respecting the contractual work conditions. In practice, however, employee understand that being uncooperative may lead to the company shut down or the employee being unable to provide work and potentially not entitled to a wage. Thus, proper communication is paramount to flexible work arrangements.


1.Remote work

For enterprises which working from home is possible, it is one of the most straightforward solution to the issue. Whilst negotiation and communication will smoothen the process, company may have the right impose this arrangement within reasonable limits. Before taking any unilateral actions, the author recommends to check local regulations and consult local authorities.

Whilst the solution looks great, we invite enterprises to also consider security when working from home, both from the perspective of trade secrets and confidentiality, as well as compliance to the Cybersecurity Law of the People’s Republic of China.




2.Modify working hours

Working hours can be modified in many ways to either (1) be adjusted to the actual workflow, reducing labor costs by increasing efficiency, or (2) to reduce the number of hours, reducing labor cost by reducing labor.


The company can adjust the working hours to the workload by arranging annual leave, welfare leaves and other leaves of employees. This falls under the employer’s right to manage and can be done unilaterally. The enterprise may also opt for flexible working hours system or staggered shifts. Usually, only certain categories of employees are eligible for alternative working hours system, however, in light of the situation the government has increased the scope of eligibility as well as fasten the application process. It is important to note that flexible working hours system requires approval for government, while the enterprise might be entitled to use such system without employee consent, it must still apply to the local government. The company may also negotiate with employees to use the comprehensive adjustment of rest days. Under this system, the employee can stop working at the moment and catch-up during their usual rest days when the situation has recovered (whilst still giving one rest day per week). In addition to other practical considerations, the specific details of comprehensive rest days adjustment can vary widely per local, if you have an interest in using such flexible arrangement, we recommend to read River Delta’s article “Comprehensive Rest Days Adjustment During COVID-19 Epidemic” (also available in Mandarin).


The company can reduce the number of working hours through negotiation with employees, either by shortening the working hours during each shift or rearranging work shifts by reducing them to the necessary amount. You can read more on that topic with our article “Rotating Rests and Shortened Hours During the COVID-19 Outbreak” (also available in Mandarin).


3.Temporary closure

This section includes three possibilities, all of them requiring negotiation with the employees. The enterprise may consider unpaid leave or suspension of labor contract during which the employee has no pay (social security obligations must still be met). The enterprise may also choose furlough, a temporary lay-off, under which the company must pay one payment cycle of wage, as stated in section 2 of this article, followed by a living wage. Living wage is usually calculated based the minimum wage and varies per local.


4.Negotiation

In this section of the article, negotiation was mentioned often. As stated, most flexible work arrangement must be negotiated, especially if it touches the wage of employees. The basis can be found in the Article 4 of the Labor Contract Law of the People’s Republic of China:


…Where an employer formulates, amends or decides rules or important events concerning the remuneration, working time, break, vacation, work safety and sanitation, insurance and welfare, training of employees, labor discipline, or management of production quotas, which are directly related to the interests of the employees, such rules or important events shall be discussed at the meeting of employees' representatives or the general meeting of all employees, and the employer shall also put forward proposals and opinions to the employees and negotiate with the labor union or the employees' representatives on an equal basis to reach agreements on these rules or events.

During the process of execution of a rule or decision about an important event, if the labor union or the employees deem it improper, they may require the employer to amend or improve it through negotiations.

The employer shall make an announcement of the rules and important events which are directly related to the interests of the employees or inform the employees of these rules or events.

(Emphasis added)


Negotiation can be done two ways, individually or collectively. The company can choose to discuss with every employee individually and agree on a flexible arrangement with each employee. The company can also choose the collective path, in a very simplified way, there are two levels of collective relations in China, the mandatory Democratic Management, and the Trade Union created by the free will of the workers. Both of these hold what the author refers to as “procedural power”, in other words, not respecting procedures requiring consultation with the trade union or the worker’s congress under democratic management may lead to the decision being void and potential liabilities. You may read an old article of mine “Collective Labor Relations in China” explaining the topic in more details. When going through collective negotiation, both sides will be represented by at least three representatives and have the same number of representatives. For employees the representatives shall be assigned by the trade union, or in the absence of trade union shall be assigned by democratic recommendation and consent of at least half of the employees. A properly negotiated collective contract following relevant laws and regulations shall have a legal binding force between the employing unit and all its employees.


Thus, depending on the size of the company, the number of employees to which flexible arrangements is applicable and other factors, the company can choose which path is likely the most advantageous for negotiation.




5.Word of caution

China law is local , the practicalities are defined at local level. Whilst we hope this section helps our readers understand the possible flexible arrangements, making a decision based only on this article has significant chance to lead to employment law issues. We recommend you to:

  • Check local regulations, consult local authorities (and hire our lawyers !)
  • Follow proper negotiation process
  • (even if not mandatory, communication with employees is recommended to keep harmonious labor relations in these stressful times)
  • Document properly


Exemption and reductions

The government has published many notices aiming at reducing the burden of social security contributions, allowing provinces (in a large understanding of the word) to establish reduction and exemptions of social security based on the local situation. Such reductions include exemption of premium contribution by SMEs and micro enterprises for basic pension, unemployment and work injury insurance, deferred payment for enterprises in serious difficulty and deferred payment of housing fund. The national level legislation leaves significant room for the local government given the high variation in touched region. Thus, the practical application of such reduction and exemption must be understood from a local regulation perspective. I invite our reader to read River Delta’s article “Money During the Post-Epidemic Period Part 5” (also available in Mandarin) for more information.


Termination

Despite the available options for flexible work arrangements and potential exemptions, company may still need to reduce their labor costs in order to survive. On an individual scale, the legal ground would be


The objective situation, on which the conclusion of the labor contract is based, has changed considerably, the labor contract is unable to be performed and no agreement on changing the contents of the labor contract is reached after negotiations between the employer and the employee. [2]


Termination on this legal ground requires severance payment and 30 days notice (or one month’s wage) and to go through several statutory procedures. More importantly, it is not a claim companies can make lightly, there need to be a change in the objective situation which has a causal link to the impossibility to perform the labor contract.

On a collective scale, termination of employees will be qualified a lay-off if 20 or more employees or 10% of the workforce is laid off due to “serious difficulties in production and business operation” or “the objective economic situation, on which the labor contract is based, has changed considerably and the employer is unable to perform the labor contract”.[3] Similarly to the individual termination above, it will require severance payment, 30 days’ notice (or one month's wage), several statutory procedures and strong causal links.

Chinese labor authorities, trade union and labor arbitrators have strong considerations in preserving social harmony and harmonious labor relationship. Thus, in these troubling times, the expectations are high and company should consider termination as a last resource and have a strong case backed by equally strong evidence.


Conclusion

To conclude, the COVID-19 pandemic is bad for everyone, countries, employees, companies, nobody is exempt from the negative impact. In an effort to control the outbreak and balance labor rights with enterprise survival, China has stipulated control and prevention obligations for individuals and company, guided labor relations towards more flexible work arrangements and reduced the social security burden. We hope these two articles gave our reader a good general understanding of their obligations as an employer and of the governmental support they should take advantage of. As a final reminder, this article is a summary of employment law during COVID-19 and lacks in practicality. Even if the length of this article is increased by tenfold, it would still not be nearly enough; read your local regulations and contact your local authorities. On a last note, laws and regulations aside, I urge employees and employers to act reasonably and with empathy towards each other, even if the situation is tense, cooperation will carry you much further.


This article is a vulgarization of laws and regulations and does not constitute legal advice. The author is not responsible for any loss caused by using any information provided in this article. For more information please contact Normand@Laodongfa.com.

For all intent and purpose, the term China in this article refers to the People’s Republic of China.


Note:

1.Article 40 and 41 of the Labor Contract Law are unilateral termination of employee without employee's fault and lay-off.

2.Labor Contract Law of the People's Republic of China, Article 40.3

3.Labor Contract Law of the People's Republic of China, Article 41, paragraph 1, 41.2 and 41.4


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