The Follow-up Consideration on the Ceased Operation or Production

The market was in a downturn, so “Shadow” (“S”) decided to cease a line. On Feb. 5, S notified its 20 hourly employees of the news that the line was ceased, and all the employees should still register at company every day. Mar. 1 was the payday, S said that the employees had only worked for 5 days in Feb., so they could only obtain 5 days’ wages. On Apr. 1, S refused to pay the wages of Mar., the employees applied to the labor dispute arbitration committee (“Committee”) for arbitration, and required S to pay the full wages of Feb. and Mar.. The Committee rendered an award, in which it required S to pay the wages fully for Feb. and pay the labor compensation no less than the local minimum wages rate (“Rate”) for Mar.. Here is the question, why should a company pay employees when it has ceased operation?

According to “Payment of Wages Tentative Provisions”, “Notice on Properly Handing the Relevant Issues of Labor Relationship”, and other relevant laws and regulations, where a company ceases operation or production (“Event”) other than those due to the employees, the company shall compensate employees according to the specific circumstances. Firstly, if the Event happens in a pay period (“Period”), the company shall pay the wages in accordance with the standards stipulated in the labor contract. In this case, S notified the employees on Feb. 5, which means the Event happens in a Period, S should fully pay the wages in accordance with the standards stipulated in the labor contract. Secondly, if the Event continues for more than one Period, and the employees have worked as normal, the company shall pay the labor compensation, which must not be less than the Rate. Thirdly, if the Event continues for more than one Period, and the employees have not worked as normal, the company shall pay the living expenses, the amount of which shall be decided in accordance with the local regulations. For example, the living expenses shall be no less than 80% of the Rate in Jiangsu province.

The standard to distinguish the labor compensation from the living expense is Article 3 of “Provisions on Minimum Wages Rate”, which states how to identify the employees have worked as normal or not. It is said that the normal work means the employees have worked in the statutory working hour or working hour stipulated in the labor contract. In this case, S required the hourly employees to stand by in the company, which means that S has bought the working hour of these employees, those employees shall be deemed as providing normal work, and S should pay the labor compensation no less than the Rate.

In the operation, when a company has to cease operation or production, in order to save cost, it shall legally make good use of time, the requirements to the employees. Meanwhile, it shall make preparation in advance for the follow-up consequences, such as redundancy.