By King and Mallesons’ Compliance Practice Group

“Crisis” usually refers to the dangerous and emergency status caused by sudden incidents. Doing business in China, it is very frequent that companies have to handle various types of crisis from time to time, including crisis caused by mass labor disputes with employees (“Employee Related Crisis”). Among the complicated reasons causing the Employee Related Crisis, a company’s mis-anticipation of employees’ responses is one of the primary reasons intensified the tension between companies and the employees.

It was reported by media that in January 2013, nearly one thousand factory workers of a Japanese Joint Venture Company in Shanghai suddenly went on strike and occupied the factory building, due to the company’s decision to amend the employee handbook by adding penalty provisions. 18 Chinese and Japanese senior managers were held hostage for almost two days in this incident. Such incident, which can hardly be called a coincidence, has been happening throughout the country in recent years. For this reason, enhancing the anticipation and preparation for crisis management is essential for companies.

When an Employee Related Crisis occurs, the crisis management team’s work always includes collecting information, taking emergency measures, determining the guidelines of handling the crisis, etc.

I. Information collection

Dealing with a crisis, companies will feel tougher in making decisions and implementing follow-up measures with insufficient information. The primary aims of gathering information are:

(a) understanding the exact claims of the employees;

(b) estimating the scope and seriousness of the crisis;

(c) monitoring the influence of the crisis;

(d) identifying the key participant; and

(e) obtaining the relevant evidence.

To achieve these objectives, information collection will not be limited within the company itself. External parties, relevant government department, media reports, and opinions posted in internet can also be sources of relevant information. More importantly, companies need to be familiar with the relevant laws and regulations as well as the guiding opinions of relevant governmental departments to understand and estimate the nature and potential consequences of the incident so as to ensure initiative could be taken and follow-up steps based on the information collected.

II. Emergency measures

Immediate measures must be taken to deal with Employee Related Crisis or other crisis, otherwise the situation might, in most cases, get worse and even become irretrievable. However, making too much compromise or acceptance of unfair conditions might make a bad precedent and cause new contradictions and disputes in the future even if it does resolve the current issue. Thus, taking appropriate emergency measures is essential.

The purpose of taking temporary emergency measures is to have the employees realize the company’s responsible attitude and sincerity to proactively solve the problems through timely and positive communication, thereby eliminating the contrasting feelings of the employees so that both parties will identify, analyze and solve the problems together with more sensible attitudes. To achieve this goal, it is advised to:

(a) have rapid response;

(b) choose appropriate negotiators by considering the ability of communication, position, experience and prestige of the candidates;

(c) pay attention to the wordings when communicating with employees, and avoid the decisive or provoking wordings if possible;

(d) take sincere attitude. In practice, the employees usually have preconception that the company has committed some violations, the purpose of taking emergence measures is to change the employees’ preconception and make them understand the company’s sincerity in facing and solving the problems proactively;

(e) if anyone is injured and the company might be responsible for such injury, the company may have to prepay the initial expenses for such injury if so required by the employee whilst taking steps to protect the company’s rights;

(f) actively seek the understanding and assistance of the labor union; and

(g) if the issues cannot be settled after the first round of negotiation, try to at least achieve agreement on the time and venue of the next round of negotiation, and the tasks to be done by both parties respectively before the next negotiation, It is always better to keep in touch with the opposing party before the next negotiation.

III. Determining the Guidelines of Handling the Crisis

The first step is to understand whether the requirements of the employees are reasonable. To do this, companies need to verify and confirm whether its current practices comply with the employment laws and regulations at national and local levels, and whether there is a huge gap with the average standard of similar companies nearby.

Do not seek assistance of lawyers only until the deadlock of the negotiation. While communicating with the employees, labor unions, and government departments, professional third parties, such as lawyers, could be a good buffer for companies.

An Employee Related Crisis will easily become the focus of the public via media reports. In addition, the internet and social media help the employees to express their own opinions to the public. Thus, the impact of public opinions need to be considered by companies while releasing information, coordinating with the government departments, and taking follow-up improvement measures.

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(This article was originally written in Chinese, the English version is a translation.)