China: Employee Related Issues In Enterprise Relocation And Solutions

Last Updated: 15 October 2013
Article by Vincent Chiu

Recently, I was asked by a client about some employee-related issues involved in enterprise relocation, and I think it is worth to share with you the following solutions.

About the case: after failing to renew a lease on its plant in the Qingpu district, a foreign manufacturing companydecided to rent a new plant in Qingpu district and relocate the whole plant to the new place. Some employees claimed compensation for the relocation. The company asked our attorneys to give legal advice about how to protect employees' rights in relation to the relocation and about coping strategies for the company, action plans, etc, to minimize compensation claims arising from relocation and avoid legal risks while in compliance with Chinese laws and regulations.

We give our legal advice on the case, as follows:

I.Analysis of circumstances under which the employer should pay compensation to employees as provided in China's Employment Contract Law

Under China's Employment Contract Law, an employer should pay compensation to the employees in the following circumstances:

(I) The employee may terminate his employment contract if his/her employer:

a) fails to provide work protection or working conditions as stipulated in the employment contract;

b) fails to pay labour remuneration in full or on time;

c) fails to pay social insurance premiums for the employee in accordance with the law;

d) adopts rules or regulations in violation of laws and regulations, thereby impairing the employee's rights and interests; or

e) concludes the employment contract with the employee through fraud or coercion.

(II) Termination of the employment contract is proposed by the employer and there is mutual agreement with regards to the termination thereof;

(III) The employer may terminate the employment contract in any of the following circumstances:

a) after a set period of medical care for an illness or an non-work related injury, the employee is unable to perform his original duties or re-assigned duties;

b) the employee is incompetent and remains incompetent after training or adjustment of position; or

c)a major change in the objective circumstances relied upon at the time of conclusion of the employment contract renders it impossible for the parties to perform and, after consultation, the employer and employee are unable to reach agreement on amending the employment contract.

(IV) The Employer conducts workforce reduction for economic reasons;

(V) Upon the expiration of the employment contract, the employer and his employee do not renew the contract;

(VI) Termination of the employment contract is due to the revocation of the employer's business license, closure order or early dissolution.

Based on the preceding provisions, during the enterprise's plant relocation, an employee may claim financial compensation on the ground that:

(1) the employee may propose to terminate the employment contract by claiming that the employer fails to provide working conditions as stipulated in the contract due to enterprise relocation and thus demand financial compensation.

(2) the employee believes that the enterprise relocation should be considered as a major change in the objective circumstances relied upon at the time of conclusion of the employment contract renders it impossible for the parties to perform, in this case, the employer should pay financial compensation and terminate the employment contract as well.

Therefore, I will conduct a specific legal analysis of the above opinions of the employee.

II. Specific analysis of the protection of employees' rights in relation to enterprise relocation

(I) An employee proposes to terminate the employment contract on the ground that the employer fails to provide "working conditions" as stipulated in the contract due to enterprise relocation and thus demands financial compensation.

Chinese laws give no clear definition of "working conditions", which are usually described as material conditions and facilities which are necessary for staff to work, including but not limited to a plant with plenty of space and sunshine, ventilation and dust-extraction devices, temperature control facilities and sanitation. Certainly, the relocation of a plant may have an impact on the commuting time of some employees such that they believe that the employer fails to provide "working conditions" as stipulated in the contract. However, in my opinion, first, the work place is not expressly agreed upon in the employment contract concluded by and between the employer and the employee, so the commuting time should not be considered as one of the working conditions as agreed. Second, from our common sense, "plant relocation" should not be seen as the employer's inability to provide "working conditions" as stipulated in the contract, because in some cases, the relocation of plant has no substantial adverse impact on the fulfillment of the employment contract. Therefore, whether the plant relocation has an impact on the fulfillment of the employment contract should be analyzed on a case-by-case basis (further analysis below).

(II) If the employee believes that the Employment Contract provides that a major change in the objective circumstances relied upon at the time of conclusion of the employment contract renders it impossible for the parties to perform and after consultation, the employer and employee are unable to reach agreement on amending the employment contract, in this situation the employer may terminate the employment contract by giving the employee 30 days' prior notice or one month's wages in lieu of notice, and in this case, the employer should pay compensation to the employee under the law.

According to the above regulations, an employee may demand compensation on the ground of the plant relocation based on the preceding clauses as long as the following three conditions are met: 1. the plant relocation renders it impossible for the parties to perform the original employment contract;

2. the employer and employee are unable to reach agreement on amending the employment contract; and

3. the employer proposes to terminate the employment contract.

Like the issue discussed in the item (I), the point is whether the relocation of the company's plant has rendered it impossible to fulfill the employment contract.

III. Analysis of the relations between the plant relocation and employment contract fulfillment

From what has been discussed above, for the protection of employees' rights in plant relocation, the core problem lies whether the plant relocation will render it impossible for the parties to perform the employment contract.

I think specific analysis and comprehensive consideration should be given to whether the plant relocation has rendered the contract impossible to perform. Generally, if the distance between the old plant and the new one is large and this extends the employee's commuting time, and the employer fails to take proper measures to facilitate the employee's daily commute, such a change can be regarded as renderingthe original employment contract impossible to perform. However, if the distance between the old plant and the new one is short (for instance, both are located in the same district) and the employer has taken proper measures (such as purchasing or renting a shuttle bus to take employees to and from work, or adjustment of their work hours) to facilitate the employee's commute, the plant relocation should be considered as not rendering the contract impossible to perform. In this case, the employee's demand for compensation would be rejected by the arbitration agency or the court.

For this case, the company planned to relocate to a new place in Qingpu district, so I suggested that the new plant and the old one should be as close as possible and the company should take relevant measures, such as renting/purchasing shuttle buses to take employees to or from work or adjustment of work hours. In such a situation, I think the enterprise's plant relocation will not affect the fulfillment of the employment contract.

My opinion is also confirmed by the final judgment made by the Shanghai No. 1 Intermediate People's Court with respect to the Case Min San Zhong Zi Di No.823/2010. In this case, the plant was relocated across theregion from Shanghai's Minxing district to Songjiang district, but the company had taken reasonable measures such as purchasing/renting shuttle buses to transfer employees to and from work, therefore the court held that the plant relocation had no effect on the fulfillment of the employment contract, and thus the employee's claims for compensation were rejected.

VI. Risk analysis

Notwithstanding the preceding legal analysis, employees may have their individual understandings and opinions, and some employees may insist that the plant relocation would result in the impossibility of performing the original employment contract and demand financial compensation. They may stop working or go on strike if their demands are not met, or file a labour arbitration. Therefore, the employer should be fully aware of potential risks and take measures in advance and prepare contingency plans.

V. Lawyers' practices & suggestions

We provide advice on the protection of employees' rights in relation to enterprise relocation as well as risk control plans on the basis of the above legal analysis and in combination of our experience in dealing with similar cases, as follows:

(I) The employer should develop specific measures and plans to reduce the negative impact on employees' commute caused by enterprise relocation, such as renting or purchasing shuttle buses, adjustment of working hours, etc.

(II) Regarding the challenges and claims of employeesthat the employer may encounter in the relocation process, it is necessary to communicate with the competent labour authorities to ensure their support. During the communication process, the employer may report to labour authorities the fact that the employer intends to purchase or rent shuttle buses to take employees to and from work and adjust their working hours after plant relocation, and such behavior can serve as useful evidence that the employer has proposed to take relevant measures to reduce the adverse effect resulting from the plant relocation and to facilitate employees' work in case of any labour dispute. Further, the employer may invite labour authorities to help communicate with employees when necessary.

(III) The employer should communicate withemployees and inform them of plant relocation plans and measures to be taken and address their concerns over the implications of the plant relocation, and try to seek their written consent. Special attention should be paid to the way communication is conducted.

Conclusion: other suggestions

The employer should specify the "work place" in the employment contract in a flexible way so as to avoid employee troubles in case of enterprise relocation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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