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Update for Employers on COVID-19 in the PRC

April 06, 2020

As the number of coronavirus (COVID-19) infections has diminished in the People’s Republic of China (PRC), everyday life has been evolving slowly to bring employers and employees closer to the pre-COVID-19 working environment. However, schools still remain closed (with no official date set for their reopening) and large public gatherings are still prohibited. That said, while the PRC government has eased the overall pandemic prevention and control measures, employers should be aware of many new regulations at both the national and local levels to address the myriad employment issues that have arisen.

This LawFlash summarizes the more significant regulations issued since our LawFlash of February 26, 2020, Coronavirus: Employer Requirements to Resume Operations in Select Major Cities in China.

Electronic Signing of Employment Contracts

While companies have been closed or operating with reduced staff onsite, many employees have been working from home and not reporting physically to the worksite. This has complicated the ability for employers to execute employment contracts for new hires. As a matter of PRC law, the employer and employee are required to execute two original employment contracts, with each party retaining an original executed version. Recently, however, this has not always been possible due to the COVID-19 situation. Access to the company seal may be limited, and new hires do not always have access to a printer and scanner in order to execute the contract with the requisite “wet” signature.

To alleviate this situation, on March 4, the Ministry of Human Resources and Social Security (MHRSS) issued the Letter of the General Office of the MHRSS on Issues Related to the Conclusion of Electronic Employment Contracts (the Letter). Although this Letter is a response to the a specific request made by the Beijing Labor Bureau (Request for Instructions), it is applicable nationally and provides that employers and employees may agree to sign employment contracts electronically. In addition to the employment-related laws and regulations, the electronic execution of an employment contract should follow the requirements under the PRC E-signature Law, which requires in relevant part that (i) the employment contract uses reliable e-signature and data messaging that can be identified as the written form by law and (ii) the employer should ensure that the formation, transmission, and preservation of the employment contract is complete, accurate, and not falsified.

Notably, as the Request for Instructions and subsequent Letter response only concern matters “during the COVID-19 period”, the electronic execution of an employment contract may only be applicable during the specific period for the prevention and control of the pandemic. Employers should therefore consider executing and attaching original signatures once things normalize.

Labor Costs in the Face of COVID-19

Methods for Reducing Labor Costs During the COVID-19 Period

The salary payment regulations placed a heavy burden on employers as they continued to bear labor costs—often at full wages—while their business during the epidemic period may have shut down completely or significantly. That said, government regulations have provided welcome flexibility for employers to address this burden.

First, employers in industries now experiencing sharp ebbs and flows in working hours, such as retail or hospitality, were encouraged to apply for government approval for the comprehensive working hours system. The comprehensive working hours system is an alternative system that measures average weekly working hours based on an approved duration (such as monthly) rather than the default, which is weekly. This working hours system will reduce overtime exposure for those employees who may work longer than the regular eight hours per workday and 40 hours per workweek (when overtime starts to accrue under the default system), but whose average working hours for the duration of time does not exceed 40 per workweek.

In addition, employers have been encouraged to reach agreements with their employees by arranging for alternative work arrangements whenever possible, such as teleworking. Further, pending consultation with employees, employers may:

  • reduce the employees’ working hours and propose an associated reduction in pay;
  • exhaust the employees’ paid time off, such as annual leave and CTO; and/or
  • reach an agreement around unpaid leave.

The proposal to exhaust employees’ annual leave is significant because the government regulations specifically noted that although statutory leave accrues on a monthly basis, employers are able to assign the full calendar year’s worth of annual leave during the COVID-19 period when employees are home and unable to work. Notably, it is unclear if employers will be able to recoup such leave if an employee leaves the company before the end of the year. This is because absent a change in the law for the COVID-19 situation, it is not lawful for an employer to deduct excess statutory annual leave from an employee’s salary if he or she leaves before such leave was statutorily accrued.

Finally, employers should also consider internal means to reduce costs, such as by freezing, reducing and/or delaying scheduled salary increase and/or bonuses and/or eliminating merit and/or cost of living increases. Employers have considerable latitude to eliminate or reduce discretionary increases such as these unilaterally, as long as they do not decrease the employees’ base salaries without express written consent.

Employers have less flexibility with respect to their employees who remain in Hubei Province under the lockdown, which has been gradually lifted since March 25. Many of these employees who remain in Hubei Province and cannot return to their work locations likely fall into the category of employees who cannot perform any work due to the COVID-19 situation. This category of employees are likely entitled under special COVID-19 national salary payment requirements to receive their full regular salary since the lockdown started in late January, absent an express agreement otherwise.

Notably, the Beijing government has implemented measures to lighten some of the burden on employers with respect to the large number of employees unable to return from Hubei Province to Beijing. Pursuant to a notice issued on March 11 by the Beijing labor bureau with respect to Beijing employers (Beijing Employers Notice) with employees who are unable to return from Hubei Province, the epicenter of COVID-19, the Beijing employers are required to pay them their regular salary only when the employees (i) provide services through a flexible work arrangement, or (ii) take paid annual leave, or (iii) are in Hubei due to business travel. Otherwise, the Beijing employers may pay each employee who is “stuck” in Hubei a minimum amount per month, which is twice the minimum cost of living, or CNY 3,080 (approximately $430), since March 2020. In addition, employers may apply for a monthly subsidy from the government if they pay this minimum amount to these employees who are unable to return from Hubei to work in Beijing. The subsidy is equal to half the cost of living subsidy paid to these employees, or CNY 1,540 (approximately $215) per employee per month.

Salary Payment in the Event of Shutdowns

With lower productivity and higher employment costs, some companies may need to “shut down” all or part of their business operations at a particular worksite. A partial or complete shutdown of operations is a paid period of leave at very low wage levels, applicable to office and factory personnel alike, and is akin to a “furlough” in the United States. A shut down requires employee consent in the form of written agreements around the terms of the shutdown.

To implement a total or partial shutdown due to the COVID-19 situation, the employer will need to consult with the employees. The employer is required to pay employees their full salary for the first full wage payment cycle. After the first full wage payment cycle, if the employer cannot resume regular operations, then the employer can pay employees the local minimum wage or the applicable percentage of the minimum wage (based on local regulation), subject to the employee consultation process applicable to a shutdown. (The applicable wage rate is set forth for a number of cities in our February 4 LawFlash regarding Salary Payment Standards in the PRC During 2019 Novel Coronavirus Outbreak.) Generally, a full wage payment cycle is one month, but it may be shorter for employers who engage part-time employees, as part-time employees must be paid biweekly.

Continued Restrictions with Respect to the Resumption of Operations

In order to curtail the spread of the virus, local governments across the country issued regulations specifying the detailed process by which companies could resume operations. The detailed regulations varied province by province, city by city, and even district by district, creating havoc for companies that tried to approach the resumption of operations across the PRC with a single plan. Companies were not able to resume their operations unless they could satisfy all of the conditions meant to safeguard the public health against the spread of COVID-19. Beijing continues to enforce the strictest requirements regarding the resumption of operations. We highlight here the requirements for companies located in office buildings. These requirements come largely from a notice issued jointly on February 24 by five departments of the Beijing government (Beijing Municipal Comprehensive Law-Enforcing Bureau of City Administration, Beijing Municipal Commission of Housing and Urban-Rural Development, Beijing Emergency Management Bureau, Beijing Municipal Health Commission, and Beijing Municipal Administration for Market Regulation), namely the Notice to Further Clarify the Requirements for Companies in Office Buildings to prevent COVID-19. These requirements also come from stricter measures implemented by the Beijing government in March 2020 as many overseas Chinese (and expatriates, before the borders closed to them in late March 2020) returned to China (especially to Beijing) in March 2020, and the number of imported infected cases of COVID-19 in Beijing continued to surge.

Specifically, companies are required to

  • arrange for flexible working arrangements, which includes staggering the start and end times for work, arranging shifts and working from home. Companies should arrange for less than 50% of the employees to come to the office at a given time to ensure there is no less than 2.5 square meters (approx. 27 sq. ft.) or working space per person;
  • require their employees to abide by the 14-day quarantine requirement for virtually anyone returning to Beijing from another location (including household members of the employee) in a strict manner and continuously inquire about their employees' health status;
  • check and record the temperature of their employees twice daily (including those working from home) and ensure that employees who come to the office wear face masks;
  • collect the geolocation of their employees (employees obtain their geolocation information for the immediately preceding 15-30 days by sending a text message to a specific number designated by the individual’s telecommunications operator).
  • Collect signed commitment letters from each employee regarding their health status and their whereabouts and the whereabouts of anyone who lives in the same lodging with them during the immediately preceding 14 days;
  • advise employees to take the elevator in smaller numbers, which should not exceed 50% of the maximum occupancy number;
  • ensure that each employee in the office keeps a distance of more than one meter (approximately three feet) away from one another;
  • disinfect the workplace and the articles in the public area of the workplace daily;
  • turn off the return air and clean, disinfect or replace key components (the components which may be contaminated) of the central air conditioning and ventilation equipment every week, for those companies using the central air conditioning and ventilation system;
  • ensure that each employee keeps a distance of more than one meter away from one another when having their meals and ensure that employees do not eat their meals facing each other;
  • effectively manage third parties who visit the office; and
  • assign a specific person in charge of COVID-19 prevention and assign employees who are tasked with specifically dealing with matters related to COVID-19 prevention.

Although the legal consequence of violating these requirements is not stated in the Notice, employers and employees have been required to abide by these requirements without deviation, and employers are being held accountable for the noncompliant activities of their employees. This story about a noncompliant expat illustrates how this works in practice and why the commitment letters from employees were introduced:

On March 15 an expatriate in Beijing who was employed by the local entity of a multinational pharmaceutical company defied the 14-day quarantine by going out for a jog (and without wearing a mask) instead of complying with the requirement to self-quarantine after returning to Beijing from overseas. The community epidemic prevention task force became aware and reported the individual’s refusal to cooperate to the Public Security Bureau of Beijing Chaoyang District. Videos of the expat’s argument with the local officials and refusal to cooperate went viral—along with the employer’s identity.

On March 17, the multinational pharma company made an official announcement on its social media platform that the company had summarily dismissed the employee for violating the government-mandated requirements. On March 19 the Beijing Public Security Bureau reported that it canceled her work permit and required her to leave the country by a specified date.

The Situation if an Employee Neither Reports to the Workplace nor Works from Home

As employers resume operations and the expectation of employees reporting to the workplace increases, employers are likely to encounter situations in which an employee does not report to work and does not work from home. In order to respond to this situation, the employer needs to investigate the basis for an employee’s refusal to return to the workplace or perform work from home, if that is an option, in order to understand the salary payment obligations.

With respect to employees who are either pregnant, on maternity leave, or in the nursing period (which is the period from the baby’s birth through the baby’s first birthday) or employees who have to take care of their children at home, generally, the employer should, pending consultation with the employees, arrange for the employees to take annual leave and any other statutory or other company-provided leave during this time. If the employees have exhausted these leave entitlements, the companies may, pending consultation with the employees, apply the salary payment measures for a shutdown as stated above, which means that the companies will still need to pay the employees their full salary for the first full wage payment cycle, but may reduce their salary to a far lower level from the second month.

With respect to employees who are infected with or suspected of being infected with COVID-19, employers are required to pay these employees their regular salary.

With respect to an employee who refuses to come to work or work from home without justification, if the company has resumed operations (which generally means that the company has taken and is complying with all local requisite pandemic prevention measures), the company should talk with the employees first and try to persuade them to resume work. If the employee still refuses to report to work without justification and refuses to agree to a period of unpaid leave, then the employer is entitled to take disciplinary action against the employee.

The Situation if an Employee Cannot Perform Work Full-Time Either at Home or in the Workplace

Some employees will not be able to work full-time from their homes. And some employees will not be able to report to the workplace on a full-time basis based on the staggered schedules that have been put in place. Employers should be flexible and creative in the solution.

In the event that some employees work fewer hours per week than their usual schedule due to these circumstances that may be beyond their control, by consulting with them, employers should consider rearranging the workweek. In the current COVID-19 situation, when the distinction between weekdays and weekends blurs, employers may consider elongating the hours and opening the workplace on weekends in order to accommodate more employees working their regular hours but on a staggered basis that extends from earlier in the morning to later at night and over Saturdays and Sundays. Until all employees can report to work safely at the same time without creating increased exposure for the virus, such scheduling changes should be amenable to the employees and may be welcomed by those who want to work their full schedule if possible.

Privacy Concerns and Collection of Employee Personal Data and Sensitive Personal Data

One of the most significant requirements for employers in respect of COVID-19 has been the requirement that employers supervise their employees’ health status on a daily basis. This entails the collection of medical information and other sensitive personal information about the employees. Employers have been required to confirm with each of their employees whether they have any of the specific symptoms of COVID-19, namely, fever, respiratory issues, sore throat, and/or coughing. Further, employees are generally reporting if they have chronic illnesses or are pregnant or were exposed to the virus, because depending on local regulations, these scenarios likely justify an employee’s request or need to remain at home and not report to the workplace during the period when the epidemic prevention and control measures are in place.

As the collection of the COVID-19-related information is a legal obligation for employees, employees may not refuse to provide such information. However, employers should take care with respect to how they collect and store such information. To protect the employees’ health information during the COVID-19 period, companies should designate one person (for example, a representative from human resources) to collect the employee’s health information and not disclose the information to others other than the designated HR representative. This will help prevent rumors regarding who has or may have or are perceived to have the virus. Further, the HR representative should record this medical information, which constitutes sensitive personal data under PRC law, in a separate medical file for the employee.

Termination During COVID-19

In the PRC, termination of employment is challenging and restricted in the absence of a crisis situation. In the current epidemic prevention and control period, employee dismissals are far more sensitive. Public policy and regulations in the PRC encourage employers to apply any and all cost-cutting measures discussed herein and avail themselves of the additional tax and other economic incentives and measures offered to reduce the economic burden on employers in lieu of conducting layoffs.

The PRC government has made clear that employees who are infected or suspected of being infected with COVID-19 are protected from dismissal. Further, employers are also prohibited from dismissing those employees who cannot return to work because of restrictive or emergency measures taken by the government. In a notice issued on January 24, the MHRSS made clear that employers may not terminate the employment of this group of covered employees under either Article 40 (which covers the expiration of the medical treatment period, poor performance, or a major change in objective circumstances under which the contract can no longer be performed) or Article 41 (mass layoff) of the Employment Contract Law (ECL), effective as of January 1, 2008 and as amended. Termination on other grounds, such as misconduct, for these employees is still legally permitted, but will be closely scrutinized in the event of a legal challenge to the termination.

Finally, as economic pressures rise, employers are free to conduct terminations, including mass layoffs, of those employees who do not fall under these or any other protected categories, but they should proceed with caution, given the public policy concerns against terminating employment without “cause.”

In sum, there is no “one size fits all” approach or answer to how to handle the myriad employment issues raised that the COVID-19 crisis presents. Employers need to review the different situations carefully, depending on the employees’ health status, where the employee is physically, whether the employee can perform any work, whether an agreement to amend the employment contract’s terms can be reached, and where the employee is based.

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Beijing
K Lesli Ligorner
Yuting Zhu