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18 juni 2020

COVID-19 employment disputes in China

The economic consequences of the COVID-19 pandemic have greatly affected almost every aspect of society. Especially in the labor market, the pandemic is having a dramatic impact. In these challenging times, many companies are facing financial hardship. To reduce labor costs many employees are considering layoffs, furloughs or termination of employees. When handling employee terminations, it is important to do it in the correct manner.

Guiding Opinions

Chinese employment authorities have been putting a large emphasis on job stability and the maintenance of employment. In order to act in compliance with these principles, Chinese courts and employment authorities have released Guiding Opinions. In these opinions, they encourage parties to perform in a cooperative manner in relation to employment contracts. They also encourage parties to negotiate to amend their contracts in order to assure the continuance of the performance of both parties under the employment contract. Negotiation and mediation are other principles that can be considered crucial when assessing labor dispute cases. Referral to these principles is often made when resolving labor disputes in a consultative manner.

Conditions for employment termination

The People’s Republic of China Employment Contract Law (ECL) sets out under which conditions employment termination may be lawfully carried out. Under the current circumstances surrounding COVID-19, an employer can terminate the contract in accordance with the ECL if the employee has been found guilty of committing a criminal offense that is related to ignoring the rules set forth by the government or to endanger the public for intentionally spreading COVID-19.

Mutual termination

It may also be possible that a Chinese employer wants to terminate an employment contract via a mutual termination. It is then necessary to use a fair and reasonable enforceable mutual termination agreement. The payment to be made by the employer has to be at least equal to the statutory severance amount to ensure the employee will cooperate to reach an agreement.

Layoff

Layoffs can be carried out due to a change in objective economic conditions related to COVID-19 or in the case of bankruptcy or dissolution. When you are considering employee separations it is important to handle it the right way, especially in these times of unprecedented challenges.

Further information

If you need further information, please do not hesitate to contact our Asia team: Joost Vrancken Peeters at +31620210657 orjvp@lgga.nl or Ye Yu at +31639267995 or y.yu@lgga.nl. Jiahui Plomp authored this article.