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The Layoffs List

2020-06-16

Authors: Liu Yuxiang, Sun Miaomiao
Editor: Normand Gauthier

In the several economic layoffs handled by the authors, the list of employees to be laid off has always been one of the major concern of employers. On the one hand, in accordance with Article 42 of the Labor Contract Law of the People’s Republic of China (the Labor Contract Law), there are six types of employees with which employers shall not dissolve the labor contracts.

On the other hand, under Article 41, the following employees shall be given a priority to be kept when the employers reduce the number of employees (the priority retention personnel):
1. The employees who possess a fixed-term labor contract with a long time period (category 1);
2. The employees who have concluded a labor contract without fixed term (category 2); and
3. The employees whose family has no other working members and has an elder or a minor to support (category 3).

Should the list of the layoff include all/any of the Article 41 mentioned employees? In order to have a better understanding of this matter, the authors will share experiences gained from several layoffs:

I. Legal risk
If the list of priority retention personnel provided above is not respected, two types of risks have to be taken into account by the enterprise regarding wrongful dismissal. Individually, as soon as the company terminates the contract with the employee whose situation fits in the requirements of Article 41 rather than those who does not, the layoff might be deemed to be illegal. Collectively, if the list of a layoff involves priority retention personnel, the layoff will be wrongful regardless of which labor relationships are factually terminated.

II. Analysis
A. Direct Risk
As mentioned above, if the employer terminates the contracts with the priority retention personnel and continues to perform the contracts with other employees, the enterprise’s layoff might be deemed as an illegal termination. However, in combination with the following detailed analysis, the legal risks exposed to the enterprise are limited:

1. The Interpretation of Article 41 Paragraph 2
Firstly, Article 41 paragraph 2 of the Labor Contract Law regulates three types of employees that should be retained in priority when employers reduce their workforce. Article 42 provides six types of employees whose labor contract cannot be terminated. By comparing these two articles, priority retention should be understood as a special treatment of the company towards special employees in the case of layoffs. It should not be interpreted as the need to retain or a prohibition to cancel the contracts with the priority retention personnel.

Secondly, in judicial practice, employees claim that they belong to the priority retention personnel. Consequently, the employer cancelling the labor contracts with them is illegal. As a matter of fact, judges ruled in the judgments of such cases, that “the Labor Contract Law stipulates, that priority should be given to employees who have no fixed-term labor contract. However, it does not stipulate that such employees shall not be economically laid off. It only stipulates that they should be “prioritized...”[1] or “The plaintiff (name) pointed out that he/she belongs to the personnel specified in Article 41 and should be retained preferentially, but the law does not prohibit the reduction of priority retained personnel.”[2]

Hence, it is not illegal if an employer cancels the labor contract with one employee who shall be given a priority to be kept when the layoff occurs.

2. Rules of Evidence
In accordance with the rules of evidence, employees bear the burden of proof that they have priority retention but they have been laid off. Moreover, employees also need to prove that the employees who have been kept during the layoff do not have priority retention. Due to the distribution of the burden of proof, the risk of the employer cutting the priority retention personnel is greatly reduced.

Furthermore, the employer can provide counter evidence in such disputes. For instance, in the (2018) Yue 0306 Min Chu 25559 labor dispute case, the employee, Mr. Lai, claimed that there is one director beside him in their department. Moreover, Mr. Lai’s has more years of working experiences than the director. However, Mr. Lai’s employer did not give him a priority when the employer cut down the number of employees. Therefore, Mr. Lai claimed that the termination was illegal. The employer provided the labor contract signed with another director to prove that the labor contract was a non-fixed-term labor contract. In conclusion, the court ruled against Mr. Lai.

3. Open-ended labor contracts
Employees concluding open-ended labor contracts with the employer may assume their priority in front of employees who have concluded a fixed-term labor contract with the employer with a relative long term. However, this view is a misunderstanding of Article 41 Paragraph 2. In fact, the sequence of three categories provided in Article 41 is equal. There is no further sequential arrangement between them.

Considering that employees with unfixed-term labor contracts have the same priority as those with long fixed-term labor contracts. The definition of a long fixed-term labor contract needs to be established. The law does not stipulate the standard of long and short labor contracts. The long period can be judged by internal comparison of employees and the regularity of the duration of a fixed-term labor contract with all employees. As a result, no one can claim that he/she has a “long” term fixed-term labor contract with the employer. Considering that the labor contract period of any person is not shorter than others. For this reason, every individual can claim a fixed-term labor contract with the employer for a "long" period. The two arguments can be used to deal with the claims of the priority of a long fixed-term labor contract and an unfixed-term labor contract.

On another note, as far as judicial practice is concerned, employees who claim that the cancellations are illegal on the grounds that they have concluded open-ended labor contract are not supported by the court.

4. Sole bread winner in the family with dependent family members who are elderly or minors
It should be pointed out that if an employer cancels the contract with an employee who is the sole bread winner in the family with dependent elderly or minor family. The layoff of employer may consequently be ruled as illegal. For example, in (2012) Hui Zhong Fa Min San Zhong Zi No. 337 labor dispute case, the employee advocated that the employer illegally dismissed him and his wife. In the second trial period, the household registration materials were submitted by the employee to prove that his family members included: father Liang Shuhua, born on January 2, 1949, 64 years old this year; mother Chen Yujie, born on August 5, 1954, 58 years old this year; daughter Liang Huiyan, born on August 31, 2008, four years old. The judge supported his claim and pointed out that the layoffs included 20 employees including the employee and his wife. They are the priority retention personnel and the employer’s act of reducing the employee and his wife at the same time violates the law.

B. Indirect Risk
As mentioned above, from a collective perspective, it is a wrongful action if the employer’s layoff list includes the employees who should be retained in priority. To be clearer, we will use a simple example to illustrate this point. For instance, Enterprise X made a layoff list including employee A,B,C and D. Employee A is a priority retention personnel. Employee B,C and D are not. In the end, Enterprise X terminated the relationships with Employee B,C and D, but kept Employee A. From a collective perspective, Enterprise X may face the legal risk of being illegally terminated Employee B,C and D since the layoff list included Employee A in the first place. Nevertheless, based on a comprehensive search of the relevant cases, there are currently no cases which have been found to be illegal. Therefore, this risk is still only at a theoretical level.

III. Suggestion
1. When employers make the layoff list, the focus should be made on category 3 in Article 41. This category contains that there are no other employed persons in the family and the presence of dependent elderly or minor. Some readers may have the view that the judiciary is unfair about the three categories. The authors think it is an effective coordination of the legislative intent and the current situation of the dispute.

2. Including the employees who should be given a priority to be kept when the employer is cutting off employees in the layoff list is not only regarding unilateral termination. Considering that the indirect risk is limited, it is one of the best ways to put pressure on employees to complete the negotiation and to dissolve the contracts upon consensus through consultation. However, a specific assessment should be carried out before deciding whether to adopt an unilateral means of release.
 

[1] (2018) Su 09 Min Zhong 5311; (2018) Su 09 Min Zhong 5310; (2018) Su 09 Min Zhong 4758;

[2] (2017) Nei 0303 Min Chu 109; (2017) Nei 0303 Min Chu 105;

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