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How Foreign Invested Enterprises (FIEs) to Dismiss Employees and Make staff redundant in China - YouTube
Channel: International Lawyer in Shanghai, China
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Hi there, I am Charles Shen,Partner of Shanghai
Sun Hold Law Firm.Today I would like to talk about
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how foreign invested enterprises (FIEs) to dismiss
employees and make staff redundant in China.
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In case foreign invested enterprises decide to
contract or even shut down their business in China
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due to various reasons, inevitably,
they have to consider how to dismiss
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employees and make stuff redundant
legitimately and economically
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I would like to discuss briefly some
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legal options available according
to Chinese labor law & regulations.
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1. Dismissing the staff
through friendly negotiation
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FIEs may propose and terminate
the employment contracts
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with the employees through friendly negotiation.
In case the termination agreement is concluded,
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FIEs (the employer) should pay the employee
severance pay based on the number of years worked
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with the employer at the rate of one month’s wage
for each full year worked ( Any period of not less
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than six months but less than one year shall be
counted as one year. The severance pay payable
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to an employee for any period of less than six
months shall be one-half of his monthly wages.
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(the same below) Obviously, it could be reasonably
anticipated that it is much time-consuming and
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difficult to terminate the employment contracts
with the employees through friendly negotiation.
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2. Dismissing the staff when
the employment contracts expire
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FIEs may refuse to renew the employment
contract when its term expire, while FIEs
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should pay the employee severance pay based on
the number of years worked with the employer
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at the rate of one month’s
wage for each full year worked.
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However, please note that the employment contracts
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with the employees who have worked for
FIEs more than 10 years will never expire.
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3. Dismissing the staff by unilaterally
rescinding the employment contracts
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In accordance with Chinese labor law, only with
legitimate reasons can an employer unilaterally
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rescind the employment contract. Otherwise,
the employer should pay damages to the employee
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at twice the rate of the severance pay, i.e.
based on the number of years worked with the
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employer at the rate of two month’s wage for each
full year worked. Generally speaking, it is far
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from easy for FIEs to argue any legal grounds
which justify the unilateral rescission. 4.
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Dismissing the staff by making staff redundant
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Article 41 of Labor Contract Law of the
People's Republic of China states, “If any of
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the following circumstances makes it necessary
to reduce the workforce by 20 persons or more
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or by a number of persons that is less than 20
but accounts for 10 percent or more of the total
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number of the enterprise’s employees, the Employer
may reduce the workforce after it has explained
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the circumstances to its Trade union or to
all of its employees 30 days in advance,
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has considered the opinions of the Trade union
or the employees and has subsequently reported
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the workforce reduction plan to the
labor administration department:
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(1) Restructuring pursuant to
the Enterprise Bankruptcy Law;
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(2) Serious difficulties in
production and/or business operations;
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(3) The enterprise switches production, introduces
a major technological innovation or revises its
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business method, and, after amendment of
employment contracts, still needs to reduce
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its workforce; or (4) Another major change
in the objective economic circumstances
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relied upon at the time of conclusion of
the employment contracts, rendering them
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unperformable…”FIEs could make staff redundant by
reason of “Another major change in the objective
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economic circumstances relied upon at the time
of conclusion of the employment contracts,
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rendering them unperformable” (section (4)).
However, the redundancy procedure is much complex
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and time-consuming. In addition, FIEs should pay
the employee severance pay based on the number
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of years worked with the employer at the rate
of one month’s wage for each full year worked.
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5. Dismissing staff by reason of
company dissolution and liquidation
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According to Article 44 Labor Contract
Law of the People's Republic of China,
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an employment contract shall be terminated if:…(5)
The Employer has its business license revoked,
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is ordered to close or is closed down, or
the Employer decides on early dissolution.
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The shareholder of FIEs may make a resolution to
dissolve and liquidate the company incorporated
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in China. Logically, all the staff have to be
dismissed during the dissolution and liquidation
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process, while FIEs should pay the employee
severance pay based on the number of years
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worked with the employer at the rate of
one month’s wage for each full year worked.
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thank you, thank you for watching
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