CHINA Law and Practice Contributed by: Linda Liang, Piao Liu, Chutian Wang and Xiangbo Lv, King & Wood Mallesons
Under the first three circumstances, the employer shall pay the employee statutory severance. Economic Layoffs If an employer is reducing its workforce by 20 persons or more, or by 10% or more of the total number of its employees, the termination ground of economic layoff can be invoked under any of the following cir - cumstances: • restructuring pursuant to the PRC Enterprise Bank - ruptcy Law; • serious difficulties in production and/or business operations; • the employer switches production, introduces a major technological innovation or revises its business method and, after the amendment of employment contracts, still needs to reduce its workforce; or • other major changes occur to the objective eco - nomic circumstances relied upon at the time of execution of the employment contracts, rendering them unable to be performed. Before the layoffs, the employer has to follow the pro - cedural requirements as stipulated in the Employment Contract Law, as follows: • explain the circumstances to its trade union or all of its employees 30 days in advance; • consider the opinions of the trade union or the employees; and subsequently • report the layoff plan to the competent labour authorities. 7.2 Notice Periods Whether prior notice is necessary depends on the specific statutory ground for the termination. In the circumstances outlined in 7.1 Grounds for Termina- tion (Non-Fault Termination: Unilateral termination by the employer), an employee must be given 30 days’ prior written notice or one month’s salary in lieu of notice. An employee shall also give prior notice to the employer upon resignation. In the case of economic layoffs, an employer shall explain the situation to the trade union or all of its employees 30 days in advance (which can be regard - ed as a form of prior notice) and seek their opinions
before reporting the proposed layoffs to local admin - istrative authorities. Although not required by the Employment Contract Law, some local regulations in cities such as Bei - jing also require the employer to give prior notice to employees when the term of an employment contract expires and the employer decides not to renew it. Severance Please refer to 7.1 Grounds for Termination and the list of termination grounds on which the employee is entitled to severance pay. Generally, statutory severance is calculated as one month’s salary for every year of service of the employ - ee. Since the Employment Contract Law took effect on 1 January 2008, statutory severance pay must be calculated in two parts. • For the service period before 1 January 2008: statutory severance pay will be calculated in accordance with the applicable laws and regula - tions before 1 January 2008 (these can vary from the calculations that apply after 1 January 2008). • For the service period after 1 January 2008: statu - tory severance pay will be one month’s salary for every year of service (any period of six months or more but less than a year will be counted as one year), and half a month’s salary for a service period of less than six months. The one month’s salary is calculated based on the employee’s aver - age monthly salary during the 12 months prior to termination. However, when the average monthly salary of an employee exceeds three times the social average monthly remuneration issued by local government at the locality of the employer, the employee’s average monthly salary shall be capped at three times the social average monthly remuneration, and the length of service years shall be capped at 12 years.
Procedural Requirements for Termination The requirements to be observed include:
• notifying the trade union of the ground for termina - tion (for grounds of unilateral termination by the employer);
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