Can a company arrange for its employees to take a long-term leave when it is under poor operating performance?

Case 1: In April 2023, the company notified Zhu that due to its poor operating performance, it would arrange for him to take a leave of absence. It would pay him labor remuneration in accordance with legal provisions, and the resumption date would be announced separately. The company paid him full salary in the first month and then paid him at the minimum wage standard thereafter. During the leave, Zhu repeatedly asked about the resumption date, but the company only replied, “Wait for further notice”. Half a year later, Zhu filed an application for labor arbitration on the grounds that the company failed to provide necessary working conditions, and the company ultimately lost the case. (This is one of the typical labor and personnel dispute cases in Wuxi in 2024.)

Case 2: In June 2023, the company notified Hu that since it had been unable to operate normally for half a year and still had no business at present, it could no longer afford the employees’ salary. The company decided to put him on leave starting from June 26, 2023 and pay him living expenses in accordance with relevant legal regulations. In April 2024, after the termination of the labor relationship between the two parties, Hu initiated labor arbitration, claiming that the company had not suspended production and operation. He demanded the company to pay the difference between his regular monthly salary and the amount paid during the so-called production suspension period. After labor arbitration and the trials of the two levels’ instance, the court determined that the company’s suspension of production and operation was not targeted at any individual employee and did not constitute a situation of unreasonably failing to provide working conditions. Thus, the court rejected Hu’s claim. ((2025) Jing 01 Min Zhong No.5617.)

Why the above two “long-term leave” have different legal consequences?

Although neither company explicitly mentioned the suspension of production and operation in their notifications, regarding the payment to employees during such “long-term leave”, both companies essentially acted in accordance with the provisions governing the suspension of production and operation. Article 12 of the “Interim Provisions on Wage Payment” stipulates: “If an enterprise suspends production and operation due to reasons unrelated to employees, it shall pay employees’ salaries in accordance with the standards specified in the labor contracts within one wage payment cycle. If the suspension exceeds one wage payment cycle, and employees provide normal labor, the labor remuneration paid to them shall not be lower than the local minimum wage standard.” The aforementioned provision has granted enterprises the right to take necessary measures to reduce labor costs when facing operational difficulties.

However, there are no clear provisions on the specific circumstances under which enterprises can apply the rules concerning the “suspension of production and operation”. From the perspective of judicial practice, the reasons and implementation plan for an enterprise’s suspension of production and operation must be objective and reasonable. On one hand, the enterprise must provide sufficient and valid evidence to prove that the suspension is indeed caused by objective factors, such as operational difficulties, technological upgrading and renovation, or the reconstruction of the production environment. Taking operational difficulties as an example, the enterprise has to prove its production or core business has been substantially suspended and it has lost sustainable operating income. Meanwhile, it should provide supporting materials including financial statements (profit and loss statements, balance sheets) over a consecutive period, bank statements, and special explanations on the deterioration of its business conditions. On the other hand, when formulating the implementation plan, enterprises must ensure that the specific measures are not targeted at individual employees. According to relevant laws, employers are obligated to provide working conditions as agreed in the labor contracts. Arranging for an individual employee to take “leave” alone would be deemed as a failure to fully perform the obligations specified in the labor contract, or a failure to provide necessary working conditions, and a disguised form of wage reduction, which is neither reasonable nor legal (as Case 1). In individual cases, judicial authorities generally make a comprehensive judgment on whether the enterprise is engaging in disguised layoffs or wage cuts in the name of operational difficulties to intentionally harm employees’ legitimate rights and interests. Such judgments are based on factors including the enterprise’s management structure, the ratio of suspended employees to the total on-staff employees, as well as the positions, job roles and length of service of the relevant employees.

In addition, enterprises must ensure the legality of procedures when implementing the suspension of production and operation. Since such suspension would inevitably have a severe impact on employees’ income, it constitutes a major matter related to employees’ vital interests. It is advisable to carry out democratic consultation and notification procedures in accordance with Article 4 of the “Labor Contract Law”. Specifically, the following steps can be followed: (1) To formulate a detailed plan, specifying the scope of application of the production suspension, the wage standard during the suspension period, the conditions for resuming work, and the arrangements for employees. (2) To submit the plan to the trade union or the employees’ congress for discussion, explain the plan in detail, fully listen to opinions, and keep written records of the consultation process. (3) The final plan must be approved by the enterprise’s competent authority and then announced to all employees via bulletin boards, emails, or other means. And (4) If the local administrative authorities require the enterprise to complete filing procedures before the suspension, such procedures shall be performed in accordance with the relevant regulations.

After reading the above content, do you think there are any problems with the “suspension from post” policy launched by a certain construction engineering group that has been circulating online recently?