With the deadly COVID-19 virus forcing businesses into shutdown mode, PRC labour laws are scrambling to regulate a new norm for work conditions and payment standards. Lesli Ligorner and Zhu Yuting explain

When the approximately 1.4 billion people in the People’s Republic of China were looking forward to their plans for the Chinese New Year holiday, which officially began on 24 January 2020, no one could have imagined that two months later there would be millions of factories closed or working with skeleton staff, millions of people locked down for more than six weeks in Hubei province, and few if any people out in the streets or the parks enjoying the plum and cherry blossoms that traditionally attract huge crowds at this time of year.

These are unprecedented times globally, but more particularly for a country like China, with a centrally planned economy that has been transitioning to a controlled market economy. The result has been numerous regulations that aim to shield the workforce from bearing the cost of the novel coronavirus disease called COVID-19, and the placement of these costs on employers, and on stabilizing the employment relationship.

More specifically, the central government has issued various regulations, at both national and local levels, to address employment issues such as the execution of the start of a new employment relationship, salary payment standards, conditions for companies resuming operations, and termination issues during this period. This article summarizes the more significant regulations related to these employment issues and provides insight for companies in China to resolve these issues during this challenging time.

Commencement of employment

During the pandemic prevention and control period, or the COVID-19 period, it has been more difficult for companies to execute an employment contract with employees. Generally, the employer and employee are required to execute two original employment contracts, with each party retaining a copy.

However, this has not been possible, as some employees cannot return to the office and sign the contract on site, either on their own behalf or as a representative of the employer, due to the COVID-19 situation.

To alleviate this situation, on 4 March 2020, the Ministry of Human Resources and Social Security (MHRSS) issued the Letter of the General Office of the MHRSS on Issues Related to the Conclusion of Electronic Employment Contracts as a response to the Request for Instructions on Electronic Employment Contract Management during the COVID-19 Period, which was sent to the MHRSS by the Beijing Labour Bureau.

The above-mentioned letter stipulates that employers and employees may agree to sign employment contracts electronically. In addition to the employment-related laws and regulations, the execution of an electronic employment contract should follow the requirements under the PRC E-signature Law, including that: (1) the electronic employment contract uses a reliable e-signature and data message that can be identified as the written form by law; and that (2) the employer should ensure that the formation, transmission and preservation of the electronic employment contract is complete, accurate, and not falsified.

Despite the fact that the letter is a response to Beijing’s request for instructions, the impact of this letter is understood to extend nationally, because the MHRSS issued it. Notably, as the request for instructions only concerns matters “during the COVID-19 period”, the electronic employment contract may only be applicable during the specific period for the prevention and control of the pandemic. Employers should, therefore, consider executing and attaching original signatures once things normalize.

Labour costs

Salary payment standards during the COVID-19 period. On 26 January 2020, the State Council issued the Notice on Extending the Chinese New Year Holiday of 2020, which provided for the extension of the statutory Chinese New Year holiday from 31 January to 2 February. Following the national notice, many local governments issued local notices and further extended the holiday to a date later than that provided by the State Council. For example, Shanghai extended the Chinese New Year holiday to 9 February.

Whether the local government extended the holiday, or how it classified the period from 31 January to the date on which companies were permitted to resume operations, determined how employers are to pay employees for this time. Below is a summary of salary payment standards for different periods and situations during COVID-19.

With respect to the salary payment during the nationally extended holiday, from 31 January to 2 February, employers were required to pay the employees their regular salary. If any employees were asked to work during this period, they were entitled to compensatory time off (CTO) at a ratio of 1 hour:1 hour, or pay at 200%.

With respect to salary payments during the local extended holiday, employers were required to pay the employees their regular salary. If the employees were required to work during this period, the salary payment standard for the work is dependent on the local regulations. For example, in Shanghai, the employees were entitled to CTO or pay at 200% for such work, while in Suzhou, Chengdu and Shenzhen, and many other locations across the country, no enhanced payment was required under this situation.

In addition, the national regulation provides that if the employer was not able to resume operations, or the employees were not able to perform any work due to the COVID-19 situation, employers were still required to pay their employees their full salary, at least for the first full wage payment cycle.

The key issue has been how employers categorize the basis for the full salary payments when the employee is not performing any work. For example, employers could assign and exhaust annual leave entitlements, as noted below.

Methods for reducing the labour costs during the COVID-19 period. The salary payment regulations placed a heavy burden on employers as the companies continued to accrue labour costs, often at full wages, while their business during the outbreak period may have shut down completely, or significantly.

Government regulations provided welcome flexibility for employers to address this burden. Employers could apply for government approval for the comprehensive working hours system in order to reduce overtime exposure for those employees who could report to work and work longer hours than the regular eight hours per workday, and 40-hour working week.

In addition, employers were encouraged to review the situation of their employees and reach equitable arrangements. Employers have been encouraged to arrange alternative work arrangements whenever possible, such as teleworking or working from home.

Further, pending consultation with employees who could not perform work, employers could:

  • Reduce the employees’ working hours and propose an associated reduction in pay;
  • Exhaust the employees’ paid time off, such as annual leave and CTO; and
  • Reach an agreement around unpaid leave.

The proposal to exhaust employees’ annual leave is significant because government regulations specifically noted that although statutory leave accrues on a monthly basis, employers could assign a calendar year’s worth of annual leave to the COVID-19 period, when employees were home and unable to perform any work.

Notably, it is unclear if employers will be able to recoup such leave if an employee leaves the company before the end of the year. This is because absent a change in the law for the COVID-19 situation, it is not lawful for an employer to deduct excess statutory annual leave from an employee’s salary if he or she leaves before such leave was statutorily accrued.

Finally, employers could consider internal means to reduce costs, such as freezing salaries, even in light of promotions, or eliminating merit and/or cost of living increases. Employers have been able to eliminate or reduce discretionary increases such as these with impunity and unilaterally, as long as they do not decrease the employees’ base salaries without express written consent.

labourLocal governments have also implemented measures to lighten some of the burden on employers. On 11 March, the Beijing Labour Bureau issued a notice (Beijing Employers Notice) providing that for employees who cannot leave Hubei province – the epicentre of the novel coronavirus – Beijing employers are required to pay them their regular salary only when the employees: (1) provide services through a flexible work arrangement; or (2) take paid annual leave; or (3) are in Hubei due to business travel.

Otherwise, the Beijing employers may pay each employee who is “stuck” in Hubei a minimum amount per month, which is twice the minimum cost of living, or RMB3,080 (US$435), from March 2020. In addition, the employers may apply for a monthly subsidy from the government if they pay this minimum amount to these employees who are unable to return from Hubei to work in Beijing. The subsidy is equal to half the cost of living subsidy paid to these employees, or RMB1,540 per employee per month.

In accordance with this salary payment standard, the employees who have been stuck in Hubei province may fall into the category of employees who “cannot perform any work due to the COVID-19 situation”, and be entitled to receive their regular salary. However, pursuant to the local regulations, like the Beijing Employers Notice, some employees may receive reduced monthly incomes, which will alleviate some of the burden on employers.

Salary payment in the event of shutdowns. With lower productivity and higher employment costs, some companies may need to shut down all or a part of their business operations at a particular worksite. In such an event, the employer should pay employees their full salary for the first full wage payment cycle.

After the first full wage payment cycle, if the employer cannot
resume regular operations, then the employer can pay employees the local minimum wage, or the applicable percentage of the minimum wage (based on local regulation), subject to the employee consultation process applicable to a shutdown. Generally, a full wage payment cycle is one month, but it may be shorter for employers who engage part-time employees, as part-time employees must be paid bi-weekly.

Notably, the start of the first full wage payment cycle is not clearly defined at the national level. According to an article issued by the Shanghai Pudong Court via its official WeChat account (which the author stated is personal opinion), the author believes that the start should be the start of the shutdown, which would provide the greatest protection to the employees. However, it is unclear whether the shutdown here means a shutdown resolution issued by the company’s management, or refers to the actual reduction in operations.

With respect to the “full wage payment cycle”, it is similarly unclear at the national level. One school of thought holds that it should refer to the calendar month (30 days), and another school of thought believes that it should refer to the full payment wage cycle.

Resumption of operations

In order to curtail the spread of the virus, local governments across the country issued regulations specifying the detailed process by which companies could resume operations. These detailed regulations vary from province to province, city to city and even district to district, creating havoc for companies that have tried to resume operations across the country with a single plan. Companies were not able to resume their operations unless they could satisfy all of the conditions meant to safeguard the public health against the spread of COVID-19.

One of the most significant and prevalent requirements has been the requirement that employers supervise their employees’ health status on a daily basis. This entails the collection of medical information and other sensitive personal information about the employees.

Employers have been required to confirm with each of their employees whether they have any of the specific symptoms of the novel coronavirus, namely, fever, respiratory issues and coughing. Further, employees will be reporting if they have chronic illnesses, or are pregnant, or are taking care of school-aged children, or were exposed to the virus, because, depending on local regulations, these scenarios likely justify an employee’s request or need to remain at home and not report to the workplace during the period when the outbreak’s prevention and control measures are in place. Such data are similarly personal and should be kept confidential.

As the collection of COVID-19-related information is a legal obligation for employees, the employees may not refuse to provide it. However, employers need to pay attention to the process of collecting such information.

As a best practice, companies should explain to employees what information is being collected, why, and the way this information will be processed, and obtain express consent to the collection.

In addition, to protect the employees’ health information during the COVID-19 period, companies should designate one person (for example, a representative from the human resources department) to collect employees’ health information and not disclose the information to others, and the HR representative should record this medical information in a separate medical file for each employee.

After companies resume operations, they may encounter situations in which employees neither come to the office nor work from home for various reasons. Companies need to investigate the basis for an employee’s refusal to return to the workplace or perform work from home, if that is an option, in order to understand the salary payment obligations.

With respect to employees who are either pregnant, on maternity leave, or in the nursing period (which is the period from the baby’s birth through to the baby’s first birthday) or employees who have to take care of their children at home, generally, the employer should, pending consultation with the employees, arrange for the employees to take annual leave and any other statutory or other company-provided leave during this time.

If the employees have exhausted these leave entitlements, the companies may, pending consultation with the employees, apply the salary payment measures for a shutdown as stated above, which means that the companies will still need to pay the employees their full salary for the first full wage payment cycle.

With respect to employees who are infected with or suspected of being infected with COVID-19, companies are required to pay these employees their regular salary.

With respect to employees who refuse to come to work, or work from home without justification, if the companies have resumed operations (which generally means that the companies have taken and are complying with all local requisite pandemic prevention measures), the companies should talk with the employees first and try to persuade them to resume work. If the employees still refuse to report to work without justification, then the employer is entitled to take disciplinary action against these employees.

In the event that some employees work fewer hours per week than their usual schedule because they can neither work in the office for the full working day nor work from home, by consulting with employees, the companies can rearrange their work week, arrange for annual leave and other leave, or reduce their salary based on the reduction in working hours.

For example, to resume operations, companies should stagger their workforces to reduce crowding in the workplace. One way to accommodate the inability to have all employees reporting to an office or plant for five full weekdays is to rearrange some of the employees’ schedules so that two weekdays are converted into regularly scheduled rest days and the employees work over a Saturday and/or a Sunday. Until all employees can report to work safely at the same time without creating increased exposure to the virus, such scheduling changes should be amenable to the employees.

Employee terminations

The pandemic prevention and control period is a sensitive time with respect to dismissals. Government regulations encourage employers to apply cost-cutting measures discussed, and avail themselves of the additional tax and other economic incentives and measures offered, to reduce the economic burden on employers in lieu of conducting layoffs.

In a notice issued on 24 January, the MHRSS made clear that employers may not lawfully terminate the employment of those employees infected with COVID-19, and employees with suspected infection who are receiving medical treatment or under medical observation, and for employees who cannot return to work because of restrictive or emergency measures taken by the government for the grounds set out under either article 40 – which covers the expiration of the medical treatment period, poor performance, or a major change in objective circumstances under which the contract can no longer be performed – or article 41 (mass layoff) of the Employment Contract Law (ECL), effective as of 1 January 2008 and as amended.

This means that: (1) for those employees who do not fall into the above-mentioned categories, the employer may terminate the employment relationship based on articles 40 or 41 of the ECL; and (2) termination based on other statutory situations, including mutual termination and termination for misconduct, is legally allowed.

Local governments may issue further regulations regarding protections from termination during the COVID-19 period. For example, under Beijing local emergency measures, the employer may not lawfully terminate the employment with employees who are in Hubei province unilaterally. If the employment contracts of employees in Hubei have expired, the termination should be handled based on mutual consultation after these employees in Hubei return to Beijing.

In sum, there is no one-size-fits-all approach, or answer, to how to handle the myriad employment issues raised during by the COVID-19 crisis. Employers need to review the different situations carefully, depending on the employees’ health status, whether the employee is physically fit, whether the employee can perform any work, whether an agreement to amend the employment contract’s terms can be reached, and where the employee is located.

Lesli Ligorner is a partner and Zhu Yuting is an associate in the Beijing Representative Office of Morgan Lewis & Bockius