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How Should Foreign-funded Enterprises Cope with the Current Outbreak of Novel Coronavirus in China

Issue date:04 Feb 2020 Author:Wang Zhengyang

Since the beginning of the Chinese New Year of 2020, the novel coronavirus(2019-nCoV) that firstly outbroke in Wuhan has spread rapidly across China. The central and local governments have successively taken various control measures, including extending the holiday, in order to reduce the risk that the large-scale population movement during the spring festival holiday will aggregate the transmission of the novel coronavirus. Time of resuming work and production for all enterprises in China has been adjusted accordingly. This is an uncommon situation for all enterprises, with no exception to the large quantities of foreign-funded companies in China. The most urgent issues faced with the owners of these enterprises are how to understand and comply with the latest policies and directives issued by the governments on both central and regional levels, how to properly arrange the time of resuming work and production, and how to deal with labor relationships with employees and contractual relationships with outside parties. In this context, JunZeJun law offices provide a legal perspective and corresponding advice on the following main concerns of foreign-funded enterprises.

 

I  ISSUE OF POSTPONING THE TIME OF RESUMING WORK AND PRODUCTION


1.1 How to understand the Extended Holiday and postponing the time of resuming work


The spring festival holiday of 2020 was planned to last 7 days, from Jan 24th to Jan 30th, and Jan 31st and Feb 1st should have been working days. However, due to the impact of the epidemic, the General Office of the State Council issued on Jan 26th a ‘Notification on extending the 2020 Spring Festival holiday’, aimed at reducing the chances of human-to-human transmission of the novel Coronavirus. In accordance with the Notification, the 2020 Spring Festival holiday is extended to Feb 2nd , which means the national uniform time of returning to work is February 3rd; employees who are unable to take leave due to their duties for the prevention and control of the epidemic shall be entitled to take days off afterwards or get remuneration in accordance with the Labor Law of the People's Republic of China and relevant policies.


Some local governments have further postponed the uniform time of resuming work and production by taking account of the specific situations in their respective regions. For instance, the Shanghai government issued on Jan 27th a ‘Notification on postponing the resumption of work and school opening in Shanghai’, requiring that no enterprise in the Shanghai area should resume production earlier than 24 pm of Feb 9th , except those responsible for ensuring the basic running of the city ( such as water, gas and power suppliers, communications, etc.), controlling the transmission of the epidemic (such as the production and sale of medical equipment, drugs, protective goods, etc.) and guaranteeing the necessary living conditions for the people (such as supermarkets, stores, food production and suppliers, etc.) and those exerting huge influence on the economy and people’s life in other respects. Besides, the governments of Zhejiang province, Jiangsu province and Guangdong province have also issued notifications, obliging enterprises located within their regions not to resume production earlier than 24pm of Feb 9th ; enterprises that need employees to return to work before Feb 9th shall apply for the approval of the local epidemic-control centers. 


To sum up, the three extra days (Jan 31st~Feb 2nd ) according to the Notification by the State Council constitute an extension of the spring festival holiday; employees working during the above three days shall be entitled to three times of salary as overtime pay in accordance with the Paragraph 3, Article 44 of the Labor Law of China. The seven days (Feb 3rd ~Feb 9th) stipulated by the notification of the Shanghai government should be interpreted as ordinary rest days, according to the Shanghai Social Bureau; employees taking rest during the above seven days shall be entitled to be paid as per labor contract standards ; employees working during the above seven days shall be entitled to overtime pay or to take days off afterwards.


1.2 Compelling force of the orders to postpone the resumption of work


In accordance of the Article 42 of the Law on Prevention and Treatment of Infectious Diseases (Revision 2013), ‘when an infectious disease breaks out and prevails, the local people's government at or above the county level shall immediately get people organized to control and treat the disease in accordance with its preliminary plan for prevention and control and cut off the route of transmission; and when necessary, they may take the following emergency measures, subject to reporting to and decision by the people's government at the next higher level, and make the measures known to the public: (1) restricting or suspending fairs, cinema shows, theatrical performances and other types of mass gathering; (2) suspension of work, business and school classes…’


In accordance with the Article 70 of the Implementing Measures for the Law on Prevention and Treatment of Infectious Diseases, ‘any unit or individual that commits any of the following acts shall be reported by the administrative department of public health at or above the county level to the same level of government, which shall circulate a notice of criticism against the unit; a person who is in charge of the unit and bears direct responsibility shall be given administrative sanctions by the unit or higher authorities: (1) obstructing or refusing to implement the emergency measures taken by the government in the event of the outbreak or transmission of an infectious disease…’.


In accordance with the Article 330 of the Criminal Law of the People’s Republic of China, ‘whoever, in violation of the provisions of the Law on Prevention and Treatment of Infectious Diseases, commits any of the following acts and thus causes the spread or a grave danger of the spread of an A Class infectious disease shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention; if the consequences are especially serious, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years…(4) refusing to implement the preventive and control measures proposed by the health and anti-epidemic agencies according to the Law on Prevention and Treatment of Infectious Diseases. Where a unit commits the crime mentioned in the preceding paragraph, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the offence shall be punished in accordance with the provisions of the preceding paragraph’.


In conclusion, the State Council has classified the novel Coronavirus as a statutory infectious disease and defined it into class B but under class A management, which means the novel Coronavirus,while being a Class B infectious diseases, shall be managed with the preventive and control measures for Class A infectious diseases. The delay of resuming work and production requested by the central and local levels of governments is a temporary "shutdown", which is an emergency measure whose compelling force entails a full implementation with exception to the enterprises that are responsible for guaranteeing the basic living conditions of the people.  Otherwise, any enterprise and the persons in charge of it or shouldering direct responsibility may be imposed on administrative liabilities, or criminal liabilities in case of severe disobedience.


1.3 How to understand the ‘inconsistency’ between the time of resuming work required by the State Council and by local governments
There is indeed no conflict between the time of resuming work required by the State Council and by local governments. A local government order shall prevail, if it continues to delay the resumption of work and production after February 2 within the region under its governance. In the absence of local government orders, the State Council order shall be implemented, namely the uniform time of resuming work and production is Feb 3rd, 2020.


At present, some provinces and cities such as Zhejiang, Jiangsu, Guangdong, Jiangxi, Anhui, Fujian and Shanghai have issued notices that no enterprise shall resume production earlier than 24 pm, Feb 9th, 2020. Feb 2nd, as stipulated by the State Council, shall be implemented in the other regions as the end date of the holiday.


II. LABOR RELATIONS DURING THE OUTBREAK OF NOVEL CORONAVIRUS


2.1 Labor relations and wage issues during the isolation and treatment


The Ministry of Human Resources and Social Security promulgated a Notification on Labor Relations during the Outbreak of novel coronavirus, providing specific provisions on such issues as labor relations during the isolation and treatment of (suspected) patients. Infected patients, suspected patients and their close contacts who are unable to work due to government isolation measures or other emergency measures shall be paid remuneration during the period of isolation or treatment, and the employers may not terminate the Labor Contracts with them by invoking the Articles 40 and 41 of the Labor Contract Law.


2.2 Enterprises may make adjustments in case of operational difficulties caused by the spread of novel Coronavirus


The Notification by the Ministry of Human Resources and Social Security also stipulates that enterprises having difficulties in production and operation due to the spread of novel coronavirus may negotiate and reach consensus with employees on solutions that are conductive to increasing job stability and minimizing layoffs, such as adjusting salaries, arranging work shifts, shorten working hours, etc. Enterprises that satisfy certain conditions will be provided with employment stability allowances according to the Notification. If an enterprise ceases production within a wage period, the enterprise shall pay its workers by following labor contract standards.  In case the shut-downs last longer than a wage period, an employee that provides regular labor shall be paid salary according to the local minimum wage standard, and an employee failing to provide regular labor shall be ensured living expenses, which shall be subject to the standards prescribed by local governments.


2.3 Suspension of the prescription of labor dispute arbitration


Where the parties concerned cannot apply for labor and personnel dispute arbitration within the time limit of arbitration due to the influence of the novel coronavirus, the prescription of arbitration shall be suspended. The prescription of arbitration shall continue being counted since the date when the reason for the suspension disappears. If it is difficult for an arbitration institution to hear a case within the prescription because of the novel Coronavirus, the time limit may be extended accordingly.

 

III ISSUES REGARDING CONTRACT PERFORMANCE WITH OUTSIDE PARTIES DURING THE OUTBREAK


3.1 It should be regarded as force majeure for the government to order to “postpone the time of resuming work” in order to prevent and control the novel coronavirus


The government ordered to “postpone the time of resuming work” due to the outbreak of the novel coronavirus, which will put many enterprises in the unenviable position of failure to perform the contract in time. Especially for production-oriented enterprises, if they do not produce in time and deliver goods on time, they will always bear a huge risk of default. However, it should be noted that Article 117 of the Contract Law stipulates that “where it is not possible to perform a contract due to force majeure, then, depending on the extent of the force majeure, the performing party shall be partially or wholly excused from liability, except where laws provide otherwise”. In this case, should orders given by governments at all levels to “postpone the time of resuming work” be regarded as a force majeure event? According to the relevant provisions of the contract law, an event or condition can be defined as force majeure only when it meets four criteria: (1) it is unforeseeable, referring to that the occurrence of the event must have been unforeseeable as of the date of signature of the contract;(2) it is unavoidable, meaning that the event would not be prevented even if the parties to the contract took reasonable measures after the contract comes into force; (3) it is unable to be overcome, referring to that the loss caused by the event is out of control of the parties to the contract; and (4) it is under the fulfilling term, which refers to that the event must occur during the performance period of the contract. To sum up, if an enterprise cannot organize labor force and material resources for production and thus fail to fulfill the contract on time because of following the orders from the governments to “postpone the time of resuming work” during the outbreak, it can be regarded as a force majeure event since it satisfies the four criteria.


3.2 Measures to be taken as a party to the contract for the novel coronavirus


According to the Article 118 of the Contract Law, “where one of the parties is unable to perform the contract due to force majeure, the said party shall immediately notify the other party in order to reduce the potential losses sustained by the other party, and the said party shall also provide evidence of the force majeure within a reasonable time.”


The Article 94 of the Contract Law stipulates that, “The parties may dissolve the contract in the following circumstances: (1) the objectives of the contract cannot be realized due to force majeure…”


Due to different situations of the outbreak in different places, the prevention and control measures taken by local governments may vary, and each enterprise will be affected by the novel coronavirus to different degrees. Besides, it is stipulated in the general terms of the contract that “notification obligation of force majeure” (i.e. the other party shall be notified in time after the occurrence of force majeure). Therefore, we suggest that each enterprise, based on the actual situation of the entities in the industry chains and their own, inform the other party in time of the impact on the performance of the contract caused by the novel coronavirus, and try to avoid possible subsequent disputes. If it is really impossible to continue to fulfill the contract, the contract shall be terminated unilaterally in accordance with the relevant provisions of Article 94 of the Contract Law, so as to clarify the termination of the rights and obligations of both parties, and to avoid the disappearance of the right of termination due to the delay in exercising such right, which lead to greater legal responsibility to be beard subsequently.


Lastly, in view of the novel coronavirus outbreak, we would like to make the following suggestions to foreign-funded enterprises in China for reference:


1. Pay attention to the employment of the company, whether being affected by the novel coronavirus;      

     
2. Make sure the company has raised awareness of employees and prompted them to prevent the novel coronavirus, and taken relevant preventive measures;           


3. Confirm whether all kinds of business contracts that the company needs to perform in the near future are affected by the outbreak and whether relevant countermeasures have been taken.

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