China: Guiding Opinions Issued on Layoffs

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(Feb 12, 2009) On January 23, 2009, in response to the international financial crisis, four Chinese agencies jointly issued guiding opinions on stabilizing labor relations (the Opinions). The six-part document begins with the statement that its purpose is to alleviate the "impact of the current economic situation on labour relations" and to strengthen "the harmonization of labour relations." (Opinions, English and Chinese texts available from the subscription database iSinoLaw, http://www.isinolaw.com/, No. 10048945 (last visited Feb. 6, 2009).)

The organizations that issued the Opinions, the Ministry of Human Resources and Social Security, the All China Federation of Trade Unions, the China Enterprise Confederation, and the China Enterprise Directors Association, were concerned about recent large-scale layoffs and suspensions of employment in China, which have been a problem especially for small- and medium-sized businesses. The world economic situation has particularly affected those enterprises that are labor-intensive and geared toward the export market. In addition to layoffs, in some companies wages are in arrears and insurance contributions have not been paid. There are cases in which the responsible parties have run away rather than deal with the problems, and the number of labor disputes has greatly increased. (Four Institutions Issued the Opinions to Control the Layoff Scale of Enterprises, iSINOLAW WEEKLY, Jan. 19-Feb. 1, 2009, available by email from webmaster1@isinolaw.com.)

Among the major points in the Opinions is the encouragement to enterprise federations that they lead enterprises to respond to the financial crisis proactively by strengthening management and promoting technical innovation. Also, the document points out the advantages of on-the-job training, rotation of duty shifts, and negotiating shifts and wages so as to avoid layoffs whenever possible. Trade unions are encouraged to direct workers to show concern about the survival of the enterprise in which they work by supporting those businesses that attempt to institute flexible work hours; to be receptive to on-the-job training and "wage negotiation" and to propose creative ideas to overcome problems faced by the many similar enterprises.

A "Rainbow Scheme" is suggested that would be a collective contract system for the negotiation of wages. This plan would be something developed by workers and management together. Companies that are maintaining normal production and operations should define a reasonable standard for employee wages through negotiations. However, in those enterprises experiencing difficulty in production and operations, flexibility should be negotiated in employment, work hours, and wages, and training programs should be developed. The goal is to "stabilize employment and labour relations." (Opinions, part III, supra.)

The Opinions also state that enterprises contemplating layoffs "should be guided and supervised on formulating the layoff plans in compliance with the law …" and should report plans to the local Human Resources and Social Security departments. (Opinions, part IV, supra.) Businesses that cannot afford to pay all the wages they owe at the time of a layoff may be permitted to negotiate with trade unions or directly with their employees to pay in installments. (Id.) Furthermore, the Opinions suggest that a fund for the protection of wages should be developed, in addition to a system of reporting problems with withheld wages. Any disputes about wage payment, the document states, should be handled in a timely manner. (Opinions, part V, supra.)

Finally, the Opinions call for the development of a system of communication and coordination concerning the settlement of major labor disputes. In general, the document advocates cooperation between business organizations, trade unions, and government offices to avoid the unrest that results from significant labor relations problems. (iSINOLAW WEEKLY, supra.)

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Last updated: 02/12/2009