Labor Law

The following labor law aspects are presently of particular relevance for employers.

Payment entitlements in times of Covid-19

Remuneration payments to employees in regards to Covid-19 cases

If the employee proves to be a Covid-19 patient, a suspected patient, or a person in close contact, or is subject to governmental isolation or other emergency measures, the employer shall pay him/her salary during the medical treatment period, medical observation period, or relevant periods of isolation or other emergency measures. In addition, some provinces and municipalities have further stipulated that employers are to regard such employees as providing regular labor services and are required to pay salaries according to the standard of the normal working period (we understand that such salaries shall include bonus and allowance receivable by the employees under normal attendance, such as rental allowance).

Remuneration payments to employees during the business suspension period

Many enterprises, especially small and medium enterprises, suffered significant financial pressures in spring 2020 due to the Covid-19 epidemic. As a result, some of those enterprises must indefinitely suspend business and production even after the statutory work postponement period, in order to lower cost and seek capital. According to the notice issued by the Ministry of Human Resources and Social Security, where an enterprise’s shutdown or production halt occurs within one salary payment period, the enterprise should pay salaries to its employees based on the standard stipulated in the employment contracts. Where such shutdown or production halt lasts more than one salary payment period and the employees provide regular labor services, the employer should pay salaries no lower than the local minimum salary standard.  If the employees do not provide regular labor services, the enterprise should pay living allowances in accordance with the standards stipulated in the relevant provisions promulgated by provinces, autonomous regions, and centrally-administered municipalities. For example, Shanghai and Tianjin require that the living allowance amount shall not be lower than the local minimum salary, while Beijing requires that the living allowance shall be no lower than 70% of local minimum salary.

Remuneration payments to employees unable to return to work due to epidemic control measures

If the employee is unable to return to work for ‘objective reasons’ in relation to epidemic control measures e.g. home-based observation as required by the industry park, or taking care of children at home, the employer may arrange for the employees to take annual leave or work from home. If it is impossible for a certain employee to work from home and he/she has used up his/her annual leave, the employer may negotiate with said employee a salary payment solution, by taking the salary payment standard during the business suspension period for reference i.e. paying normal salary within one salary payment cycle, and living allowance during and after the second salary payment cycle (with the standards stipulated in the relevant provincial regulations e.g. in Jiangsu, no less than 80% of local minimum salary).

Postponed payments of remuneration

In principal, companies shall pay remuneration to the employees as per the payment term agreed in the employment contract. However, it is allowed that the enterprise may postpone salary payment to employees in instances of impeded business operation and cash flow issues. According to local regulations in Beijing and Shanghai, after having acquired consent from the labor union or employees’ representatives, an enterprise that has business operation difficulties may postpone the payment of salary to its employees.

In the event that an enterprise is not able to pay salary to the employees on time due to the Covid-19 epidemic, it is suggested that the enterprise firstly informs the employees with the difficulty it faces as well as the estimated payment term, in order to acquire understanding and consent from the employees’ side. However, please note that the postponed period shall be no more than 30 days.

Laying off employees and salary reduction

In China, there is no official regulation on short-time work (and no corresponding state aid) such as is currently being applied en masse in Germany and other European countries, even though in practice salary reductions are negotiated with employees or their representatives. Under State Council notices, companies shall refrain from layoffs or downsizing to the extent possible, and should in the first place counter business difficulties by reducing salaries or postponing salary payments.

Enterprises are allowed to lay off employees if they fulfill the conditions and procedures listed under the Labor Contract Law. For example, if a company intends to lay off 20 employees or more, or lay off more than 10% of all employees, it needs to notify the labor union or all the employees with the decision 30 days in advance and collect their opinion/feedback. Furthermore a layoff plan needs to be filed with the competent labor administrative authority. So far, the official unemployment statistics in China do not show any significant increase and it seems that many companies have not laid off their employees during this crisis.