How to prevent group disputes in placement of employees

In recent years, a new round of industrial transfer, especially in the manufacturing industry, has emerged in China because of rising land prices, relocations of industrial parks, a rise in environmental protection, and an increase in labour costs. Many enterprises, especially foreign-owned ones, responded to this new challenge by means of equity or business transfer, merger, relocation, or even by moving out of China. All these circumstances involve placement of employees (including redundancies).

It has been more than 10 years since the Labour Contract Law came into effect. Employees’ consciousness of rights has been continuously strengthened and the trend of labour disputes has changed from “disputes over rights” to “disputes over interests”. The arrangement of employee placements has been become increasingly difficult for enterprises, and it is easy to cause group disputes if an improper decision is made. A recent case is a group dispute over the cuts of certain production lines of Nitto Denko, in Suzhou, in January this year.

The reasons for group disputes are various and include insufficient prior investigation, unreasonable placement plan, untimely communication between management and employees or labour unions, absence of strong support from local governments and labour unions at higher levels, or non-co-operation of key employees and improper on-site actions. To avoid group disputes and ensure smooth placement of employees, the following recommendations are provided.

Conduct thorough due diligence concerning labour and personnel. Employment compliance is the core of labour and personnel due diligence in relation to the placement of employees. Its purpose is to check whether relevant labour laws and regulations are well implemented by enterprises in the process of employment, whether foreseeable possible claims from employees may raise, such as the arrears in or underpayment of social insurance premiums, and non-payment or underpayment of overtime wages. These circumstances may stimulate employees to “safeguard” their rights, causing the two parties in labour relations to be opposed.

In the meantime, if conditions permit (such as co-operation of the management of enterprises), it is also necessary to look into the feelings and demands of key employees (including employees from human resources departments, finance and other important departments, members of trade union committees and other prestigious employees) in the process of corporate change, to seek their understanding and support for employee placement plans.

Sort out important legal issues in the placement of employees. If the compliance analysis of the employment situation finds that an enterprise had irregularities in the past, these irregularities should be sorted out and their possible impact on employee placement should be evaluated. In addition to common irregularities such as defects in payment of social insurance premiums, enterprises should also pay due attention to the arrears in, or underpayment of, various statutory allowances, and take these factors into consideration when designing employee placement plans. Although the amount is usually not large, whether this issue can be handled properly will surely affect the feelings of employees.

After problems are identified, enterprises need to formulate corresponding remedial measures according to the seriousness and influences of the problems, and try to implement these measures before the commencement of employee placement. If a problem cannot be remedied or the cost of the remedy is too high, appropriate estimations should be made and the problem should be quantified as much as possible, and then be included in the employee placement plan to win the understanding and support of employees.

However, the same legal basis may not apply to placement of employees caused by similar commercial reasons. In the case of different legal bases, the operational procedures, requirements and difficulty of employee placement, and the chance that the company can win a labour dispute, are also very different. For example, in the case of equity transfer, according to specific conditions, enterprises may choose to apply article 33 of the Labour Contract Law (any change in name and investors will not affect performance of labour contracts), article 35 (change in the labour contract) or article 40(3) (dissolution of labour contracts due to significant changes to the objective circumstances). But, no matter what happens, dissolution of a labour contract through negotiation (article 36) is certainly a relatively safe and easy way for enterprises.

Design and implementation of employee placement plans. Compensation is the top priority in employee placement work. In determining compensation plans, enterprises should consider the above-mentioned compliance issues and make considerations both from a horizontal and a vertical perspective, such as: the standards of compensation usually adopted in the placement of employees by other enterprises in the same industry or in the same region; and the relevant treatment given by enterprises or affiliated enterprises to former employees in past placements of employees.

When designing compensation plans, some issues that need to be considered are highly technical, and not simply legal problems, such as the determination of the statistical intervals and components of monthly average wages, calculations of length of service, and determinations of a termination date.

The placement of employees cannot be accomplished at one stroke. In addition to determining compensation plans, importance should also be attached to the communication with, and response to, relevant government authorities and trade unions in respect of the employee placement, and sufficient time should be reserved for communication with all parties concerned. Meanwhile, enterprises should also determine the timing of information disclosure to employees and whether there is a need for direct dialogue with employees.

After implementation plans are determined, enterprises can gradually carry out the placement work. It is important to note that extreme caution should be exercised to avoid any improper action onsite when a group of employees is signing contracts. Success of onsite employee placement depends on a number of factors such as enterprises, employees, lawyers and governments. It is also important to take precautions and to adapt to changing circumstances.

Qi Bin is the PRC employment legal service leader and Felix Wu is a senior attorney at Xin Bai Law Firm. Rui Bai and Xin Bai are independent law firms and members of the PwC global network of firms.