Significant matters – Summer 2024

TfL plans journey with new line-up of legal advisers

Transport for London (TfL) is in the process of shortlisting firms for its new legal services framework, as the current roster enters the last year of its existing line-up.

The government body is reviewing submissions from firms to draw up a shortlist of bidders to be invited to tender. The successful firms are expected to be appointed this December.

The panel was last reviewed in 2019, when 15 firms were appointed. Seven of those were new to the panel – Addleshaw Goddard, Burges Salmon, DLA Piper, Stephenson Harwood, Pinsent Masons, Womble Bond Dickinson and BDB Pitmans – while the other eight were reappointments – Ashurst, Eversheds Sutherland, Bryan Cave Leighton Paisner, Dentons, Herbert Smith Freehills, K&L Gates, Trowers & Hamlins and Gowling WLG.

The new framework, which is worth up to £120m, covers eight areas –  employment law; major commercial matters; rail industry; routine commercial and real estate (contentious and non-contentious); housing; complex property and commercial development; major consents; and town and country planning and highways.

As with last time, the panel will run for at least four years, with an option to extend for a further two. The appointed firms will advise TfL and its subsidiaries, as well as TfL’s shared services clients, including the Greater London Authority.

Nine firms win spots on new MUFG’s EMEA panel

MUFG EMEA, the Europe, Middle East and Africa business of Japanese bank Mitsubishi UFJ Financial Group, has appointed nine law firms to its new 2024 legal panel.

The successful firms, which were chosen after what the bank described as a ‘a rigorous evaluation and procurement process’ are A&O Shearman, Addleshaw Goddard, Baker McKenzie, Clifford Chance, Herbert Smith Freehills, Latham & Watkins, Linklaters, Simmons and Simmons and Slaughter and May.

The new panel will be in place for two years, as of 6 May this year.

MUFG EMEA’s co-GCs are James Morgan and Prabhat Kumar. Morgan is a former Slaughters associate who has also worked in-house at Citi and NYSE Euronext, and has been in his current position for five years. Kumar, meanwhile, worked in private practice at India’s Shardul Amarchand Mangaldas & Co, Bingham McCutchen in New York and Ashurst in London before joining MUFG in 2012.

In a statement, they said: ‘It is with pleasure we announce our newly-formed panel to support our business in the EMEA region. MUFG has some exciting plans ahead and the timing has allowed us to align our panel to our business priorities. We look forward to partnering with this strong group of firms and receiving the benefit of their market-leading expertise.’

Government Legal Department looks outside the bubble

In its latest annual report and accounts, the Government Legal Department (GLD) has set out an intention to become ‘a National GLD’ by increasing its footprint outside of London.

Currently 88% of of the organisation’s workforce are based in London and the South East. Of the other 12%, 221 are based in Leeds, with 104 in Bristol, 78 in Salford and 68 in Croydon.

The Croydon base was opened in summer 2023, after staff moved into the new premises in Salford in April that year.

In its report, the GLD states: ‘We want to increase our footprint outside of London as part of meeting the Government’s Places for Growth programme. We want our people to be able to work effectively and efficiently from any location across a state-of-the art national estate. We aspire to achieve a common culture where any role can be performed from any location.’

The GLD launched a new hybrid working policy during the year, and in its report, the organisation said that its aim was ‘to ensure we deliver inclusive and sustainable working practices for our people and continue to deliver for departments.’.

Moves that matter

  • Louise Pentland, former chief counsel and senior VP for Disney Experiences and Products, has been appointed as senior VP and general counsel to US streaming platform Roku. Pentland’s role at the Walt Disney Company saw her overseeing legal and regulatory matters for global theme park destinations, cruise operations, global consumer products operations, and the division’s e commerce platform. She has prior experience in executive positions at technology companies PayPal, Hitachi and Experian. Founder and CEO of Roku Anthony Wood said in a statement that Kay’s ‘extensive expertise in legal affairs, government relations, and corporate governance will be invaluable as we advance our mission to transform how the world watches TV and connect and enhance the entire TV ecosystem.’ She replaces Stephen Kay who will stay on until November as part of the transition process. Kay is stepping down after ten years at the company and played a leading role in the company’s successful IPO in 2017.
  • Grant Dixton has joined General Motors as executive vice president and chief legal and public policy officer with his official start date named as the 15 July. He will lead on global legal, compliance, corporate governance, privacy, and public policy functions. Dixton began his legal career as a judicial law clerk in Alexandria and has gone on to hold posts at Kirkland & Ellis, Boeing and most recently Activision Blizzard where his $14.2m golden parachute payment, confirmed in a proxy statement from Activision Blizzard, was widely reported upon. His predecessor Craig Glidden will continue to serve as president and chief administrative officer of Cruise, the self-driving car company that is a subsidiary of GM.
  • US semiconductor company Lam Research has announced Ava Harter as its new chief legal officer, stepping into a post previously occupied by Ava Hahn who joined AMD as general counsel in January. Harter was previously chief legal officer at Whirlpool Corporation where she held enterprise-wide responsibility, including the oversight of environmental, corporate security and sustainability matters. Prior to Whirlpool she has held the position of general counsel at insulation and roofing company Owens Corning, and aviation firms Taleris and GE Aviation, respectively. President and CEO of Lam Research Tim Archer said in a statement: ‘Having led large legal organisations at two Fortune 500 companies, Ava brings to Lam significant experience in developing legal strategy and building world-class teams.’
  • Media and entertainment veteran Lesley Freeman has been appointed as chief legal officer at independent studio Agbo. Freeman will oversee the company’s business and legal affairs as it expands its global presence in physical production, virtual production, gaming, and immersive technology. She joins from Amazon MGM Studios, where she served as vice president of legal and had previously worked as chief legal officer at MGM and senior vice president of legal affairs at HBO where she headed the film programming, home entertainment and strategic investments legal groups. Chris Brearton, partner at AGBO said in a statement that Freeman’s ‘distinguished track record, visionary mindset, and extensive background with leading media companies’ make her an ‘indispensable asset’ to the team. Freeman will oversee all aspects of AGBO’s business and legal affairs around the world as the company expands its global physical production, virtual production, gaming, and immersive technology footprint.

Gurdeep Boparai, Coventry Building Society

From the age of 10 I knew that I wanted to be a lawyer. The first lawyer I ever met was a close family friend. She had just qualified and spoke so passionately about the work she was doing, Being in and out of court sounded so exciting, the work was varied and fast paced and I knew this was something I wanted to be a part of. At that time the profession was heavily male dominated and having a strong female role model, and someone to aspire to was so important. I went on to do my research and did lots of work experience from the age of 16 in different firms, from local high street practices to larger national, commercial firms. Whilst I realised it wasn’t all glamorous – I was hooked! As I continued throughout my education, it became clearer that law fit my natural skillset and when I went on to do my LPC, it was the collaborative and problem-solving element of the work that interested me.

Continue reading “Gurdeep Boparai, Coventry Building Society”

Competition focus – Türkiye

What are the key components of Türkiye’s competition law framework, and how does it compare to EU competition regulations?

Türkiye’s competition law framework, primarily governed by Law No. 4054 on the protection of competition, focuses on prohibiting anti-competitive agreements; preventing the abuse of a dominant position; and regulating mergers and acquisitions. In addition to the primary law, several communiqués and guidelines provide detailed rules and procedures, ensuring that competition policies are transparent and predictable.

Türkiye’s competition rules are largely aligned with the EU norms. This alignment is driven by Türkiye’s long-standing aspiration of facilitating economic integration with the EU. Despite sharing fundamental common objectives, certain variations exist in the two jurisdictions in the procedural aspects and the scope of certain exemptions. This is due to the distinct nature of the EU as a sui generis organisation with supranational institutions, like the European Commission (EC), and national competition authorities working in concert. In contrast, Türkiye operates as an independent state with the Turkish Competition Authority (TCA) as its sole competition authority. Even though there are differences, the core principles and objectives remain consistent between Türkiye and the EU, fostering a competitive market environment that benefits consumers and businesses alike.

What are the main enforcement bodies for competition law in Türkiye?

The main enforcement body for competition law in Türkiye is the TCA, an independent administrative authority responsible for investigating anti-competitive practices, reviewing mergers and acquisitions, and imposing sanctions for violations of Law No. 4054. Within the TCA, the Competition Board serves as the decision-making body, conducting investigations and making rulings on competition law issues. Decisions of the TCA can be appealed to Turkish administrative courts, which provide judicial review to safeguard and ensure the legality and validity of the TCA’s rulings.

What steps should companies take to ensure compliance and avoid penalties?

To ensure competition law compliance and avoid penalties in Türkiye, companies should implement a robust competition compliance programme that includes ‘tone from the top’ and regular trainings for all employees on the principles of Law No. 4054. They should establish internal controls and procedures to monitor and review business practices, including regular audits and risk assessments.

Companies also need advice for agreements resulting into change of control (such as M&As) to ensure that these transactions are properly evaluated and, if needed, approved by the TCA before closing.

Additionally, companies should encourage a culture of compliance by promoting ethical behaviour and providing clear channels for reporting potential violations.

What are the thresholds for mandatory merger notifications in Türkiye, and what is the process for obtaining clearance from the Turkish Competition Authority?

A mandatory ex ante merger notification in Türkiye is required where:

  • aggregate turnover of the transaction parties in Türkiye exceeds TRY 750m (approx EUR €29.2m), and the turnover of at least two of the transaction parties each in Türkiye exceeds TRY 250m (approx EUR €9.73 m); or
  • either the turnover in Türkiye of (i) the acquired assets or businesses in acquisitions, or (ii) any of the transaction parties in mergers, exceeds TRY 250m (approx EUR €9.73m), and the worldwide turnover of at least one of the other parties to the transaction exceeds TRY 3bn (approx EUR €116.8m).

The Türkiye-related turnover threshold of TRY 250m (approx EUR €9.73m) is irrelevant for concentrations with technology undertakings as their target.

The process typically involves two stages: Phase I and Phase II. In Phase I, the TCA within 30 calendar days assesses whether the concentration may significantly impede effective competition. If no significant concerns are identified, the TCA grants clearance, also if the TCA does not respond within this period, the transaction is considered tacitly approved. That said, information requests sent by the TCA within the 30 days cut the review period, which then starts anew once the responses are submitted to the TCA.

If there are potential competition issues, the process moves to Phase II, involving an in-depth investigation, which may take up to 12-16 months. During this phase, companies may need to provide additional information and respond to further inquiries and submit commitments to mitigate the competitive concerns. Upon completion of Phase II, the TCA decides whether to (conditionally or unconditionally) approve the transaction or prohibit it to prevent harm to competition. Companies can seek judicial review of the TCA’s decisions within 60 days of the notification of the decision.

As per legislation, the above financial thresholds in EUR are calculated at the average buying rate of exchange of the Central Bank of Türkiye for the 2023 financial year.

What types of behaviour or agreements are considered anti-competitive under Turkish competition law, and what are the potential consequences for companies found engaging in such practices?

Under Turkish competition law, anti-competitive behaviours and agreements include practices such as price-fixing, market allocation, output limitation, and bid-rigging, etc. Other anti-competitive practices include the abuse of a dominant position, such as predatory pricing, exclusivity, tying/bundling, and unfairly limiting production or market access. Companies found engaging in these practices can face significant consequences, including administrative fines, nullification of agreements, and orders to cease anti-competitive conduct. The TCA may impose fines up to 10% of a company’s annual gross revenue, periodic penalties for ongoing violations, and additional penalties in case of obstructing investigations. Furthermore, companies may be subject to private damages claims from affected parties, and such violations can significantly damage a company’s reputation, leading to a loss of consumer trust and market position.

How do leniency programmes work in Türkiye, and what are the benefits and risks for companies considering self-reporting anti-competitive conduct to the Turkish Competition Authority?

In Türkiye, the leniency programme, governed by the Regulation on Active Cooperation for Detecting Cartels, allows companies and individuals to self-report their involvement in anti-competitive conduct, particularly cartels, to the TCA in exchange for immunity or reduced fines. To benefit from leniency, the applicant must provide significant evidence that facilitates the detection and investigation of the cartel. The programme is designed to encourage companies to come forward with information before the TCA initiates an investigation or before the TCA has sufficient evidence of the violation. The first applicant to report and fully cooperate with the TCA may receive full immunity from fines, while subsequent applicants may receive a reduction in fines depending on the timing and value of the information provided.

The benefits of participating in the leniency programme include the potential for full immunity from administrative fines, reduced penalties, and a more favourable treatment during the investigation. However, companies may face several risks beyond potential civil liability and reputational damage. These include the disclosure of sensitive internal information, negative impacts on employee morale and internal relations, uncertainty regarding the extent of leniency benefits, and potential harm to business relationships with partners, suppliers, and customers. Companies must carefully weigh these risks against the benefits of potential immunity or reduced fines when deciding to participate in the leniency programme.

‘Ditch the external counsel mindset’: how in-house lawyers can take their careers to the next step

In-house lawyers can sometimes find themselves stuck in a rut professionally, playing the narrow role of technical expert within their organisations. Others struggle to make a complete transition from their previous roles in private practice to being an equal part of a broader team that shares responsibility for their organisation’s overall objectives. Yet there is no reason why they should not have a strategic input. Indeed, in-house counsel can offer a unique perspective, understanding how the legal landscape and business environment interact to help the organisation manage risk and set its strategic path. Susan Wojcicki at YouTube and Jeffrey Bewkes at Time Warner Inc are just two examples of in-house counsel whose strategic input propelled them to the role of CEO.

But moving from ‘counsel’ to ‘leader’ requires a shift in mindset and better business knowledge. Understanding fields like strategy and finance enables in-house lawyers to engage in strategic discussions and collaborate effectively with colleagues across different departments, as often it’s the limited business knowledge that leaves in-house lawyers responding to legal queries rather than participating in strategic discussions.

‘The role of legal counsel is developing from being a technical expert, to a business partner,’ comments Tommaso La Berbera, global division senior legal counsel at ABB. To develop, legal counsel ‘need to start [with] more general business acumen’, says Tommaso.

With the ability to have better business discussions, in-house lawyers are less likely to find themselves side-lined from crucial decision-making, enhancing their impact within the business. This not only boosts their professional growth but also opens new opportunities for career advancement within the organisation.

Start by getting the right tools

There are two ways to build your business knowledge and leadership skills and they are most powerful when they are combined. First is the learning we should all do every day: engaging with and learning from colleagues, the environment we are in, and from news and discussion in our industries.

There are also programmes tailored to help in-house lawyers enhance their understanding and skills in certain fields of business where they may lack expertise and experience. Participating in such programmes also sends a clear message to colleagues and other stakeholders: your expertise is a valuable business asset that should be tapped into.

At King’s Business School our Mini-MBA designed specifically for in-house lawyers is designed around the five essential pillars of business and career success.

1. Finance

Enhancing your understanding of finance empowers in-house lawyers to grasp budgets, financial reports, and risks. By better grasping the financial language, metrics and concepts that your organisation undoubtedly uses, you can provide valuable input on budget allocations, investment decisions, and risk management strategies, fostering greater collaboration between legal and financial functions.

‘Lack of financial education often lowers lawyers’ confidence in getting involved in business decision and strategy discussion,’ states Tommaso, who completed the King’s Business School programme last year. ‘The programme provided me with a good level of understanding and built my confidence in interacting with CFOs, financial and commercial teams, empowering myself in being part of the decision-making’.

2. Strategy

Effective business strategy is multidimensional: it might need to consider everything from geopolitics to the regulatory environment or changing consumer habits. When you are trained to apply the fundamentals of strategy, your legal counsel becomes an integral part of achieving company success, allowing you to anticipate business needs, identify risks, and propose innovative solutions for growth. And once you can articulate how your plans and approaches align to the business’s strategy, you will be better equipped to engage people around the business who do not share your legal background.

3. Leadership

In-house lawyers at executive levels must embody leadership qualities just like any other manager. At a senior level over half of what legal professionals are focussed on will be much more fundamental aspects of the business, such as governance, instead of discrete questions of compliance and law. Understanding how best to manage your own team, ensuring productivity, as well as leadership strategies for the business, will put you in a much stronger position.

4. Decision making

Strengthening decision-making abilities enables in-house lawyers to analyse their work, the business, and the challenges they are facing through a different lens than just legal and contractual issues. In this module, at King’s Business School we teach having to deal with ‘wicked problems’ strategic challenges that have no clear end-goal, but require mobilising support within an organisation. This could vary from making a business greener, to dealing with supply chain risk.

5. Personal branding

Much less emphasised than in other roles, personal branding is nonetheless important for in-house lawyers to showcase their unique strengths and the value they are providing to their organisation. Building your personal brand allows you to enhance the visibility of your work and better position yourself as a strategic partner within your organisation’s ecosystem.

In focussing on these five key areas, we hope the Mini-MBA at King’s Business School will bring in-house lawyers out of the external counsel mindset and into the role of business partner, challenging the assumptions that they are limited to only being technical experts.

The programme ‘was a win-win from start to finish,’ highlights Ann Brookes, general counsel and corporate secretary at the Farrel Corporation. ‘It provided me the tremendous opportunity to round out my business knowledge, increase my financial literacy so that I could better see a company’s financials from a CFO’s perspective, and gain additional approaches for management interactions all while collaborating with a new network of international colleagues who brought perspectives from their roles in an array of industries.’
The Mini-MBA for in-house lawyers is a three day in-person programme, designed with help from the Association for Corporate Counsel. The next programme dates are 4-6 November 2024, with an application deadline of 11 October 2024. For more information, visit the course page, or email our programme expert Michele Gray for a consultation at michele.gray@kcl.ac.uk.

AI in the workplace

The prevalence and influence of Artificial Intelligence (AI) is nothing short of revolutionary. While it appears that AI does not yet have one official definition, it can colloquially be referred to as technology that allows machines or computers to utilise human-like intelligence to learn, create, analyse, and perform other functions or activities that were previously thought to be only exclusive to humans.

Undoubtedly, one aspect of life that has been or is increasingly being affected by AI is the workplace. On one hand, the use of AI may prove beneficial for employers as it may enhance productivity, efficiency, and maximise profits. On the other hand, its use could adversely affect members of the workforce who may be displaced as a result of the introduction of AI in the work process.

Currently, the Philippines has legal mechanisms in place that are intended to balance the seemingly competing interests of capital and labour.

Development and training programmes

In 2022, the Philippine Digital Workforce Competitiveness Act was enacted in response to the rapid transformation of the workplace due to advances in technology brought about by AI and automation. This Act provides for a framework that shall ensure that all Filipino workers have access to and are provided with digital skills and competencies that are at par with global standards and shall encourage innovations and entrepreneurship. This Act also established an Inter-Agency Council composed of various governmental agencies that shall be the primary planning, coordinating, and implementing body in the promotion, development, and enhancement of the competitiveness of the Philippine digital workforce.

Evaluating employee performance

In May 2024, an Advisory Opinion was rendered by the National Privacy Commission (NPC) which determined that employers in the Business Process Outsourcing (BPO) industry may use AI-powered tools to analyse call recordings and emails to automatically score BPO employees and rank them against other employees to identify opportunities for coaching and development, among others. However, considering that the use of AI for such purpose would involve the processing of employees’ personal information, the NPC provided guidelines to ensure that the processing thereof on the basis of legitimate interest would not run contrary to the Philippines’ Data Privacy Act.

First, the NPC confirmed that the use of automated scoring to evaluate employee performance can be considered as a legitimate interest since it directly contributes to the employer’s goal of improving its services. Second, the employer should ensure that the means to fulfil such legitimate interest must be adequate, relevant, suitable, necessary, and not excessive in relation to the declared and specified purpose. Finally, the employer should be aware that the employee whose personal information is being processed through the use of AI has the right to object to the same. Nonetheless, the employer may still proceed with the processing of personal information despite the objection if it can determine and prove the appropriate lawful basis or compelling reason to continue such processing.

Separation of employment

Considering that employees in the Philippines enjoy the right to security of tenure, employees cannot just simply be separated from employment by reason of the introduction of AI in the workplace. Such employees may only be separated due to authorised causes provided under Article 298 of the Labour Code. Particularly, these grounds include the installation of labour-saving devices, redundancy, or retrenchment to prevent losses.

For each of these grounds, the employer bears the heavy burden to convincingly prove that specific facts exist to justify the separation of employment. Moreover, it must be shown that both the affected employee and the appropriate office of the Department of Labour and Employment (DOLE) is notified in writing at least 30 days prior to the effectivity of the separation. Lastly, employers are likewise obliged to pay these employees separation pay.

Proposed legislation

Notwithstanding the availability of the foregoing legal mechanisms, it appears that the public is clamouring for more protection. In response to this, on 7 November 2023, a lawmaker proposed to legislate the Protection of Labour Against Artificial Intelligence Automation Act.

As currently worded, it appears that the proposed legislation will generally make it more burdensome for employers to augment its manpower complement as a result of the introduction of AI in the workplace.

For instance, while the proposed legislation recognises the employers’ prerogative to adopt AI as part of their workflows, employers will be required to formulate an AI Governance Policy to provide employees with guidelines for AI adoption and usage in the workplace. The proposed legislation also prohibits employers from using AI or automated systems as their sole or primary basis in the hiring and termination of employees. Moreover, contrary to what is already provided in Article 298 of the Labour Code, the proposed legislation prohibits the use of AI and automation technologies to replace human workers if it results in displacement, loss of security of tenure, or unemployment unless an equivalent alternative employment opportunity for affected human workers are made available. Relatedly, in case of retrenchment, the proposed legislation envisions that prior approval from the DOLE is required.

Unlike the above-mentioned NPC Advisory Opinion which applies specifically to employees in the BPO industry, the proposed legislation provides guidelines for all employers in conducting employee evaluations and performance assessments using AI.

Most importantly, the proposed legislation seeks to impose criminal liability upon any person who knowingly does, permits, or causes to be done any violation thereof. In particular, the responsible person may be punished with imprisonment of not less than six months to six years. Additionally, if the offender is a foreign national, he/she may be deported.

While the contents of the proposed legislation may, at first glance, appear alarming, it is still very much in its infancy. Nevertheless, given its potential impact on employment in the Philippines, it deserves to be closely monitored.

Mass termination of employees in China for business reasons

China’s labour laws give adequate termination protection for employees. In China, an employer may terminate an employee’s employment contract by mutual termination or unilateral termination. Employers have no right to terminate an employment contract for no reason. To unilaterally terminate an employee’s employment contract, an employer must have one of the causes under the Labour Contract Law of China and the conditions and procedures required by such law for such cause must be followed; otherwise, the employee has the right to request the employer to either (1) pay damages for unlawful termination or (2) reinstate their employment contract and pay the backpay.

Mutual termination

Considering possible social impact of mass termination, pressure from the authorities, and the cost for responding to the labour arbitration and litigation to be initiated by employees, mutual termination is highly suggested to employers.

Many employers try mutual termination first with all or the majority of employees and then resort to unilateral termination with the minority who reject mutual termination. Mutual termination is subject to the lowest legal risk and the least restrictions. It applies also to the employees who are pregnant, on maternity leave, at nursing period, or on sick leave, and it doesn’t require a notice period. The challenge of it lies in the formulation of a proper severance pay, which aligns with the expectation of the majority about the severance.

Unilateral termination

It’s necessary for employers to have a plan B, just in case the negotiation with employees for mutual termination failed. Before the negotiation, employers need to decide whether to proceed with unilateral termination if the negotiation failed and to prepare the cause for the unilateral termination.

Among the causes for unilateral termination under the Labour Contract Law of China, the only ones concerning changes in the employers’ business or organisational structure is the termination due to a ‘material change in the objective circumstances’ in Article 40 Item (3) and the termination as the result of ‘economic layoff’ in Article 41.

i. Unilateral termination due to ‘material change in the objective circumstances’

A unilateral termination by an employer due to a ‘material change in the objective circumstances’ is required to satisfy the following conditions:

  1. the employment contract can’t be performed specifically due to a ‘material change in the objective circumstances’; and
  2. the employer and the employee negotiate about amending the employment contract but fail to reach agreement.

What constitutes a ‘material change in the objective circumstances’? The Labour Contract Law of China is silent on this. The Notes on Certain Provisions of the Labour Law, released by the now-reorganised Minister of Labour, defines ‘objective circumstances’ as force majeure or the occurrence of other scenarios that render the performance of the employment contract impossible in whole or in part, such as relocation, merger into another entity, or transfer of corporate assets. Economic layoff is excluded from this definition. The above provisions do not provide an exhaustive listing of all the circumstances. Various criteria for determining such circumstances exist in judicial practice. In many regions, employers’ organisational restructuring or change of business is not recognised by courts as a ‘material change in the objective circumstances’.

Amendment of employment contract may involve the amendment of position, place of work, pattern of work, and salary, etc. It’s worth noting that the negotiation on the termination of employment contract is not deemed by courts as the required negotiation on the amendment of employment contract.

ii. Unilateral termination due to economic layoff
A unilateral termination due to economic layoff is required to satisfy the following conditions:

  1. The number of the employees to be laid off reaches 20 or accounts for at least 10% of the total employees;
  2. one of the circumstances listed in Article 41 of the Labour Contract Law of China occurs, including severe difficulties in business operation, or the objective economic circumstances relied on which the employment contract was concluded changed so significantly that the continued performance of the employment contract becomes impossible, etc;
  3. the employer has explained the layoff plan to its labour union or all the employees 30 days in advance; and
  4. the employer has then filed the layoff plan with the labour authorities.

The most challenging part of economic layoff is the filing with the labour authorities. From our experience, although the Labour Contract Law of China requires the employer to only file its layoff plan with the labour authorities (which means the labour authorities is not granted the power to approve it or not), in practice, the labour authorities do review whether the employer’s layoff satisfies all the conditions required by the law and follows all the required procedures. If the labour authorities determine that the employer fails to meet or follow any of the required conditions or procedures, it will not issue the employer any document to prove that the employer has filed its layoff plan. Without such document, the employer is not able to complete the required procedures for economic layoff.

In addition, as one of the required procedures, the employer should explain to its labour union or all the employees in advance about the layoff. That means the employer should disclose the overall layoff plan either to the labour union or all the employees before the launch of the layoff. If the employees get to know the layoff plan early, the stability of their work may be affected.

iii. Other restrictions
The above mentioned unilateral termination due to either ‘material change in the objective circumstances’ or economic layoff doesn’t apply to the employees on sick leave for illness or non-work-related injury and the prescribed period of medical treatment has not expired, those in pregnancy, maternity leave or nursing period, those who have worked for the employer for 15 consecutive years and will reach the statutory retirement age in less than five years, and the chairman and the vice-chairman of the labour union, etc.