The Economic Well-being In the Eyes of a layoff Consultant

The Economic Well-being In the Eyes of a layoff Consultant

The Economic Well-being in the Eyes of a “Company Downsizing” Consultant— Extract of An Exclusive Interview with Consultant Xing Guang of LABOURS by China Securities Journal

In China, layoff doesn’t simply mean terminating a labor contract the way Western countries usually do. Into the Chinese layoff multiple factors are embroiled, such as the restrictive power of laws, entangled human relations and debts left unpaid. A raft of complicated problems hidden behind the contractual relationship might surge up the instant a company indicates a termination of the contract. Sometimes they might come so fast, intense and wide that the company might be caught off guard.

Last week, Mr. Xing Guang, Consultant of LABOURS, accepted an interview to Securities Market Weekly. During the interview, Mr. Xing Guang described how he discerned through his profession as a “company downsizing” consultant that China’s economic environment is going through changes, and the dilemma many companies are caught in: without reform they may die, but with reform they may be stuck in the mire of threatening challenges .

As an outsourcing partner in enterprise mass layoff, LABOURS took part in nearly 20 scale personnel adjustment projects in 2015 concerning thousands of employees, its influence almost reaching to every corner of China. The foreign-invested enterprises, who particularly bear the brunt of varied market pressures, have to lower their labor cost and be more competitive by closing plants, downsizing staff and laying off managers, just to name a few. The front-line production workers, R&D personnel, front-end sales, back-end support and executives are all listed to be adjusted. LABOURS consultants’ tight schedules between frequent flights well indicate how the big economic environment is doing.

“From 2008 to 2009, our revenue experienced almost a fourfold increase. In 2016, it might rise to sevenfold to eightfold”, Mr. Xing Guang told Securities Market Weekly.

In the context of economic slowdown, enterprises are not only challenged by labor cost cutting, but also the uncontrollable factors like the explosive growth of labor disputes across China, contradictions between laws and future strategic development goals of enterprises, absence of industrial thresholds for scale-caused labor relations’ adjustment, and the transition of the traditional employment relationship.


1. The labor disputes have seen explosive growth. Sparks of dispute scattered asunder might easily trigger mass incidents.

In 2015, the Arbitration Department of Chaoyang District handled 6000 cases, compared with only 3000 in 2011—a twofold increase within just 4 years. No matter how “objective” or “justified” they are, the reasons for company adjustment might still be challenged, given the frequent labor disputes and the enhanced consciousness of employees to safeguard rights.

Mr. Xing Guang indicated that “as a matter of fact, the reasons are not so complicated as companies give. There might be an adjustment whenever a business proves not profitable or the boss is not satisfied with the employees’ performance.”

The choice for adjustment enterprises have to make not merely relates to one employee, but always concerning an entire business line, or even all the employees. This mass adjustment is like placing a time bomb under the labor relations. Any small spark of dispute might turn into raging flames. Any loophole in management or legacy issues might trigger mass incidents, which will inevitably lead to the enterprise’s failure in achieving its goals.


2. Contradictions exist between the laws and the future strategic development goals of enterprises, and there is no legal basis supportive of reform and adjustment.

The laws are static, but the reality is dynamic. It is impossible to find a legal provision which could perfectly match the reality as the basis for the enterprises’ adjustment. Especially when enterprises have to make adjustment in a descending economic situation, no single legal provision could support enterprises in achieving their goals.

Mr. Xing Guang indicated that “for example, Article 41 of the Labor Contract Law requests that, during the scale layoff caused by economic reasons, the new employees should be first considered. That kind of thought is completely out of place for a company. When a business line is no longer needed, an enterprise would prefer to do away with the whole business line, and would be more willing to lay off the older employees with solidified mindset and outdated skills.”

Another prerequisite for enterprises’ scale layoff is: the labor contract could not be implemented because of other significant changes arising in the objective economic situations upon which the labor contract was established. This provision was unanimously disapproved by lawyers and arbitrators of the Labor Law, who attended the seminar held by Beijing Labor Law and Social Security Law Society and its peers in Beijing, Tianjin and Hebei Province not long ago.

Different interpretation of this provision by different arbitrators and judges from different regions has brought enormous hidden costs to the enterprises’ adjustment. Therefore, a comprehensive selection and flexible application of legal provisions are particularly important. Only by choosing multiple legal bases could enterprises gain adequate support and accomplish large-scale transformation and adjustment within a short time .


3. The industrial threshold for scale labor relation adjustment is missing.

Nowadays, whether it is the local governments, enterprises, or labor unions and some third parties, all lack scientific knowledge and experience in dealing with mass incidents and scale labor relation adjustments. The practical problems could never be solved by merely studying the legal provisions, while solutions some third parties give to enterprises are “delaying” or “diluting” tactics, dealing with the “easy” employees first and fixing the “difficult” employees with money later. Without a systematic method, nor any practical experience, nor a stance that considers both the employer and employees, the enterprise’s management goal of a smooth, effective, respect-based and fair employee adjustment could never be accomplished.

At the same time, due to the lack of legal regulations about strikes in China, the pressure of handling massive employee demonstrations falls on the shoulder of enterprises, and what’s more, of the local governments. Since the law does not give employees the right to go on strike “legally”, the government sees no gatherings, demonstrations nor banners on the street as its primary task for maintaining stability. As long as the risk is within the enterprises, things are relatively “easy” to handle. Given their different stance and their joint lack of scientific methods and experience in handling mass incidents, sometimes the local government may request representatives to be elected among the employees, who will then negotiate with the enterprise again and again until both parties are forced to make compromise and the enterprise agrees to pay more to ease the mass incident.

“Once a mass incident causes the intervention of the local government, the solution could be very unfavorable to the enterprises”, Mr. Xing Guang said, adding an example that once a European winery opened a new plant in a centrally-governed municipality of China after acquiring another famous enterprise. To its great dismay, immediately after its opening, an employee suffering from a three-year depression jumped off the building and died. This accident triggered a full strike, causing the local government to plunge into intervention, which resulted in the winery’s suspension for three months, only simple production resumed for another three months, and a  15% pay rise.

This kind of intervention is definitely not what enterprises want to see. However, on the other hand, it is a sign that the government’s public credibility works well upon employees when a mass incident happens. Therefore, how to borrow strength from the government, obtain understanding and consensus from the government through effective communication, and make the government’s public credibility a turning point that could solve a mass incidents, is what enterprises’ managers must place emphasis on.


4. Flexible labor contracts are a trend for enterprises, and also their future direction.

Without the support of its demographic dividend, China’s rocketing labor cost aggravates its enterprises’ burden. In UK, the salaries of the junior positions in the Big Four Accountancy Firms have seen no rise for 5 years. In Japan salaries almost remain the same as in the middle  1990s. However, in China, a mere junior auditor has had his pay nearly doubled in the recent 5 years; the pay of construction workers in big cities even rises to as notable as ten times that of 10 years ago. Behind this explosive growth, we shall have to think about how long this beneficial-to-all economy will last in China, meanwhile we must catch the signs of the use of flexible labor contracts and flexible management inside the industry.

“Take the security brokerage retailing business for example. Thanks to the mixed operation and online marketing, offline sales people seem less important. And you should know they are not always competent. Therefore, enterprises might have realized that they somehow are not worth of their pay”, Mr. Xing Guang said, "and let’s cite a recent case as an example. It rouses wide debates by revealing brokerages forcing their employees to leave by reducing their pay. Well, the salary adjustment part is OK, but as for the method, an elastic approach that allows pay cut for some and pay rise for others might be better than just leveling things up. The financial institutions may also learn from the salary system of the partnership firms.”

According to LABOURS consultants, “downsizing” is a quick remedy for the problems of enterprises. However, to get truly cured, enterprises must gain the initiative by taking precaution: first, diversified forms of labor contracts could be used; second, long-term employment contracts could be complemented by post employment agreements so as to make management flexible.

The Chinese-style “downsizing” is a mirror of the current economic situation in China. To help enterprises cater to the market through transformative efforts and ease their problems is the mission and goal of all LABOURS consultants.

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