Chinese Labor law in times of CoVid-19: Salary Cuts, Short-time work and dismissals

published on 25 March 2020 | reading time approx. 2,5 minutes

by Sebastian Wiendieck, Christina Gigler and Peter Stark

Due to the outbreak of the CoVid-19 virus and the economic problems resulting from it, such as the absence of employees, plant closures or production restrictions or even a halt of production due to lack of supplies, many companies are faced with the question of whether salary cuts, the ordering of short-time work or even the dismissal of employees is possible. In this context, already in January 2020 the General Office of the Ministry of Human Resources and Social Security published a corresponding notice which addresses these issues.

Continued payment of salaries and exclusion of dismissals

As a general rule, a company is not entitled to reduce salaries or impose short-time work on employees who are unable to perform their normal work, whether because they are in quarantine, under medical treatment or observation, because they are a patient with pneumonia or show noticeable symptoms, have been in close contact with an infected person, or because the government is implementing quarantine or other emergency measures. The termination of the employment relationship is also expressly prohibited. If an employment contract ends while an employee is in one of the above-mentioned situations, the employment contract shall be extended until the end of the relevant circumstances (medical treatment, quarantine order, etc.).

Exemptions in the event of serious economic difficulties

The notice also states that, in the event of a very difficult economic situation due to the virus epidemic, a company can take various measures such as salary adjustments (cuts), job rotation, ordering holidays or even the introduction of short-time work in order to avoid or reduce layoffs as much as possible. However, this requires the consent of the employee and the conclusion of a corresponding agreement with the employee.

Possible measures in case of suspension of operation

In the event that the business of a company cannot be continued due to a large number of infected employees, quarantine measures or other circumstances caused by the virus epidemic, but not due to a generally poor economic situation of the company, the company may pay a lower salary to employees who have performed their normal work after the first salary cycle, but this salary may not be lower than the local minimum salary. If an employee is unable to perform the agreed work, the enterprise shall pay the employee's living expenses.

However, the notice does not define the concept of suspension of operations. As a rule, the ordering of a suspension of operations by the company will require appropriate notification and approval by the competent labor authority.

Suspension of limitation periods

The notice also provides that in the event that one of the parties is prevented from submitting a labor dispute to the competent labor arbitration body in due time due to the above-mentioned circumstances, the statutory limitation period is suspended and shall continue to run only upon expiration of the relevant incident (e.g. expiry of the quarantine period).

Conclusion

It can be concluded from the notice that companies are generally required to provide employee benefits under employment contracts. Companies cannot invoke force majeure in this respect. For salary cuts, short-time work, etc., the consent of the employee concerned is generally required. Only in the case of a suspension of operations a company may unilaterally reduce salaries after the end of the first salary cycle, whereby the question of whether such a case exists should be carefully examined in order to avoid disputes under labor law.