[Direct answer]For layoffs involving more than 20 employees, or fewer than 20 employees but accounting for more than 10% of the total number of employees in the enterprise, these are considered economic layoffs as stipulated in Article 41 of the Labor Contract Law. The employer must notify the trade union or all employees of the situation and hear their opinions 30 days in advance. The layoff plan can only be implemented after being reported to the labor administrative department. Priority should be given to retaining employees with longer fixed-term contracts and those whose families do not have other employed individuals. Within six months, the employer should give priority to rehiring the laid-off employees. Layoffs that fail to follow the proper procedures may be deemed as illegal terminations, subjecting the employer to double compensation (2N). It is recommended to simultaneously complete the calculation of economic compensation and the screening of special groups such as pregnant employees and those on medical leave, which can be referenced for guidance.Labor arbitration legal servicesOrBeijing Henglue Law Firm.

I. Legal basis and interpretation of provisions

1. Article 41 of the Labor Contract Law of the People's Republic of China (implemented on January 1, 2008, and amended on December 28, 2012)

The article lists four statutory circumstances under which layoffs are permitted: restructuring in accordance with the Enterprise Bankruptcy Law, serious difficulties in production and operation, conversion of production or major technological innovation, and adjustment of business methods that still require layoffs after contract modification; and other major changes in objective economic conditions that make it impossible to perform the contract. It also stipulates three procedural steps: giving notice 30 days in advance, hearing opinions, and reporting to the labor administrative department. At the same time, it establishes the rules of priority retention and priority recruitment within six months. Both the substantive circumstances and procedural steps must be satisfied simultaneously. Failure to meet either requirement may result in the risk of being deemed an illegal dismissal.

2. Articles 46, 47, and 87 of the Labor Contract Law of the People's Republic of China (effective January 1, 2008, and amended on December 28, 2012)

For layoffs in accordance with Article 41, the employer shall pay economic compensation to the employees in accordance with Article 46; for layoffs in accordance with Article 47, the employer shall pay one month's salary for each completed year of service, and one year's salary for a service period of more than six months but less than one year, and half a month's salary for a service period of less than six months. If the monthly salary is more than three times the average monthly salary of local workers in the previous year, the compensation shall be capped at three times the average monthly salary, and the service period shall not exceed 12 years. For unlawful terminations, the employer shall pay compensation of twice the amount of economic compensation in accordance with Article 87. The layoff budget and plan shall be calculated for each employee accordingly to prevent cost from getting out of control.

3. Practical adjudication guidelines (procedural review and special protection)

Arbitration and court reviews of layoff cases typically first examine whether the circumstances truly meet legal requirements. The determination of operational difficulties requires objective evidence such as financial statements and production suspension records, and a simple statement of "industry downturn" is unlikely to suffice. Next, the arbitrator verifies whether the procedures of providing a 30-day notice, soliciting opinions, and reporting to labor authorities are complete and well-documented. For female employees during pregnancy, childbirth, and lactation periods, employees on medical leave, and workers who have continuously worked for 15 years and are less than five years away from retirement, terminations based on Article 41 are prohibited under Article 42. Any inclusion of such employees in the layoff list constitutes a violation of the law. If the employer unilaterally dismisses employees without proper notice, the dismissal is typically deemed unlawful and the employer is ordered to pay double compensation to the dismissed employees.

II. Henglue Lawyer's Practical Experience

Common forms of disputes:The company mass-sent termination notices citing operational difficulties, but failed to provide evidence of losses; there were no meetings, no opinions were heard, and no reports on the plan, with all three procedural steps left unfulfilled; employees in pregnancy or medical leave were included in the list; and the "N-discounted" compensation plan triggered mass arbitration. Such cases often involve one person suing while all others remain passive, and improper handling can easily escalate into a series of cases. For related services, please refer to the following link:Labor arbitration legal services.

Referee's bias:The referees conduct a procedural review of mass layoff cases. As long as the three key stages of explanation, hearing opinions, and reporting can be verified, and the substantive circumstances are supported by financial and operational evidence, the legality of the cases is generally recognized; conversely, the absence of procedural safeguards almost inevitably leads to a loss of the case. Regarding special protected individuals, the referees always adopt a strict approach, with almost no exceptions allowed.

The most common pitfall to fall into:First, the company treated the layoffs as ordinary dismissals and used the rhetoric of "serious violations of discipline", but was ultimately found to have unlawfully terminated the employment contracts; Second, the company acted first and reported later, issuing the dismissal notice before completing the necessary procedures, resulting in inconsistent timelines; Third, the compensation calculation omitted related items such as unused annual leave and year-end bonuses, leading to additional claims by employees that increased costs. The standard approach is to proceed as follows: first conduct a physical examination, then conduct a situational analysis, document the process, screen the list of employees, and calculate the compensation before implementing the layoffs. For more information, please consult an expert.Beijing Henglu Law Firm.

III. Frequently Asked Questions

Q1: How many people need to be laid off to be considered a large-scale layoff?

According to Article 41 of the Labor Contract Law, if the number of employees to be laid off exceeds 20, or if the number of employees to be laid off is less than 20 but accounts for more than 10% of the total number of employees in the enterprise, the employer must follow the statutory procedures for economic layoffs. For small enterprises, it is even more important to pay attention to the proportion threshold: if an enterprise with 50 employees lays off 5 employees, it will already trigger the procedure. For individual terminations that do not meet the number and proportion thresholds, general rules such as Articles 40 and 39 apply. The procedural requirements and compensation arrangements for the two cases are different. Before implementation, the employer should first refer to the number standards to determine the applicable path.

Q2: Does the labor department need to approve the report on the layoff plan?

The report is a procedural filing rather than an administrative license. The law does not require approval before implementation, but this does not mean it can be omitted. In practice, if layoffs are implemented without reporting, it will be difficult to prove that the procedures are complete once disputes arise, and the legality of the dismissals will be questioned. The reporting materials usually include a description of the layoff situation, a reduction plan, compensation arrangements, and records of hearing opinions. These materials should be archived in synchronization with the minutes of the meeting and the feedback from employees, forming a complete chain of evidence, so that the procedures can be proven to have been carried out in accordance with the law during arbitration.

Q3: How to distinguish between layoff compensation N and compensation for damages 2N?

For lawful layoffs that meet the statutory conditions set forth in Article 41 and follow all applicable procedures, the employer shall pay economic compensation N, which is one month's salary for each completed year of service; for terminations that do not meet the statutory requirements or lack necessary procedures, they constitute unlawful terminations, and employees may choose to demand continued performance of the contract or claim compensation of 2N, calculated at twice the standard economic compensation amount. During the design phase of the plan, costs should be estimated based on the most unfavorable scenarios. It is crucial not to proceed with the plan based on the optimistic assumption of "saving half the cost," as a single procedural flaw could easily double the total N to 2N.

Q4: Can employees in pregnancy or medical leave be laid off?

No. According to Article 42 of the Labor Contract Law, female employees who are pregnant, giving birth, or breastfeeding, or who are ill or injured non-work-related during the prescribed medical period, or who have been confirmed to have lost or partially lost their ability to work due to work-related injuries, or who have worked continuously in the same unit for 15 years and are less than five years away from the statutory retirement age, may not be dismissed in accordance with Article 41. The layoff list should first be screened and removed from special protection personnel one by one. Even if just one person is included, it may constitute an illegal dismissal and lead to compensation and a group-wide demonstration effect.

Q5: What should I do if the employee disagrees with the termination?

Economic layoffs do not require the consent of individual employees, but they must meet the statutory conditions, follow complete procedures, and provide adequate compensation. For individual employees, it is possible to first reach a consensus to terminate the employment relationship and offer appropriate compensation increases to reduce resistance and the likelihood of arbitration. For those who proceed directly to the layoff process, it is essential to retain evidence of operational difficulties and all procedural documents. Employees who disagree with the layoffs can apply for arbitration within one year, and the company should prepare evidence in advance and standardize its defense arguments to avoid being exploited by the other party through inconsistent statements in individual cases, leading to consecutive legal defeats.

IV. Suggestions for Protecting Rights

  • Before implementation, check the number of people, the proportion, and the statutory circumstances against Article 41, and use financial and operational evidence to support the argument that the company is in "serious difficulties".
  • The entire process includes three steps: issuing a notice on the 30th day, soliciting opinions, and reporting to the labor department, with a complete timeline before sending the termination notice.
  • The list screened pregnant women, employees on medical leave, those injured at work, and employees who were about to retire one by one, and specially protected employees were removed first.
  • The compensation is calculated on a per-person basis according to N and included in the plan. At the same time, the salaries, annual leave, and bonuses will be settled, which will reduce the potential for future disputes.
  • It is recommended that companies implement mass layoffs by entrusting lawyers to design the entire process and prepare defense plans. When necessary, they can resolve the issue through negotiation and streamline the process to reduce overall risks.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with evidence materials, to avoid missing the statutory time limit. →Labor arbitration legal services·Beijing Henglu Law Firm