How to design a better layoff plan?

In January 2023, ByteDance downsized the company for 10%. In March 2023, Google China initiated a layoff plan. … In 2023, various news of “layoffs” hit the hot search from time to time.

From the perspective of enterprises, a layoff plan mainly focuses on two aspects, which are the purpose and objectives of “layoffs”, and the legal risks caused by “layoffs”. The former involves commercial issues, while the latter involves legal issues.

The commercial issues mainly include two points:

Firstly, the purpose of “layoffs” shall be very clear. Losing money is not the only reason for “layoffs”, because a company may initiate a layoff plan due to business transformation or cost reduction. The main reasons for business transformation include mergers and acquisitions, technological reformation, and changes in business forms. The main reasons for reducing costs include reducing redundancy, increasing profits, or reducing operating losses, and so on.

Secondly, based on the purpose of “layoffs”, a company could set objectives, that is, the number of personnel and target positions for “layoffs”.

On this basis, in accordance with relevant labor laws and regulations, the company could evaluate and determine the methods and specific execution plans for “layoffs”.

From the perspective of laws and regulations, the so-called “layoffs” include two types: (1) the economic layoffs, which is stipulated in Article 41 of the “Labor Contract Law”, that is, an employer needs to retrench 20 or more employees or where the number of employees to be retrenched is less than 20 but comprises 10% or more of the total number of employees of the enterprise; and (2) other “layoffs” which have not meet the aforementioned requirements.

Regarding the economic layoffs, Articles 41 and 42 of the “Labor Contract Law” clearly stipulate the applicable conditions, procedural requirements, prohibited layoffs and etc.. In order to avoid the complex process of economic layoffs and the risk of collective behavior involving too many personnel, some companies prefer to adopt the dismantling method, such as releasing the “layoff” message firstly, and some employees would automatically resign. Some companies may choose to sort out their personnel situation firstly, and classify them from perspectives such as fixed term labor contracts, medical treatment periods, and then take different methods to terminate the labor contract with those employees. However, these practices are not applicable to all situations. Improper use may often dampen employees’ enthusiasm and confidence in the company, and the worse consequence is that lazy employees would stay, and diligent employees would resign.

A better layoff plan is to choose specific “layoff” methods based on the company’s purpose and objectives.

Taking business transformation as an example, normally companies would choose paragraph 3, Article 40 of the “Labor Contract Law” as the reason, but many of them have ignored the requirements of economic layoffs as stipulated in Article 41 of the “Labor Contract Law”. So, companies should take the requirements as stipulated in Article 41 in to consideration, and t