——Layoff Difficulty of Nokia, Groupon and Ku6, the influence of untimely and inappropriate regulations in Labor Contract law

Highlights: The untimely and inappropriate regulations on layoffs in Labor Contract Law fails to meet the current development demands of the company, the legal obstacle deteriorates competitiveness of the company and limits company’s desires on employment.

Recently, four Chinese companies met difficulties due to cuts were brought to our attention.  Gaopeng.com, a Chinese deal-of-the-day website jointly invested by Groupon.com and Tencent (SEHK 700), started mass layoff, which raised a concerns and protestations from its employees; someone even chose the suit for the dissatisfaction on the compensation. Shortly after that, Nokia (NASDAQ: NOK) and Nokia Siemens Networks were also doubted due to  its illegal layoff procedure. And what’s more, the earlier layoff of KU6 (NASDAQ:KUTV) led to physical aggression and outbursts.

The untimely and inappropriate regulations of China Labor Contract Law make layoff procedures strict and complicated, and therefore the layoffs tend to cause conflicts between the labor and the capital/management. Actually, as a measure for the reconstruction of management problems, layoffs shall be permitted by law once adequate compensation is paid, thus the competitiveness could be retrieved and new employees could work in the company, otherwise, the business difficulty of the company will be intensified and social unemployment rate will be likely to rise. The analysis is as follows:

I. Even if the management pays the turnover compensation they cannot terminate the labor contract

There are two main termination methods in Chinese Labor Contract Law—termination on negotiation and legal termination. Legal termination includes severe violation of company bylaw, material change of the situation, economic layoffs and other conditions as provided in Article 39, 40 and 41, while the actual layoff will not certainly be carried out then, as contract alteration through negotiation, position adjustment, and other preconditions are also legally demanded.

 The conclusion is that the labor relationship could not be terminated with certainty without the employee’s consent no matter how much the compensation is, unless other provided by law.

II. Report becomes approved

According to the Labor Contract Law, economic layoffs  are limited to several conditions, and mass layoff also serve as an explanation to labor unions or employees, opinion hearing and report to labor administration are also demanded by law.

Actually, such explanations and hearings could not ease conflicts resulting from layoffs, and the dispute could be aggravated instead. Besides, the definition of “report” in law is so vague that whether it shall be put on record or approval is argued in practices, and in fact, the layoffs could not be carried out as planned for it is likely to be obstructed or delayed by the administrative department for labor’ s bureaucracy during the report. That’s what Ku6, gaopeng.com and Nokia really faced in layoff.

III. Countermeasures against Layoffs

There are many countermeasures employees could take against layoff, mainly include complaints to labor supervision department or labor union, arbitration and litigation, as well as media report.

Normally, employees tend to claim continuous performance of the labor contract in layoffs. And decisions or sentences of arbitration or litigation is most likely to support such claims, often accompanied with payments of remuneration during arbitration or litigation, once the company does not have a solid and legal reason for the layoff. One such case may bother HR department much.

IV. Employees could not be cut

A major concerned should be the case if several employees could not be cut, unless otherwise regulated by law, mainly including those suffering from occupational disease, are pregnant, disabled or soon to be retired.

Such regulations, essentially, is to transfer the social security responsibility to companies, which may result in obstacles to business adjustments and extra HR cost. However, it should be kept in mind that the cost should have been spent on employment or equipment update. Thus the competitiveness and creativeness of the company will undoubtedly be influenced.

The regulations in Labor Contract Law are untimely and neglect the companies’ demands of innovation and development. For this reason, we suggest foreign invested companies must be able to have a comprehensive understanding on such regulations before conducting operations in China so that the effect produced hereby could be minimized, and the commercial interests can be protected.

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Copyright reserved by Mr. You Yunting

Editor-in-Chief of Bridge IP Commentary

Partner & Attorney-at-law of Shanghai DeBund Law Offices

Email: Bridge@chinaiplawyer.com, Tel: 8621-5213-4900,

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