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China Matters: Managing Layoffs in the Peoples Republic of China

April 01, 2009

By Paul Hastings Professional

Until very recently layoffs in multinational companies in the Peoples Republic of China (PRC) have been very rare. When the PRC Employment Contracts Law (ECL) was promulgated in July 2007, few employers focused on Article 41, the provision regarding mass layoffs. The Chinese economy was performing well and there was no reason for companies to consider that layoffs would be required. When the ECL took effect on January 1, 2008, companies were still expanding and focusing on recuriting and retention issues.

The tides have since turned and both domestic and multinational companies (MNCs) in the PRC are feeling the effects of the global economic crisis and engaging in or considering workforce reductions, among other labor cost cutting measures. Managing the issue of whether and how to conduct layoffs in the PRC is challenging and requires advanced preparation.