Challenges to Managing Redundancies in Asian Countries

U.S.-based employment lawyers and compliance professionals, accustomed to the “at will” employment model that prevails in the U.S., are often vexed by the hurdles employers must clear to fire employees in other countries. The Asian powerhouses—China, India, and South Korea—are excellent examples, as participants in a Global Workplace Compliance Network webinar learned in January. The employment relationship in these countries is defined by individual employment contracts, governed by statute, or both. Employers need to be aware of how these instruments impact their ability to downsize the workforce or even get rid of poor performers.

In India, if “retrenchments” (layoffs) are necessary, how an employer can terminate employees depends on whether the employees are considered “workmen” or not. Workmen—generally those in nonmanagement jobs doing “manual, unskilled, skilled, technical, operational, clerical or supervisory work”1— are entitled by law to one month’s notice in writing and 15 days of compensation for each completed year of service. The termination of nonworkmen (that is, those in management or administrative positions), is governed by their employment contracts. Culturally, though, it is best to invite nonworkmen to resign voluntarily.

Chinese employees are governed by employment contracts and statute. Cutting costs is insufficient reason under the law for laying off employees, and even if workers are terminated for cause, they are entitled to notice and severance. The best approach if an employer wishes to terminate an employee for nonperformance is to get the employee to resign. Severance in China is one month per year of service, capped at three times the average local wage. If an employer needs to layoff large numbers, it is best to reach an agreement with employees for mutual termination.

South Korea is dubbed “the California” of the Far East because of the strong legal protections it affords for employee rights. Employers who terminate without having negotiated a voluntary arrangement with employees have to go to Korea’s labor tribunal. Since employers lose 97 percent of cases brought to the tribunal, it is wise to work out a voluntary package instead. There is no notice period necessary for voluntary termination. All terminated employees (even those terminated for misconduct) are entitled to at least 30 days’ pay per year of service, so that is the baseline for negotiations.

In each of these countries the ins and outs of employee rights are complex. For Americans, the most important lesson is to be aware of the differences both in culture and in expectations about the employment relationship. Terminating employees in these countries requires employers to negotiate in ways they may not be accustomed to in the United States.

The next GWC Network webinar on April 20 will present employment law on Central and South America. For more information, contact Nita Beecher at nita.beecher@orcww.com or visit www.gwcnetwork.com. Thanks to the Asian employment law experts who contributed to the January webinar: Shalini Agarwal, Esq., Partner, ALMT LEGAL (India); Brendon Carr, Esq., Attorney, Hwang Mok Park, PC (Korea); and K. Lesli Ligorner, Esq., Partner, Paul Hastings (China).

1Industrial Disputes Act, 1947, §2