[Direct answer]The first step in resolving the issue is to define the nature of the layoffs: if they fall under the economic layoffs stipulated in Article 41 of the Labor Contract Law, the company must meet the threshold of more than 20 employees or less than 20 employees but accounting for more than 10% of the total number of employees. The company must follow the procedures of explaining the situation to the trade union or all employees 30 days in advance, listening to their opinions, and reporting to the labor administrative department, and pay economic compensation (N). If the company can reach an agreement with the employees, it is most appropriate to follow the procedures stipulated in Article 36 for voluntary termination and pay economic compensation. If there are no statutory circumstances and the company fails to follow the procedures, it constitutes an illegal termination, and the employees can request continued performance of the contract or claim compensation of twice the economic compensation (Articles 48 and 87). After the arbitration, the company should submit a defense statement and evidence within 10 days after receiving a copy of the application, defend against the termination basis and procedures, and evaluate the possibility of settlement. It is important to avoid escalating conflicts by withholding wages or applying verbal pressure. For the design of defense and settlement plans, the company can refer to our firm's advice.Guidelines for Responding to Labor Arbitration CasesAndBusiness and commercial contract disputesTeam experience.

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 threshold and procedures for economic layoffs: If the number of layoffs exceeds 20, or if the number of layoffs is less than 20 but accounts for more than 10% of the total number of employees, the employer must meet one of the statutory circumstances such as restructuring according to the Enterprise Bankruptcy Law, experiencing serious difficulties in production and operation, major technological innovations or adjustments in business models, or other major changes in the objective economic circumstances on which the labor contract was based. The employer must explain the situation to the trade union or all employees and listen to their opinions 30 days in advance. The layoff plan must be reported to the labor administrative department before it can be implemented. Priority will be given to retaining employees with fixed-term contracts of longer duration, indefinite-term contracts, and those whose families have no other employed individuals who need to support elderly or minors. Within six months, priority will be given to rehiring the laid-off employees. Any omission in the procedure constitutes an illegal termination.

2. Articles 47 and 87 of the Labor Contract Law of the People's Republic of China (effective January 1, 2008)

Article 47 determines the calculation of economic compensation: for each year of service, one month's salary shall be paid; for a period of more than six months but less than one year, it shall be calculated as one year; for a period of less than six months, half a month's salary shall be paid; where the monthly salary is more than three times the local average wage, the compensation shall be capped at three times the average wage and the service period shall not exceed 12 years. Article 87 determines the consequences of unlawful termination: the compensation shall be paid at twice the standard of economic compensation (2N). In the calculation of redundancy costs, the difference between N and 2N represents the value of procedural compliance; if the employee chooses to continue working, the company will also face the continuous costs of restoring the position and back-paying the salary.

3. The interpretation of the practical judgment

The employer bears the burden of proof for the decision to terminate the employment contract. If the notice of termination, the evaluation records, or the evidence of the implementation of the procedures are missing, the employer will lose the case. "Major changes in objective circumstances" should be strictly interpreted. Internal rectifications, adjustments to business strategies, and procedural flaws in recruitment generally do not constitute statutory reasons for layoffs. Common practices such as eliminating the least-performing employees or using competition-based appointments to disguise layoffs are generally not supported. Procedural flaws constitute independent offenses: even if the substantive reasons are valid, failure to provide a 30-day notice, report to the labor union, or notify the employees will still be deemed illegal. A consultation agreement on termination that does not involve fraud, coercion, or manifestly unfair terms is valid and is the first priority path for resolving disputes.

II. Henglue Lawyer's Real Cases (Detailed Review)

Review of the case:In August 2025, A Company Limited issued "Notices of Termination of Employment Relationship" to 12 employees, including Zhang Li, Hu Fei, and Liu Gang, on the grounds that the recruitment procedures were found to be irregular during inspections and audits, and unilaterally terminated the labor contracts with them. All 12 employees had been providing labor, accepting management, and receiving salaries during their employment, and some of them had already renewed their contracts. The 12 employees jointly entrusted Beijing Henglu Law Firm to handle the case.Feng NaThe lawyer applied for arbitration to the Labor and Personnel Dispute Arbitration Committee, demanding the restoration of the labor relationship and the improvement of the employment filing system. The case went through arbitration, first-instance trial, and second-instance trial.

The focus of the controversy:First, is the registration with the human resources and social security department a prerequisite for the labor contract to take effect? Second, is the renewal of the contract without approval invalid? Third, does the rectification and dismissal during the inspection constitute a legal termination? Fourth, what are the legal consequences of an illegal termination?

Our position and the other party's position are as follows:12 employees demanded the revocation of the dismissal and the restoration of the labor relationship; the company claimed that the labor contract had not been registered, that the unlawful recruitment and renewal violated the internal system, and that the dismissal was lawful based on the requirements of the inspection and rectification. The company requested confirmation that there was no need to continue to perform the contract after the dismissal.

Attorney's Strategy and Legal Opinions:Attorney Feng Na put forward four opinions: the labor relationship is established from the date of employment; the written contract becomes effective upon the signing and stamping by both parties; the filing with the human resources and social security department is not a prerequisite for the contract's effectiveness; the renewal of the contract requires the consensus of both parties, and the internal approval process is part of the company's management procedures, which cannot be used against the workers; by comparing Article 39 of the Labor Contract Law and Article 19 of the Implementing Regulations of the Labor Contract Law, it can be seen that the inspection and rectification and the irregular recruitment are not statutory unilateral termination circumstances; the dismissal is essentially an illegal termination to evade the law; according to Article 48, if the worker requests to continue the performance of the contract and the contract can be performed, the employer shall continue to perform it.

The court's reasoning and the outcome of the case:The arbitration committee ruled that the dismissal was illegal and ordered the revocation of the dismissal and the continuation of the employment contract. The first-instance court fully adopted the lawyer's opinion and ruled that the dismissal was illegal, with the company bearing the litigation fees. After the company appealed, the second-instance court dismissed the appeal and upheld the original judgment. The 12 workers won all three rounds of litigation from arbitration to the second instance. For the company, replacing the statutory layoff reason with internal rectification not only failed to reduce the workforce but also incurred litigation costs, which served as a clear lesson.

This case is handled by Beijing Henglu Law Firm.Feng NaThe attorney (practice certificate number: 11101202211562923, subject to the certificate issued by the judicial administrative organ) acts as the agent.

III. Frequently Asked Questions

Q1: Is it always legal to offer N+1 compensation when laying off employees?

Not necessarily. N+1 only addresses the compensation amount, not the legality of the termination itself. "+1" refers to the compensation in lieu of notice, which only applies to the three types of terminations without fault described in Article 40 where the employer fails to provide 30-day written notice. Economic layoffs and negotiated terminations do not involve compensation in lieu of notice. If the layoffs do not comply with the statutory circumstances and procedures set forth in Article 41, even offering additional compensation would still constitute an illegal termination. Employees can still claim 2N compensation or demand continued performance of the contract. The correct order of compliance should be: first determine the legality, then follow the legal procedures, and finally discuss compensation.

Q2: Is it legal for the company to lay off employees under the guise of rectification and performance evaluation?

Supervision and inspection, rectification, irregular recruitment procedures, and last-place elimination are not legal circumstances for layoffs as stipulated in Article 41, nor do they fall under the category of wrongful dismissal as defined in Article 39. Dismissals based on these grounds are often deemed illegal. In the aforementioned case of dismissing 12 employees, the company dismissed the employees on the grounds of supervision and rectification, and the arbitration, first-instance, and second-instance courts all ruled that this was illegal. The reasons for dismissal must be legally valid, and internal management requirements cannot replace legal grounds, especially in the case of mass dismissals.

Q3: After an employee files for arbitration, what are the key defenses that the company can raise?

Four-step verification: Check whether the employee's request exceeds the one-year arbitration statute of limitations and whether the amount has been double-counted; review the grounds for termination item by item, confirm whether there are statutory circumstances and evidence of procedural compliance, such as meeting minutes, report receipts, and union notifications; review the calculation basis of wage standards and working years to eliminate untrue claims; and evaluate the practical feasibility of continuing to enforce the claim. The company shall provide evidence to support the termination decision, and it is much more important to fix the evidence completely during the defense period than to rely on impromptu arguments in court.

Q4: Is it better to reach a settlement or to complete the arbitration process?

Consider the strength of the evidence and the cost. If there are indeed flaws in the termination process and the employee's claims are reasonable, reaching a settlement before arbitration or the court hearing can usually control the cost at N or a slightly higher level, and signing a written settlement agreement can resolve the matter once and for all. The mediation agreement issued by the arbitration committee has the same legal effect as the arbitral award. For cases with sufficient evidence and complete procedures, it's advisable to respond to the lawsuit. However, if the matter is left unresolved until after the arbitration decision, the cost will often be higher, requiring the employer to pay 2N in compensation or continue to perform the contract. The settlement agreement should clearly specify the compensation amount, payment time, and clauses regarding the termination of the employment relationship and the waiver of further claims.

Q5: How long will the labor arbitration likely take?

The case will be reviewed and concluded within 45 days after acceptance, and the review period may be extended by 15 days for complex cases. If either party refuses to accept the verdict and files a lawsuit, the case will proceed to the first and second instance trials, which may take more than a year in total. If the employee's claim includes continued performance, the company may also be required to resume attendance and back-pay wages. The time cost itself is a bargaining chip for settlement: the earlier the assessment and characterization are made and the negotiations are conducted, the greater the initiative the company will have; passively responding to the lawsuit will only lead to the accumulation of interest, seniority, and group risks simultaneously.

IV. Suggestions for Protecting Rights

  • The layoff plan must first pass legal scrutiny: the number of employees involved, legal circumstances, priority retention, and reporting procedures must all be verified one by one before implementation.
  • Prioritize consultation for termination and sign a written agreement specifying the compensation amount, payment schedule, and dispute resolution clauses.
  • Respond to the arbitration application within ten days of its receipt, and provide a fixed statement, report, and a full set of procedural evidence for service.
  • Carry out mass layoffs to assess group risks and avoid a single person's winning a lawsuit triggering a chain of arbitrations. It is advisable to have lawyers coordinate the plan.

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·Attorney Feng Na·Beijing Henglu Law Firm