what we think

By Maarten Roos

In today's fast-changing business landscape, workforce adjustments are often necessary to maintain competitiveness. Over the past few years, we have successfully managed dozens of redundancy projects for international companies operating in China. Some clients sought full business closure and company liquidation, while many others required strategic downsizing to adapt to economic realities.

Proven Success: An Example

Just last week, our team handled a redundancy project for a U.S.-based client's Shanghai office, involving 21 employees. Through meticulous planning and skillful negotiation, we convinced 20 employees to accept termination terms at minimal severance ("n+1") after a morning of discussions. One employee held out for higher compensation ("2n"), but with our guidance the client opted for unilateral termination to maintain consistency and set a clear precedent for future workforce adjustments.

Understanding China's Labor Regulations

Chinese labor law permits redundancies (minimum 20 employees or 10% of the workforce) but imposes strict conditions, including advance notification and labor bureau approval. However, this formal process is rarely the best route due to regulatory uncertainty and likely disruptions to business operations. We are usually brought in to convince employees to accept a settlement without going through formal procedures, against an amount that equals or nears the amount they would have received for formal redundancy (n+1).

When handling an economic redundancy, some of our key tactics include:

• Thorough Preparation: We collect and analyze key employee data, including salaries, tenure, and unused leave, to formulate a strong negotiation plan.
• Strategic Execution: The element of surprise can be instrumental in achieving swift resolutions. Immediate terminations (with limited handovers) often yield better outcomes.
• Clear Communication: A structured town hall meeting followed by individual one-on-one discussions streamlines the process and reinforces transparency.
• Consistent Offerings: Maintaining uniform severance packages enhances fairness and minimizes negotiation complexities, with strategic flexibility when needed.
• Managing Hold-Outs: For employees reluctant to settle, strategic suspension (forcing them to use remaining leave) can apply additional pressure while reducing financial liability. If needed, allowing the case to go to labor arbitration will exemplify the company's resolve in taking a consistent approach.

What about the human factor? For most companies, the aim is to be both fair and compliant with Chinese labor laws. On the other hand, they do not want to pay more than necessary. An important reason to involve lawyers in termination procedures in China, is to keep out emotion and focus on the business at hand. In China, most employees generally have a good understanding of their rights in a termination setting, and will appreciate a professional approach to reaching a settlement that is fair and acceptable to both company and employee.

At R&P, our team supports international companies with strategic redundancy and labor termination in China—navigating regulations, formulating negotiation plans, and executing compliant workforce adjustments. For redundancy or labor termination assistance, contact Maarten Roos ([email protected]) or your trusted R&P contact.

This was originally published on LinkedIn as an edition of Maarten's China Law Focus Newsletter. Subscribe here to get regular updates.