In response to the spread of the COVID-19 omicron variant, Shanghai implemented a general lockdown in April 2022. This LawFlash provides multinational companies with operations in Shanghai, People’s Republic of China with guidance on the epidemic control measures, as well as on salary, termination, and resumption of operations issues.
For the last few weeks, Shanghai has implemented a three-zone epidemic control system, dividing different areas into lockdown zones, controlled zones, and precautionary zones.
“Lockdown zones” refers to the residential communities, natural villages, or units that have had positive cases in the past seven days where residents are required to be quarantined at home for seven days and monitor and manage their own health status properly (self-health monitoring) for another seven days.
“Controlled zones” refers to the residential communities, natural villages, or units where there have been no positive cases in the past seven days and the residents are required to conduct self-health monitoring for seven days.
“Precautionary zones” are the residential communities, natural villages, or units that have had no positive cases over the past 14 days and the residents are permitted to travel within the street, community, or town in principle.
In addition, Shanghai has implemented the "2+12" quarantine policy for the residents in the residential district, workplace, or school where the close contacts of a positive individual were located. Specifically, the "2" means that the individuals should be quarantined at home for two days with two COVID-19 tests conducted, and there should be more than 24 hours between the two tests. The "12" means that the individuals should stay at home for 12 days and should take COVID-19 tests accordingly and conduct self-health monitoring. For the secondary close contacts of a positive individual, Shanghai has implemented the "7+7" quarantine policy—i.e., seven days of quarantine and seven days of self-health monitoring.
On May 9, 2022, Shanghai issued a new, broader policy essentially requiring all individuals who test positive as well as their neighbors to be relocated to quarantine centers. The scope of which neighbors are included depends in part on the local neighborhood committee and the size of the individual’s home or apartment building.
Currently, only certain industrial enterprises and those enterprises that are critical to the nation’s economy and people’s livelihood are allowed to resume operations, and most employees are required to work from home, if feasible. Where working from home is not feasible, employers may need to shut down partially or completely.
The salary payment regulations generally remain the same as those issued in 2020 and place a heavy burden on employers as they continued to bear labor costs—often at full wages—while their business during the pandemic may have shut down completely or significantly. On March 28, 2022, the Shanghai Municipal Human Resources and Social Security Bureau released 16 Policies and Measures for Supporting the Fight Against Epidemic Diseases (March 2022 Measures). According to the March 2022 Measures, for those employees who test positive or have been or are identified as close contacts of the positive cases and therefore are under quarantine and cannot provide services to the company, the company is required to continue to pay them their regular salary as if they are working during this time. After the quarantine period, if the employees still need to receive medical treatment and cannot work normally, the companies should pay them in accordance with the applicable laws and regulations governing the medical treatment period.
That said, government regulations have also provided flexibility for employers to address this burden. For example, the March 2022 Measures provide that in the event of a shutdown due to control measures taken by the government, companies and their employees should handle such issues as wages and benefits through consultation to the greatest extent possible in order to overcome the difficulties together. Generally, 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 the employees the local minimum wage, subject to the employee consultation process applicable to a shutdown. The minimum wage in Shanghai is currently 2,590 Chinese yuan ($385) per month in Shanghai.
In addition, on April 6, 2022, the Shanghai Higher People's Court issued Several Opinions on Judicial Services to Guarantee Epidemic Prevention and Control and Economic and Social Development (April 2022 Opinions). According to the April 2022 Opinions, the government is encouraging employers to arrange for flexible working arrangements for those employees who cannot provide services normally due to the COVID-19 situation, which includes adjusting salaries, arranging shifts, reducing working hours, and working from home. In addition, for those employees who cannot work remotely, employers may also exhaust the employees’ paid time off, such as annual leave and compensatory time off.
Furthermore, employers can also consider internal means to reduce costs, such as by freezing, reducing, and/or delaying scheduled salary increases 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.
With respect to the termination of employees, the policy remains the same as that issued in 2020. Public policy and regulations in the People’s Republic of China (PRC) encourage employers to apply all cost-cutting measures discussed herein, as well as other economic measures offered to reduce the economic burden on employers in lieu of conducting layoffs. One such measure which remains available to industries with financial difficulties is the postponement of the payment of the contributions to the pension scheme, which makes up the largest percentage of the employer’s total social insurance contributions for its employees.
The PRC government has made clear that employers may not terminate the employment of those employees who are infected or suspected of being infected with COVID-19 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 Labor Contract Law (LCL), effective as of January 1, 2008, and as amended.
In addition, if the employment contract expires for such employees who are under the mandatory quarantine or during the medical treatment period, the term of the employment contract is to be extended until the mandatory quarantine or medical treatment period ends. 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.
Normally, an employer and employee are required to execute the employment contract with a wet signature. However, recognizing the difficulties for candidates to print and sign at home and with the general inability to send original documents via courier during the current lockdown, the government has issued regulations permitting esignatures to alleviate these difficulties, if mutually agreed between the company and the employee/candidate.
In addition to the employment-related laws and regulations, the execution of an electronic employment contract, in particular, should follow the requirements under the Electronic Signature Law, including that (1) the econtract service platform is qualified under PRC law; (2) the electronic employment contract uses reliable esignature and data messages that can be identified as the written form by law; and (3) the employer ensures that the formation, transmission, and preservation of the electronic employment contract is complete, accurate, and not falsified. In addition, if the employment contract will be transferred outside the country, because it contains the employee/candidate’s personal data, the employer should obtain the individual and express consent from the employee/candidate under the Personal Information Protection Law, which took effect on November 1, 2021, for such transfer.
While the applicable regulations do not expressly cover other employment documents, during the current lockdown, companies could adopt the same esignature precautions used for employment contracts for other employment-related documents and have the parties provide wet signatures to those documents later, when circumstances permit.
On April 17, 2022, the Shanghai government issued guidelines for industrial enterprises to resume operations. The 666 enterprises on the whitelist issued on April 11, 2022 may resume operations. The majority of these companies fall under the integrated circuit, automobile manufacturing, equipment manufacturing, and biomedicine industries.
Specifically, to resume operations, the company should (1) formulate a management proposal and establish a specific group for COVID-19 prevention and control; (2) divide the plant into different areas and implement proper and differentiated managerial measures respectively for each area; (3) enhance management over all employees, including monitoring their daily health status and conducting COVID-19 tests twice per day (one antigen test and one nucleic acid test); (4) enhance the logistics management within the plant and prepare sufficient equipment for epidemic prevention (e.g., mask, alcohol, test kits, etc.); and (5) prepare emergency and contingency plans to control the situation as much as possible in case there is a positive case in the plant.
The requirements for other enterprises to resume operations in the future will likely resemble the requirements set out above, but it will take time for office buildings to reopen, as the movement of people—particularly across district lines—remains restricted, and buildings will likely need to put in place a process to receive a negative nucleic acid test report from each employee as a prerequisite to enter the office. Until the situation fully stabilizes, visitors are expected to face further restrictions.
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We continue to monitor the latest regulations regarding the employment issues during the COVID-19 outbreak in Shanghai. 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:
K Lesli Ligorner