As multinational companies undergo global restructuring, the implications for their operations in China require careful legal navigation. Major changes, such as redundancies, employer transitions and job role modifications, are tightly regulated under Chinese employment laws.
Any restructuring that affects employment relationships in China should comply with legal requirements, including statutory thresholds, documentation obligations and employee protections. The feasibility of implementing such changes depends on the specific facts of each case, making early legal planning essential.
Chinese law strictly limits the grounds for terminating employment. In the context of a global restructuring, companies must evaluate the most suitable legal route for workforce reduction. The primary options include economic layoffs, termination due to major changes in objective circumstances, company closure and mutual termination agreements. Each of these pathways has distinct legal triggers and procedural requirements.
An economic layoff can only be initiated if 20 or more employees are affected, or if the number of affected employees accounts for at least 10% of the total workforce. Further criteria must also be met: to proceed with such a layoff, the employer must demonstrate one of the following scenarios applies – bankruptcy reorganisation, serious operational or financial difficulties, business transformation or technological innovation requiring staff reduction, or major economic changes rendering existing employment contracts unperformable.
In addition, two important procedural steps must be adhered to: consultation with employees or the labour union and reporting the layoff plan to the local labour authority. During the reporting process, the authorities may request financial data and evidence of mitigation efforts, such as reduced hours or salaries.
Employers must also comply with rehiring obligations. If hiring resumes within six months, dismissed employees must be notified and given priority under equal conditions.
Certain categories of employees, such as those on medical leave, pregnant or nursing women, and long-serving employees nearing retirement, are protected from termination. Employees with long-term or open-ended contracts, or those who are sole family breadwinners, must be prioritised for retention.
Given the complexity and challenges associated with economic layoffs, companies often explore alternative approaches such as company closures, mutual terminations, or terminations due to major changes in circumstances. These options should be carefully assessed to determine the most suitable path based on legal and practical feasibility, risk exposure, procedural simplicity, and cost-effectiveness.
Transferring employees to a new entity typically involves terminating their existing employment contracts and entering new ones. This process generally requires the employee’s consent and is often positioned as an alternative to redundancy. Termination of employment may entitle employees to severance and other termination-related payments under applicable laws. In practice, employers often offer continuity of service, recognising prior years of service with the previous entity, instead of making immediate severance payments. These arrangements should be carefully planned and clearly communicated, discussed, and agreed upon with the employees during the transition process.
Restructuring may lead to the reduction or elimination of overlapping or redundant roles. As a result, an employee’s position may be redefined, requiring them to take on different job responsibilities. Modifying an employee’s job duties is a legally sensitive matter. Whether an employer can request and implement such a change depends on several factors, including:
- the scope and rationale for the change;
- whether the change alters the terms of the existing employment contract;
- whether the new duties constitute a demotion, require a substantially different skill set, or involve a reduction in remuneration;
- provisions in employment contracts and company policies regarding changes to roles and responsibilities; and
- relevant court practices in the jurisdiction where the employee works.
These factors should be carefully reviewed when conducting a legal assessment to determine whether the employee’s consent is required or if the change can be implemented unilaterally through notice. In restructuring scenarios, changes in job duties are often proposed as alternatives to termination. Employers should prepare contingency plans in case employees decline such changes.
Additional considerations should be given to foreign nationals employed in China as restructuring may impact the validity of their work permits. Changes in job title, work location, or employing entity typically require a re-application for, or amendment to, both the work permit and residence permit. In most locations, the employee’s cooperation is required for these processes, such as signing documents or attending in-person appointments, particularly in cases involving cancellation or application for permits.
Employers should also carefully consider the timing of permit cancellations and the employee’s legal ability to remain in China during and after the transition. These requirements should be verified in advance and clearly discussed and agreed upon with the affected foreign employees, to allow sufficient time for relocation planning if a move to another city or country becomes necessary.
Global restructuring may lead to the adoption of remote work models. Although Chinese law does not explicitly regulate remote work, employers remain responsible for complying with all applicable obligations under PRC employment laws.
If the employer is based in China, but the employee works from outside the country, the employment relationship may fall outside the scope of Chinese employment law. In such cases, the employer should assess whether the labour laws of the employee’s location will apply. Cross-border implications, including tax, labour and social insurance obligations, must also be carefully evaluated.
Chinese employers should ensure that employment contracts and internal policies are updated to reflect remote work arrangements. The issues to be addressed include jurisdictional clauses, social insurance contributions, working conditions and equipment, performance expectations, and other relevant terms.
Integration becomes particularly important following a restructuring, especially in cases involving inter-group mergers and acquisitions, business transfers, or entity closures. In such scenarios, employees are often transferred to a different group entity to continue their employment. However, it is not uncommon for different entities within the same group, especially those located in different cities, to apply varying remuneration and benefits schemes.
As a result, a clear integration plan should be developed to guide employees through the transition. Any changes to compensation structures or benefit schemes should be properly addressed, discussed and mutually agreed upon to avoid future disputes.
Restructuring also frequently introduces new reporting lines and global management structures. These changes should be clearly documented and communicated to employees. Clear reporting lines not only support business efficiency but are also critical for effective HR and employment management.
Employers are recommended to localise communication strategies, respect hierarchical and cultural norms, and involve local HR teams in the planning and decision-making process to ensure smooth implementation.
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