CHINA Law and Practice Contributed by: Shuting Qi, Han Kun Law Offices
accounting year exceeded CNY4 billion, and at least two of these undertakings each had a turno - ver of more than CNY800 million within China in the last accounting year. After valid notification, the SAMR conducts substan - tive review to assess whether a transaction is likely to eliminate or substantially restrict competition. Trans - actions deemed to pose material anti-competitive risks may be blocked entirely, or approved subject to divestiture or other remedial conditions. Implementing a targeted deal without approval con - stitutes a violation and will trigger fines of up to 10% of the preceding year’s turnover and enforcement penalties. 2.5 Labour Law Regulations Properly managing employee arrangements during an M&A transaction is a key factor in ensuring the successful completion of the deal and the sustain - able development of the business thereafter. In China, employee arrangements are primarily governed by the PRC Labour Contract Law, mainly reflected in the fol - lowing aspects. Continuity of Employment In equity acquisitions, if the acquirer retains the employees of the target company, it assumes all asso - ciated employment-related rights and obligations. In asset acquisitions, prior service periods with the pre - vious employer are recognised and carried forward unless severance has already been paid by the previ - ous employer. This mandatory continuity rule prevents the acquirer from unilaterally reducing established entitlements or resetting seniority. Contract Modification Any modification to employment terms, including job position, work location, employing entity and work scope, must be based on mutual written agreement between the employer and employees. Unilateral forced adjustment without consent is invalid, and employees have the right to refuse unreasonable changes. Acquirers must conduct full communication and negotiation with employees in advance for such workforce allocation arrangements and formalise the
modification in writing to avoid labour disputes arising from non-compliance. Termination Requirements In the context of M&A, lawful unilateral termination by an employer may primarily be grounded on the fol - lowing statutory bases. The most frequently invoked provisions are Article 40 (3) (objective material change rendering contract performance impossible) and Arti - cle 41 (economic redundancy involving 20 or more employees) of the PRC Labour Contract Law. How - ever, economic redundancies under Article 41 require advance notification to the employer’s labour union, consultation with employees, and a 30-day filing with the local labour administrative authority. Proce - dural non-compliance renders terminations void, and rushed redundancies often trigger labour disputes, which can halt deal closing or disrupt post-acquisition operations. Compensation Statutory severance is generally calculated at one month’s average wage (subject to a cap) per year of service. However, parties may negotiate a compensa - tion package that differs from the statutory calcula - tion. 2.6 National Security Review China maintains a mandatory national security review framework for foreign acquisitions in certain areas under the Measures for the Security Review of Foreign Investment, which is administered by the NDRC as the lead authority of an inter-ministerial review office. Unlike merger control, national security review is trig - gered by the nature of the target’s business and relat - ed security risks, with no statutory turnover thresh - olds. This risk-based trigger requires early-stage due diligence to assess review exposure and avoid deal delays. The following investments in China will trigger such national security review: • investments in military industry, military support - ing industries and other fields relating to national defence security, and investments in areas adja - cent to military facilities and military industry facili - ties; or
310 CHAMBERS.COM
Powered by FlippingBook