Company Relocation and Dissolution of the Labor Contract

Company Relocation and Dissolution of the Labor Contract

In China, company relocation can be time-intensive, capital-intensive and resource-intensive no matter if it happens due to business concerns or changing policy. The procedure can take about three months to one year, depending on the complexity of the issues aroused.

The company should pay attention to the ever-changing legislation. For example: Pudong business district in Shanghai has always attracted large manufacturing companies, thanks to its major networking platform, well-developed infrastructure, availability of Free Trade Zones with many bonuses. However, the Government has recently imposed restrictions for the production companies’ placement, aiming to improve the environmental conditions of the city. The company’s management will have to provide documents to confirm that nothing from their side will violate the Government’s plans to improve levels of living in Shanghai.

The question is when corporate relocation happens, is the employee entitled to request monetary compensation or the dissolution of the labor contract?

The of the People’s Republic of China clearly states that if an Employer terminates a labor contract without any legal reason and 1) the employee requests to continue to perform the contract, the Employer shall continue performing the contract;2) if the employee does not request to continue the labor contract, or if the contract has become impossible to perform, the Employer shall pay the employee a money compensation.

Therefore, the Company shall pay close attention to avoid to be accused of illegally terminating the labor contract.

As for legit termination of labor contract, the Labor Contract Law states that an Employer may terminate the labor if a consistent change in the objective circumstances upon which the contract originally relied happens, so that it is not possible to perform the labor contract anymore, the Employer can legally terminate the contract.

According to Beijing High Court and relevant authorities, a “consistent change in the objective circumstances” includes force majeure events and corporate relocation or consolidation due to legal reasons or political changes.

In fact, corporate relocation usually happens as a result of business concern, mainly following two scenarios. The key consideration is whether the corporate relocation would lead the labor contract unable to continue to perform partially or entirely.

1) If the Company relocates to a place not so far from the previous one and in the same city, the performance of contract can be assured by scheduling shuttle bus, adjusting the working hours, providing transportation reimbursement, etc.

2) If that is long-distance relocation or trans-provincial relocation, shuttle bus and other above mentioned measures will not be enough, employee’s claim for compensation has a good chance to be supported by the court. Under such circumstance, company shall endeavor to facilitate the change of contract. In fact, relocation to another city implies a re-registration of the Company at the local Authorities, that means that the Employer party in the labor contract has changed. In this case, the Company would negotiate with the employees, to transfer the labor relationship into the newly registered Company.

Meanwhile, it’s better that Company communicates in advance with the Labor Authority in-charge regarding the potential challenges and appeals that the relocation could arise among employees, and tries to find the Authority`s support.

If you want to know more about Company relocation and other topics, D’ Andrea& Partners lawyers will be pleased to share with you the newest laws and regulations on the matter. Contact us at: