Labor: Avoiding hostage situations when terminating employees in China

Workers fearing layoffs recently held an American executive hostage for almost a week

A recent incident in Beijing where workers held an American executive hostage for almost a week made headlines around the world. However, it was a story that didn’t have to be told.

The executive had gone to Beijing to lay off employees in a department that was being moved to India. The remaining employees feared that their jobs would be lost as well, so they demanded severance payments, even though they were to continue working at the factory.

Employees in China are becoming increasingly active in protecting their rights, or what they perceive to be their rights. While the law in China is heavily weighted in favor of employees, this provides little comfort to employees when there is the possibility that the subsidiary of a foreign company will simply be abandoned.  The global economic slowdown and rising costs in China have resulted in more foreign companies doing exactly that, pulling the plug on their China operations and doing a disappearing act. If that happens, employees are left holding the bag, as there is little they can do to recoup money that the company owes them. Employees across the nation are quick to pick up on this trend and are keen to prevent themselves from ending up in a similar predicament.

The manner in which the authorities handle such disputes creates a perfect storm for the type of situation that happened in Beijing. They typically consider such situations to be business disputes and will not intervene except to mediate and/or to ensure the safety of those involved. Employees are generally smart enough not to escalate such situations to the point where the authorities are forced to intervene. The term “hostage” is somewhat misleading to what actually happens in most situations. Employees typically take a passive aggressive approach rather than resorting to violence—they simply stand in front of the exits. Once this happens, any force the executive uses will simply result in him being detained by the police or, worse, inciting the employees to violence. Once the employees have secured their hostage, they have overwhelming leverage to negotiate what they want on their terms.

Therefore, any foreign companies sending in executives to conduct layoffs at their Chinese subsidiaries should understand this: Expect to be taken hostage and realize that no one will step in to save you. The key to avoiding this reality is proper planning and preparation.

First and foremost, foreign executives should stay home and let local management or experienced outside counsel handle the layoffs. Additionally, it is important to keep a tight lid on information. There are no secrets within companies in China and news of layoffs will spread quickly. Companies must control the notification process. Leaked information without any details will result in hostile attitudes from employees. Local managers conducting notifications should be informed and provided training, if necessary, as close to notification day as possible.

Notification meetings should never be held at the subsidiary’s office or facility. We typically suggest booking conference facilities at a nearby hotel. This ensures the safety of those doing the notification and prevents hostage situations. Those involved need to familiarize themselves with exits and have an escape plan should employees attempt to detain them. Additionally, having the meeting at a neutral site will ensure that no company assets are damaged or destroyed if matters go awry. It is also important to hire a professional security team. The security team should stay out of sight unless needed to avoid inflaming the situation. There are numerous organizations in China that provide this type of service.

Proper planning and preparation takes time and adds costs to the layoff process, but companies should really view it as a way to save money and avoid a public relations disaster—just look at how much press the recent Beijing incident received. Perhaps more importantly, the company had to pay employees between $500,000 to $600,000 to settle the dispute. This was money the company wasn’t legally obligated to pay. Proper planning and preparation costs a tiny fraction of this amount.

Just a week before the Beijing incident, we assisted a client with the layoff of its entire workforce in Beijing. We helped the client implement the above suggestions and this put the employees and the company on equal footing. An agreement was eventually negotiated that made both the employees and company happy, as neither party had overwhelming leverage over the other to extract unreasonable concessions.  

In summary, if layoffs are necessary in China, stay at home and spend some time and resources to properly handle the situation.

Contributing Author

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Kevin Jones

Kevin L. Jones is a partner with Faegre Baker Daniels. Based in Shanghai, he chairs the firm’s labor and employment practice in China. He can...

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