Introduction 

Influenced by adverse factors (such as COVID-19, Russia-Ukraine conflict and China-America trade war), the global economy is of continued downside risks and many enterprises have to give up something to survive and reduce the scale of operation to lower the cost. If the enterprise is still facing serious redundant personnel and operation difficulties after self rescue, deciding to terminate the labor contract with some or even all employees will be unavoidable, as a result, the problem of employee setting needs to be solved urgently. Especially, under the environment where the labor market is becoming increasingly competitive and the personnel recruited by enterprises decrease, the enterprise will face a series of legal risks and it's more likely to bring serious negative social impact to the enterprise, casting a shadow over the enterprise's "staging a comeback", going against the enterprise getting out of the trouble, and finally resulting in a "lose-lose" situation in case of failure to properly dispose the redundant personnel placement problem.

Based on the Labor Contract Law and relevant laws and regulations as well as legal practice on employee termination and negotiation participated in by the author, practical legal and practical advices are provided to enterprises for readers' reference in this paper.

 Termination of the labor contract 

 upon consensus 

(I) The consensus is the optimal solution

Because of being agreed by the employee, termination of labor contract upon consensus with the employee is a layoff scheme with the lowest legal risk and the least likely outbreak of contradictions according to Article 36 of Labor Contract Law. [1]In addition, unless the employee can prove that fraud, coercion, etc. occur to the enterprise in the process of terminating the contract upon negotiation, it's also highly unlikely that the employees will be supported by the arbitral tribunal and the court if they go back on their word and ask the company to restore labor relations or pay compensation after the above negotiated termination agreement. According to Article 35 of Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (I) (FS (2020) No. 26)-"If the agreement reached between the worker and the employer on the handling of relevant procedures and payment of wages, call-back pay, economic compensation or compensation, etc. for rescinding or terminating the labor contract doesn't violate the mandatory provisions of laws and administrative regulations and gives rise to fraud, coercion or taking advantage of others' precarious situation, it should be deemed to be effective, if the enterprise is really faced with operation difficulties and has to reduce the staff (including the standard for number of people of economic layoff as per Article 41 of the Labor Contract Law and the legal situation), signing a negotiated termination agreement with the employee to terminate labor relations is the safest scheme. In particular, the enterprises that need to reduce the staff are reminded to give priority to consulting to terminate the labor contract with the employee as far as possible to reflect the sincerity that the enterprise shows as the employer and minimize the risk of litigation.

(II) Essential clauses for negotiated termination agreement

When the enterprise terminates the labor contract upon consensus with the employee in accordance with Article 36 of Labor Contract Law, both parties should reach a consensus in relation to relevant matters of terminating the labor relation. Except that the agreement regarding the termination between both parties is specified, particularly, it's necessary to clearly stipulate the date of termination of labor relations, the amount and payment time of economic compensation, the payment period of wages, the assumption of various expenses of taxation, the arrangement of work handover, the non-dispute clauses and other important contents. Moreover, some employees haven't found a job and need to get the unemployment insurance at the moment of signing the negotiated termination agreement, so it's possible to require the enterprise to add the content of "Party A (company) proposing to terminate" in the expression of Negotiated Termination Agreement. Considering that the most critical purpose of the termination of labor relations has been achieved, the enterprise can agree to add similar clauses as appropriate to promote contract signing and cooperate with the employee to receive the unemployment insurance. What's more, the enterprise should also appropriately keep all written records of the communication with the employee and the Negotiated Termination Agreement signed and stamped by both parties for follow-up reference and response to suits.

(III) Special treatment of special employees

Although the termination of labor contract through negotiation by the enterprise in line with Article 36 of the Labor Contract Law isn't restricted by Article 42 of the Labor Contract Law, the probability of being deemed as illegal termination will be very high if the company unilaterally terminates the labor contract with them rashly because special employees ("the elderly, infirm, sick, disable and pregnant") undergo practical difficulties (such as needing care in the life, weak ability for re-employment and physical disability) and don't apply to Article 40 in the Labor Contract Law-unilateral termination clause. [2]

Therefore, in the process of terminating the contract through negotiation, it's suggested to communicate with these employees separately and provide additional negotiated compensation schemes to take fairness and human concern for employees into account and be reflected in the written agreement between both parties. Considering that the compensation for these employees may be better than that for regular employees, it's necessary to put a particular emphasis on confidentiality of the amount of compensation and sign a Confidentiality Agreement, etc. for regulation when necessary.

 Unilateral termination of 

 labor contract in case of 

 significant change in 

 objective circumstances 

Indeed, it's impossible to solve all the situations faced by the enterprise by termination of labor contract upon negotiation. If the company and the employees fail to agree on the termination, the enterprise can unilaterally terminate the labor contract with them pursuant to specific situation and Subparagraph 3, Article 40 in the applicable Labor Contract Law, that's to say that the enterprise can unilaterally terminate the labor contract with them if the original labor contract fails to be continuously performed due to major changes in objective circumstances and both parties fail to reach an agreement with respect to changing the labor contract through negotiation. However, it's necessary to remind the enterprise that the legal risks and procedure requirements of unilateral termination of labor contract are obviously higher than those of termination of labor relations upon consensus. At the moment of making a decision about unilateral termination of labor contract according to Subparagraph 3, Article 40 in the Labor Contract Law, the enterprise should pay attention to the following points:

(I) No united opinion regarding the accreditation criteria of "objective circumstances" is formed in different regions.

Due to the complexity of judicial practice, different judges and arbitrators in different regions and even in the same region may have different understandings of the definition of "objective circumstances". The only document at the level of national ministries and commissions for reference is the Notice of the General Office of the Ministry of Labor on the Issuance of Instructions on Several Articles of the Labor Law (LBF (1994) No. 289). The objective circumstances are defined as follows: occurrence of force majeure or other situations causing failure to perform all or part of articles in the labor contract (such as enterprise migration, enterprise merger and transfer of enterprise assets) and excluding the objective circumstances listed in Article 27 of this Law (refer to economic layoff) [3]

At present, there is no detailed explanation on "objective circumstances" in a written form (such as local regulations or judicial documents) in most areas, so the judicial departments in various regions have a different judgment on this clause, increasing the difficulty of practical operation for enterprises having offices in many places nationwide, and Beijing and Shanghai have the most prominent judicial practices. As for the adjustment behavior by the enterprise based on the autonomy in management, the arbitration commission and court in Shanghai widely accept that the adjustment by the enterprise to adapt to the external economic and market changes is due to "significant change in objective circumstances".

In contrast to that in Shanghai, it's explicitly stipulated that the circumstances that "the objective circumstances based on which the labor contract is concluded have undergone significant changes" cover the following ones in the form of "white list" in the Answer To the Question of Law Application in the Trial of Labor Dispute Cases by Beijing Superior People's Court and Beijing Labor and Personnel Dispute Arbitration Committee: (1) Force majeure incurred by natural disasters (such as earthquake, fire and flood); (2) Significant changes arising from changes of laws, regulations and policies (such as employer transfer, transfer of assets or production suspension, changing the line of production and transition (reorganization); (3) Change in the business scope of the employer with franchising nature. In other words, Beijing arbitration agency has denied that the autonomy in management by the enterprise to adapt to the external economic and market changes falls into "significant change in objective circumstances". Based on the judicial cases in Beijing, Beijing arbitration agencies widely believe that as managers, enterprises should foresee possible changes in production and operation when performing the labor contract and can independently determine their direction of management, thus the independent internal adjustment decision by the enterprises doesn't fall into "significant change of objective circumstances".

To sum up, for the sake of reliability, the enterprises should try their best to choose external unforeseen and unavoidable factors (such as policy and external environment) as the basis of layoff. If the enterprises have no support from external causes for layoff actually, they should make formal and authoritative decisions (such as resolution of shareholder meeting and resolution of the board of directors) in accordance with the provisions of Articles of Association, employee manual and other rules and regulations because the "significant change in objective circumstances" is caused by the enterprises encountering special and major operation problems or adjustment of business direction in the operation process.

(II) Higher requirements for termination procedures

Pursuant to Subparagraph 3, Article 40 in the Labor Contract Law, it's stipulated that there should be objective circumstances for unilateral termination of labor contract and the enterprise is obliged to negotiate with the employee in case of negotiating with the employee to change the labor contract, but failing to reach an agreement" to encourage the enterprise to ensure no layoff or less layoffs by negotiating with the employee to change the post originally. In the practice of redundant personnel placement, many enterprises ignore this essential link, leading to a very large hidden trouble. At the moment of negotiating with the employee to change the post, the enterprise is suggested to provide a new post similar to or related to the current post to the greatest extent, collect written employee signature or reply, ensure the remuneration after the post change isn't greatly lowered as far as possible and offer the system or contract basis of "remuneration based on the post" to lower the legal risk.

Different from the termination of labor contract by consensus, the enterprise should also notify the termination cause to the labor union in writing and prove that the company has fulfilled the obligation of notifying the labor union at the time of unilateral termination of labor contract in line with Article 40 in the Labor Contract Law.

(III) It's forbidden to lay off the employee complying with specific situations

As mentioned above, special employees under the situations prescribed by Article 42 in the Labor Contract Law, the enterprise should not unilaterally terminate the labor contract pursuant to the provisions of Article 40 in the Labor Contract Law. Furthermore, it's necessary to specially remind that according to the provisions of Notice about Properly Handling Labor Relation Issues during the Prevention and Control of the COVID-19 (RSBMD (2020) No. 5), the enterprise should not dismiss the employees who cannot provide the normal labor because of being COVID-19 patients, suspected patients or close contacts during the period of quarantine for treatment or medical observation and the government taking quarantine or other emergency measures in line with the provisions of Article 40 in the Labor Contract Law. [4]Thus, the enterprise should pay special attention to the subject of application at the moment of formulating the layoff list.

 Economic layoffs 

The "layoff" is a hot social topic at present. However, strictly speaking, the "layoff" isn't a legal concept. In a broad sense, layoff refers to all operations leading by the employer to sever labor relation, while the "economic layoff" is one of the generalized "layoff" paths. Considering the economic layoff is generally large-scale, different from the above-mentioned two paths of severing labor relation, the economic layoff tends to have more stringent requirements against procedures and more stringent restrictions on the subject laid off.

(I) Supervision before the event against the enterprise

The key of "terminating the labor contract upon consensus with the employee" and "termination of labor contract based on significant changes in objective circumstances" is whether to negotiate with the employee who will be laid off to terminate or change the labor contract, while the key step of economic layoff is the report to the labor administration department on layoff scheme. Different from the first two kinds of dismissal paths, the economic layoff can be executed after being approved by the government department in advance. Mainly the number of people involved in economic layoff is of comparable scale, so it's necessary to introduce the participation of the labor administration department before the implementation of the dismissal plan and conduct antecedent supervision on the large-scale layoff of enterprises, which is the largest difference between economic layoff and other dismissal path. In accordance with the provisions of Article 41 in the Labor Contract Law, at the moment of applying for prior approval, the enterprise should prepare the corresponding evidentiary materials of the economic layoff cause (including reorganization order, balance sheet, assets appraisal report, tax return and audit report) to prove the current status of business of the enterprise.

Moreover, as for the presentation of condition submitted by the enterprise, the enterprise should explain the situation to the labor union or all staff 30 days in advance as per the requirements of the Labor Contract Law and listen to the opinions from the labor union or all staff. The requirement of communication 30 days in advance here cannot be replaced by the "payment in lieu of notice" of additional payment of one-month salary, which is different from the "significant change in objective circumstances". Moreover, now the law doesn't require the enterprise to reach an agreement with the labor union or all staff on the layoff plan or approve it by voting, but only requires the enterprise to "give an explanation and listen to opinions". The enterprises should also try not to increase their burden by setting the voting process. It's necessary to note at the moment of communicating with the labor union and the employee, the enterprise should keep the written traces (such as written notice, site sign-in, recording, video and hiring external lawyers) as far as possible to carry out effective keep evidences. As for the report submitted to the labor administration department, there are different requirements against materials submitted in various regions. The author suggests that the enterprise should consult the specific requirements of local labor administration department in advance to lower the risk of materials not being approved before submission of materials in case of choosing the path to terminate the labor relation with the employee.

It's necessary to remind the enterprise to note that there is no uniform standard and caliber for determining whether the enterprise complies with the economic layoff in the juridical practice. Maintain a harmonious and stable employment environment, protect the employee interests and supervise the compliance of enterprise practice to some extent, the labor bureau usually puts forward more or higher requirements against filing materials. Therefore, before planning to adopt the scheme in different regions, it's a must to contact the labor department in detail to clearly understand local realities, and then evaluate the implementation of such scheme. To maintain the stability of local employment environment, the labor administration departments in various regions usually put forward higher requirements against the filing materials submitted by the enterprise, thus it's necessary to contact the competent labor department in detail to clearly know local realities, and then decide whether to execute the layoff plan before the enterprises in different regions take the economic layoff plan.

(II) Scope of employees preferentially remaining in employment

As for the economic layoff, the subject laid off is also restricted, too. The scope of personnel who should not be laid off is consistent with the scope of restricted personnel subject to "significant changes in objective circumstances" as described above. The difference from the "significant change in objective circumstances" is the provisions on preferential arrangement of retention of partial employees in Article 41 of Labor Contract Law. At the moment of formulating the layoff list of economic layoff, the enterprise should pay special attention to giving priority to retaining the following personnel: (1) Employees concluding a fixed-term labor contract with a long term with the enterprise; (2) Employees concluding an unfixed-term labor contract with the enterprise; (3) Employees having no other employed person in the family, but having the old man or minor needing to be bought up.

 Termination of labor contract 

 based on dismissal in advance 

According to Article 44 of Labor Contract Law, the labor contract will be terminated if the employer decides to dismiss ahead of time. Therefore, the enterprise making a decision about dismissal in advance according to the provisions of Company Law can terminate the labor relation with the employee in accordance with the provisions of Article 44 in the Labor Contract Law. [5]The enterprise having made a decision of dismissal in advance should notify the employee of the decision ahead of time and legally handle all matters pertaining to termination of labor contract, including settlement of salary and remuneration, payment of economic compensation and handling of social insurance relationship transfer. In the juridical practice, the adjudication agency often confirms whether the enterprise meets the substantive requirements by verifying whether there are effective resolutions of shareholder meeting, whether the liquidation team is legally established and whether the operation has been actually stopped, thus the enterprise should make full preparations to avoid being deemed as illegal termination of labor contract before deciding the application to this Article.

 Conclusion 

"There Are Many Boats Passing by the Wreck and Many Lush Trees Next To the Diseased Tree." The "layoff" is a choice which the enterprise and the employees are unwilling to face, but making a prompt decision today is for staging a comeback in the future, like nirvana of phoenix. To complete the process legally, compliantly and reasonably, the courage of decision makers is required and it's also necessary to properly conduct placement of employees to avoid the harm to workers' rights and do a good job in labor relations on the premise of correctly understanding the provisions of law.