Employers in China Cautioned Against M&A-Related Terminations

In China, employers may no longer be able to terminate workers after a merger or acquisition by upholding the M&A as a “major change in objective circumstances,” which justifies employee terminations.

Article 40(3) of China’s Employment Contract Law allows an employer to terminate an employee’s contract if there is a major change in objective circumstances that makes performance impossible and an amendment cannot be agreed upon.

However, after reviewing a wrongful termination case brought by an employee after his employer’s M&A, the Beijing Third Intermediate People’s Court determined that the employer’s M&A activity did not represent a qualifying change in objective circumstances; in the court’s view, it was a business decision. Therefore, the employee’s termination was not legitimate.

Law firm L&E Global notes that when handling employment relationships during mergers, acquisitions, or restructurings, businesses should not use an M&A as “a direct ground for unilateral termination.”

Increased scrutiny of flexible and comprehensive working hours arrangements

In another development, law firm DLA Piper recently noted a more cautious approach to working-time rules from Chinese labor authorities, following a public debate on overwork.

Organizations that face overtime exposure are increasingly in the spotlight, and they may find it harder to get approval for flexible and comprehensive working hours arrangements due to narrower eligibility criteria. In particular, practices that have been used to limit overtime liability are now under closer scrutiny.

The laws and rules that apply to working-time arrangements have not changed. What has changed is the approach used by local labor authorities when reviewing and approving alternative working hour systems.

Sources: L&E Global, DLA Piper, DLA Piper