Special Declaration: This article is an original work by Attorney Shao Shiwei. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters. For article reprints, legal consultations, or business exchanges, please add: sswls66
Introduction
Corporate layoffs, under legal provisions, require filing; otherwise, there may be risks involving wrongful termination. However, some entities adopt the "clever tactic" of "batch layoffs" to evade the filing procedure, which often backfires and carries a high probability of constituting wrongful termination.
Case
The Court holds:
According to legal provisions, where serious difficulties arise in production and operations, necessitating the reduction of twenty or more employees, or fewer than twenty employees but accounting for ten percent or more of the total number of the enterprise's employees, the employer shall explain the situation to the trade union or all employees thirty days in advance, solicit opinions from the trade union or employees, and report the layoff plan to the labor administrative department before reducing personnel.
In this case, XX Company claimed that it faced operational difficulties and met the conditions for layoffs, but it failed to provide relevant evidence proving that it had fulfilled the relevant statutory procedures for economic layoffs. Therefore, XX Company's termination of the labor contract with Yu Qingrui did not comply with legal provisions and was deemed illegal, and it should pay compensation to Yu XX for the wrongful termination of the labor contract.
compensation for wrongful termination of the labor contract.
Court Judgment:
Shanghai XX Information Technology Co., Ltd. shall pay Yu XX compensation for termination of the labor contract in the amount of RMB 28,500 within seven days from the effective date of this judgment.
Case Number Index:
[(2021) Hu 0104 Min Chu No. 22076]
Reasons Why Entities Are Reluctant to File[i]：
Although the Labor Contract Law does not mention the word "approval" in its textual description, making the notion of "reporting and filing" seem more reasonable, an examination of the specific procedural guidelines implemented in various localities still leads to the conclusion that labor departments possess approval and decision-making authority over layoffs. The underlying reason is that corporate layoffs relate to an important indicator in government assessment tasks,
namely, the unemployment rate. Therefore, when issuing implementation rules and policy guidelines, local authorities, whether based on considerations of maintaining stability and harmony or due to data assessment requirements, impose certain "high requirements and strict obstacles" on enterprises implementing layoffs, rather than merely requiring "reporting and notification." Opinions and requirements raised by labor departments regarding layoffs
must be implemented and corrected by enterprises. Otherwise, if laid-off employees claim that the enterprise's application was not approved and thus assert that the enterprise conducted illegal layoffs, they are firmly positioned to prevail.
Question: Does Batch Layoffs Suspect Evading the Reporting Obligation?
☆Defendant (Employee) Argued:
Disagree with the plaintiff's claims. First, the plaintiff does not meet the substantive conditions for conducting economic layoffs. During the arbitration stage, the plaintiff cited Articles 41, Paragraphs 2 and 4 of the Labor Contract Law as the legal basis for conducting economic layoffs. However, the evidence provided by the plaintiff neither proves that the plaintiff's production and operational status reached
the standard for enterprises in serious difficulty as prescribed by the government, nor proves a causal relationship between the inability to continue the Phase II development project and the normal performance of the labor contracts between the parties. Therefore, the plaintiff does not meet the substantive conditions for conducting economic layoffs. Second, the plaintiff failed to fulfill the statutory procedures for economic layoffs. Before the layoffs, the total number of employees with established labor relationships with the plaintiff was 49. Within a short period of 41 days from October 31, 2018, to December 11, 2018, the plaintiff laid off 10 employees in three batches, dismissing 7 employees on the grounds of "employer layoffs," which exceeded 10% of the total number of employees. The plaintiff should have reported the layoff plan to the labor administrative department in accordance with Article 41 of the Labor Contract Law, but the plaintiff, to evade the reporting obligation, adopted a method of breaking up the whole into parts by conducting batch layoffs, ensuring that the number of employees laid off in each batch did not reach the statutory threshold. This constitutes wrongful termination of labor contracts, and compensation in the amount of RMB 163,776 should be paid in accordance with the law.
labor relationships with the plaintiff was 49. Within a short period of 41 days from October 31, 2018, to December 11, 2018, the plaintiff laid off 10 employees in three batches, dismissing 7 employees on the grounds of "employer layoffs," which exceeded 10% of the total number of employees. The plaintiff should have reported the layoff plan to the labor administrative department in accordance with Article 41 of the Labor Contract Law, but the plaintiff, to evade the reporting obligation, adopted a method of breaking up the whole into parts by conducting batch layoffs, ensuring that the number of employees laid off in each batch did not reach the statutory threshold. This constitutes wrongful termination of labor contracts, and compensation in the amount of RMB 163,776 should be paid in accordance with the law.
labor administrative department in accordance with Article 41 of the Labor Contract Law, but the plaintiff, to evade the reporting obligation, adopted a method of breaking up the whole into parts by conducting batch layoffs, ensuring that the number of employees laid off in each batch did not reach the statutory threshold. This constitutes wrongful termination of labor contracts, and compensation in the amount of RMB 163,776 should be paid in accordance with the law.
☆Findings of the Court:
On November 30, 2018, the plaintiff issued a "Certificate of Termination of Labor Contract" to the defendant, stating that the reason for termination was "employer layoffs," and the economic compensation paid was for 8 months, at a monthly standard of RMB 20,472, totaling RMB 163,776. On the same day, the plaintiff paid the defendant RMB 163,776, and the defendant left employment.
☆Opinion of the Court
The focal point of dispute in this case is whether the plaintiff's termination of the labor contract with the defendant on the grounds of "employer layoffs" complied with legal provisions. Economic layoffs involve the unilateral termination of labor contracts by the employer in situations where the employee is not at fault. Therefore, Article 41 of the Labor Contract Law of the People's Republic of China clearly stipulates the applicable conditions and procedures for economic layoffs, and employers must exercise their right of termination in accordance with legal provisions. In this case, during the layoff process, the plaintiff did not have a unified plan for the total number of employees to be laid off. The special meetings on personnel reduction, the submission of layoff plans to the trade union, the trade union's discussion of the plans, and the reporting of layoff plans to the labor administrative department were all conducted in three separate instances. Each relevant document stated "personnel laid off in this instance." The plaintiff company's claim that the three batches involving seven individuals constituted a single economic layoff is inconsistent with the facts, and this Court does not accept it. Therefore, when the plaintiff laid off Sun Hui and the defendant in November 2018, the company had forty-seven employees. The number of employees laid off was less than ten percent, which did not meet the legal requirements for the quantity and proportion of personnel reduction, and thus constitutes wrongful termination. Therefore, the plaintiff should pay the defendant compensation for wrongful termination of the labor contract.
applicable conditions and procedures for economic layoffs, and employers must exercise their right of termination in accordance with legal provisions. In this case, during the layoff process, the plaintiff did not have a unified plan for the total number of employees to be laid off. The special meetings on personnel reduction, the submission of layoff plans to the trade union, the trade union's discussion of the plans, and the reporting of layoff plans to the labor administrative department were all conducted in three separate instances. Each relevant document stated "personnel laid off in this instance." The plaintiff company's claim that the three batches involving seven individuals constituted a single economic layoff is inconsistent with the facts, and this Court does not accept it. Therefore, when the plaintiff laid off Sun Hui and the defendant in November 2018, the company had forty-seven employees. The number of employees laid off was less than ten percent, which did not meet the legal requirements for the quantity and proportion of personnel reduction, and thus constitutes wrongful termination. Therefore, the plaintiff should pay the defendant compensation for wrongful termination of the labor contract.
special meetings on personnel reduction, the submission of layoff plans to the trade union, the trade union's discussion of the plans, and the reporting of layoff plans to the labor administrative department were all conducted in three separate instances. Each relevant document stated "personnel laid off in this instance." The plaintiff company's claim that the three batches involving seven individuals constituted a single economic layoff is inconsistent with the facts, and this Court does not accept it. Therefore, when the plaintiff laid off Sun Hui and the defendant in November 2018, the company had forty-seven employees. The number of employees laid off was less than ten percent, which did not meet the legal requirements for the quantity and proportion of personnel reduction, and thus constitutes wrongful termination. Therefore, the plaintiff should pay the defendant compensation for wrongful termination of the labor contract.
the number of employees laid off was less than ten percent, which did not meet the legal requirements for the quantity and proportion of personnel reduction, and thus constitutes wrongful termination. Therefore, the plaintiff should pay the defendant compensation for wrongful termination of the labor contract.
Legal Provisions Regarding Layoffs:
1. Economic layoffs must meet statutory causes.
According to Article 41 of the Labor Contract Law, under any of the following circumstances, where it is necessary to reduce twenty or more employees, or fewer than twenty employees but accounting for ten percent or more of the total number of the enterprise's employees, the employer may reduce personnel after explaining the situation to the trade union or all employees thirty days in advance, soliciting opinions from the trade union or employees, and reporting the layoff plan to the labor administrative department:
reporting the layoff plan to the labor administrative department:
(1) Restructuring in accordance with the provisions of the Enterprise Bankruptcy Law;
(2) Serious difficulties arising in production and operations;
(3) The enterprise switches production, undergoes major technological innovation, or adjusts its business model, and still needs to reduce personnel after amending labor contracts;
(4) Other significant changes in the objective economic circumstances relied upon at the time of concluding the labor contract, rendering the labor contract impossible to perform.
Regarding the Number of Employees Laid Off:
The reference to laying off 20 or more employees refers to the number of employees laid off by the employer in a single instance, not the cumulative total of several layoffs;
For economic layoffs, which may not be conducted in a single instance, when layoffs are carried out in batches, because each batch constitutes an independent process, the employer should formulate appropriate layoff plans based on the specific circumstances of the employees involved. Each layoff instance must comply with statutory standards, satisfying both substantive and procedural conditions,
to avoid the risk of wrongful termination.
2. Economic layoffs must comply with statutory procedures.
The relevant procedures for employers conducting economic layoffs mainly include:
(1) The employer must explain the situation to the trade union or all employees thirty days in advance;
(2) Solicit opinions from the trade union or employees;
(3) Report the layoff plan to the labor administrative department.
3. Priority retention of special categories of employees is required.
According to Paragraph 2 of Article 41 of the Labor Contract Law, the following personnel shall be given priority for retention:
(1) Those who have concluded fixed-term labor contracts with relatively long terms with the entity;
(2) Those who have concluded open-ended labor contracts with the entity;
(3) Those whose families have no other employed members and who have elderly persons or minors requiring support.
4. The following personnel shall not be subject to economic layoffs
(1) Employees engaged in operations exposed to occupational disease hazards who have not undergone pre-departure occupational health examinations, or suspected occupational disease patients during diagnosis or medical observation;
(2) Those who have contracted occupational diseases or suffered work-related injuries while employed by the entity and have been confirmed to have lost or partially lost their capacity to work;
(3) Those who are ill or have suffered non-work-related injuries and are within the prescribed medical treatment period;
Flowchart for Layoff Filing
(5) Those who have worked continuously for the entity for fifteen years and are less than five years away from the statutory retirement age;
(6) Other circumstances prescribed by laws and administrative regulations.
For employees with special circumstances as prescribed in this article, the employer is not prohibited from terminating their labor contracts entirely, but may not terminate them pursuant to Article 40 [Termination Without Fault] and Article 41 [Economic Layoffs] of the Labor Contract Law. However, if the employer and the employee reach a mutual agreement, the labor contract may be terminated in accordance with Article 36 of the Labor Contract Law; if the employee falls under the circumstances specified in Article 39 of the Labor Contract Law, the employer may unilaterally terminate the labor contract, i.e., termination for fault.
contract may be terminated in accordance with Article 36 of the Labor Contract Law; if the employee falls under the circumstances specified in Article 39 of the Labor Contract Law, the employer may unilaterally terminate the labor contract, i.e., termination for fault.
[i]https://mp.weixin.qq.com/s?src=11×tamp=1649586114&ver=3730&signature=Bah58teIUgrvLxp*vRI0xd0qN3zEUGRcwSgnciw7dIkxxCSyIzsIAq-oVpTsmgbGj-VGJBG5gO4Lt-J-oHWke8LyapZUX2SYod6-alZKQ0PFPOY9wRm*vbjXqOAnyJOx&new=1
