Harvard Case Study Project: Harvard Case Study Project

W14718

SHOULD THE GENERAL MANAGER BE FIRED? Fengli Mu, Tieying Huang and Jiao Li wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2015, Richard Ivey School of Business Foundation Version: 2015-03-26

On the night of September 14, 2008, Kaiyuan Cheng, CEO of Rainbow Group, was at his home in Beijing, China, with knitted brows, thinking about his experience that evening. A few hours ago, eight senior executives from Rainbow Group’s subsidiary in Hangzhou had come to Beijing requesting that he fire their general manager (GM), Jie Chu, who had been appointed by Cheng six months ago. Cheng was thinking hard: What was the problem? What should he do? RAINBOW GROUP AND HANGZHOU COMPANY Rainbow Group was a Chinese group company specializing in environmental protection services. Established in 1992, it had its head office in Beijing and nine subsidiaries nationwide (see Exhibit 1). Rainbow Group was mainly engaged in the treatment of household and industrial wastewater. It provided comprehensive environment-related services in this area, including engineering procedure design, investment management, consulting, operations management, R&D, manufacturing and equipment imports. Hangzhou Equipment Manufacturing Company (hereafter referred to as Hangzhou Company) was a subsidiary of Rainbow Group that manufactured water treatment equipment (see Exhibit 2). It had been established in 1997. There were 90 employees in 2008 and it had a turnover of RMB 20million (about US$3.3 million). CHU Chu had been the general manager of Rainbow Group’s Shanghai branch since 2002. During this period, the performance of the Shanghai branch had been the best among all Rainbow Group subsidiaries. In March 2008, Chu was assigned to Hangzhou Company as the general manager while retaining her position at the Shanghai branch. Early in the morning of September 15, 2008, Chu drove from her home in Shanghai to Hangzhou after the Mid-Autumn Festival holiday. During the two-hour drive, she thought about the big challenges she faced

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Page 2 9B14C054 in implementing lean management in Hangzhou Company. Chu thought to herself, “Now is the most difficult time and it will get better, so hold on!” Once she stepped into Hangzhou Company’s office building, Chu felt something was not right. It was unusually quiet. The few workers that were there ran back to their cubicles at the sight of Chu. She habitually tried to push open the door of the office that belonged to Liyun Liu, the finance manager, but it was locked. As the only other female senior executive in Hangzhou Company, Liu was the one Chu relied heavily upon and communicated with very frequently. Chu called Liu immediately, but could not get through. Could there be something wrong at Liu’s home? Chu then called other managers, but nobody answered. Chu immediately realized that something was wrong — none of the managers had come to work today! None of them answered her call! They must have done this intentionally. Taking a deep breath, Chu tried to calm herself down. A thought came into her mind: “Could they have gone to the head office in Beijing?” Chu called Xue Wei, the HR manager in Beijing, and she was right, all her managers were in Beijing making a “collective appeal” right now! They wanted the head office to transfer Chu away from Hangzhou. Wei asked Chu to come to Beijing as soon as possible. Shocked by this news, Chu took a flight to Beijing. A “COLLECTIVE APPEAL” TO THE HEAD OFFICE The organizer of the collective appeal was Minsheng Wang, the vice-GM in Hangzhou Company. Wang had been the GM in Hangzhou before Chu’s appointment. In August 2008, the HR Department from the head office had conducted a survey regarding Chu’s performance in Hangzhou Company. All the managers in Hangzhou had expressed their complaints and dissatisfaction, and they all expected a very negative evaluation of Chu. However, there had been no response from head office after two weeks. It was two days before the Mid-Autumn Festival holiday when Wang called a dinner gathering with the other seven managers who were his former subordinates. Emotions ran high during the dinner when they discussed the survey — would this survey result in no action from the head office again? These managers felt very disappointed and even drafted a “written complaint” about Chu that listed eight grievances, such as her overly strict management, lack of trust of employees and so on. They signed the document and were ready to send it to headquarters hoping it would receive serious attention from Beijing. However, at the end of the gathering, someone suggested that the jointly signed written complaint might be left aside by the head office, and that all the managers would keep suffering from Chu’s poor leadership. Wang, pounding on the table, said loudly, “Why don’t we all go to the head office in Beijing to make the complaint?” The room suddenly became quiet. But only after a few seconds, this idea gained more and more support from the group, with the exception of Liu. Liu was the only one of the eight managers who could get along with Chu. If she joined the group and went to Beijing it would make a big difference to the appeal to the head office. Liu had never suffered such pressure. When Liu recalled this night after this event, she said, “I never regretted going to Beijing with them. Though I admired Chu for her energy and strong will, and felt terrible about hurting her like that, I still chose to do it for the good of the company.” That night, the eight managers agreed to go to Beijing on the last day of the Mid-Autumn Festival holiday and keep this visit a secret among themselves. However, on the train to Beijing, Liu could not help sending a text message secretly to Cheng, the CEO of Rainbow Group, telling him that the group was coming to Beijing with a written complaint about Chu and that they were going to request that the head office replace Chu.

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Page 3 9B14C054 This collective appeal was both unexpected and expected for Cheng, since he had kept receiving complaints about Chu in the last six months, most of which were from Wang. He had also received the survey on Chu’s leadership style in August and the results were very negative. Even so, Cheng was still surprised that all of the eight executives would come to Beijing without any notice. It seemed to be much worse than he had thought. Before figuring out the real purpose of this visit, Cheng called Wei, the HR manager in the head office, and asked Wei to arrange a hotel for the group, and to stop them from coming to the head office building, as it would cause trouble for other employees and hurt the company image. The group coming to Beijing included all the executives in Hangzhou Company: vice-GM Wang, finance manager Liu, R&D manager Wenqiang Dai, the manufacturing manager, the managers of two sales departments, the purchasing manager and the GM’s assistant. A CAUTIOUS APPOINTMENT Before Chu’s appointment to Hangzhou Company, Wang had been the vice-GM and then GM for nearly 10 years. It had been a flourishing decade for the environmental protection industry, but the performance of Hangzhou Company was not good. The company had declined from a well-respected company in the industry to an ordinary company. Among the subsidiaries of Rainbow Group, Hangzhou Company had one of the poorest performances. The head office had planned to replace the GM of Hangzhou for quite a while but could not find a suitable candidate. In 2008, Cheng realized that Wang was going to retire within two years, so it was extremely urgent that they find a new GM. Rainbow Group was conservative in terms of its HR practices. It encouraged internal promotion and had an employee development program and talent pool. External appointments, especially for the executive level, were not common in Rainbow Group. However, since there appeared to be no qualified candidate within Hangzhou Company, a transfer from some other subsidiary seemed to be the only choice. Cheng had been thinking over the candidates for this position for at least two years. Chu was a strong candidate. She was very self-motivated and efficient in accomplishing tasks. She was the GM of Shanghai Engineering Company, which had been the top performer among all subsidiaries of Rainbow Group for some years. In addition, Shanghai and Hangzhou were geographically close, so Chu would be able to cover both subsidiaries at the same time. Another important factor was that Chu and Wang had known each other for years and had a good personal relationship. On the other hand, Chu had some shortcomings. She was not open to different opinions, and had not been a good team developer in the Shanghai subsidiary. In the past six years, she had elbowed out three vice- GMs who were highly evaluated by others in the Shanghai subsidiary. Cheng had once visited the subsidiary in Shanghai for a while to settle the personnel disputes, but he had failed. Chu had insisted on dismissing these vice-GMs, and Cheng had had to transfer them to other subsidiaries. All three vice-GMs had turned out to be good performers later. Therefore, Cheng’s biggest concern was Chu’s capability at team leadership — could she lead Hangzhou Company to a better future? Cheng had discussed his concerns with Chu and Wang. Chu was very positive about working in Hangzhou, and Wang was also very happy about Chu’s arrival. He indicated that he was willing to assist Chu in Hangzhou for the next two years. Before the official announcement of Chu’s appointment, Cheng provided Chu with opportunities to be involved in Hangzhou sales activities, and made use of all possible opportunities to observe Chu and Wang’s collaboration. Chu agreed with Cheng that Wang’s cooperation was the key to success and she

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Page 4 9B14C054 showed great confidence in Hangzhou Company’s future. Wang was also truly happy about Chu’s attitude. Cheng was confident that this appointment was the right one. In the last meeting before the appointment, several executives from the head office worried about Chu’s leadership and questioned the decision. Cheng spoke up after a long silence: “I agree with you all on those concerns. But Wang is going to retire within two years. Is there any better candidate?” No one answered — it was obvious that Hangzhou Company had been poorly operated. How could it be worse under Chu’s leadership? Chu’s outstanding performance in the Shanghai subsidiary was the best testimony! Soon, the announcement was released from the head office: Chu would be the GM of both the Hangzhou and Shanghai subsidiaries, and Wang would be the vice-GM in Hangzhou. However, problems had kept coming since the official appointment. SHE IS THE BOSS NOW Before the official takeover, Chu reviewed the financial records of Hangzhou Company and realized that the biggest problem facing the company was cost control. There was much room to improve procedures in the areas of purchasing, sales contract administration and travel expense management. She felt that though the Shanghai subsidiary was a service company, its cost control regulations could be transferred to Hangzhou. Therefore, Chu decided to start the change in Hangzhou related to cost control. In her first executive meeting in Hangzhou, Chu focused on lean management and announced that there would be new standards for purchasing, production, sales, travel budgets and so on. Everybody knew that Chu would take serious action. Chu was indeed taking action, and it started with Wang. Chu became furious when reviewing the financial records for purchasing, sales contracts and travel expense claims. Some sales contracts contained only a product name but no specific details; some purchasing contracts were only a note handwritten by Wang; and some travel expense claim forms were signed by Wang without the travel purpose indicated. Chu and Wang were good friends. Before Chu’s appointment, she had frequently assisted Hangzhou Company by lending cash from Shanghai when Hangzhou was short of cash. Chu had helped Wang identify problems and provide suggestions during head office meetings. At that time, Chu attributed Hangzhou’s problems to Wang’s lack of capability since he was getting old, but she felt sympathetic to him. But now, as she took the position of GM in Hangzhou, she was astonished at the chaos in Hangzhou’s daily management: there were lots of mistakes in sales contracts, and suppliers could collect bills merely with a note signed by Wang. Chu’s sympathy for Wang had changed to skepticism. Wang appeared to treat himself as the “king” of the company with no constraints. In Chu’s mind, the slack management style was the root cause of the poor performance of Hangzhou. Therefore, the key issue was to change Wang’s attitude, so that other managers could take the new management procedures seriously. WANG’S REGRET Wang noticed that Chu had begun to boss him around. During a weekly meeting in Hangzhou, Chu was leading the conversation while others, including Wang, who used to be an enthusiastic talker, were listening and speaking only when asked. Chu started the meeting by criticizing the current contract procedure, and she announced that no contract could be

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Page 5 9B14C054 processed without her approval. Furthermore, she requested that Wang hand over the company seal and contract seal to her. This clearly indicated that Chu did not trust Wang in his capacity and perhaps doubted his honesty. Wang’s face was frozen with frustration and anger, but he kept himself from arguing with Chu. Everybody in the meeting noticed this, except Chu. Wang began to regret inviting Chu to Hangzhou Company, while Chu found that the implementation of lean management was much more difficult than she had thought. For example, Mr. Lu, a supplier, had been working with Hangzhou Company for years. When Lu’s subordinate came to collect bills one afternoon, Chu got angry at the sight of the contract and receipts provided by Mr. Lu — the contract was only listed with the product number and total amount of the bill, but no quantity or unit price of the product. Chu did not pay the bill. That night, Chu called Liu for more history on the relationship with Mr. Lu’s company, and Liu explained that Lu had a fairly good personal relationship with Wang. When Hangzhou Company was short of cash, Lu would sell on credit but at a higher price; and the accounting office of Hangzhou would pay Lu’s bill as long as Wang approved it. This was not rare in Hangzhou Company. Chu could not accept Wang’s behaviour. “How could he be so casual in management? Is this a good example for the employees?” Chu felt that several employees that Wang trusted in the purchase and sales departments were not honest, and that this was why the operating cost was always high! She decided to take this opportunity to warn Wang and every employee in Hangzhou Company, and to completely change the casual management of purchases and sales. The next day, Chu asked her secretary to tell Mr. Lu that according to the new rules in Hangzhou Company, he could get the payment only after he included all requested information in the contract, including the unit price and quantity of all the products, and have it approved by Hangzhou Company. The unit price provided later by Mr. Lu was of course higher than the market price. Chu refused to pay the extra part because it was “unreasonable.” Mr. Lu was furious and called Wang immediately. To keep his word and his friendship with Lu, Wang forced himself into Chu’s office, and soon the explanation turned into an argument, and then fighting. Wang stormed off! LIU’S TROUBLE That night, after going back to her home in Shanghai, Chu called Liu and learned that there had been similar deals between Wang and other suppliers, and explained to Liu the damage of such deals to the company. Chu also made a point that no one would be allowed to take a penny from the company without her permission. The phone call lasted until midnight. The next morning, Wang came to Liu’s office with Lu, asking for a favour from Liu, who used to be his subordinate — to make the payment to Lu just like before. Liu, of course, dared not make the payment without Chu’s signature. But she was so sympathetic to Wang that she promised to talk with Chu about it at night. There was another long phone call until midnight. Liu’s efforts for Wang collapsed when faced with Chu’s insistence. Not only did she not convince Chu to approve the payment to Lu, she also agreed to play a part in the implementation of lean management. While Liu agreed with Chu’s suggestions on modern management, she was also very sympathetic to Wang. Liu soon realized that she was stuck between Chu and Wang. After the episode with Mr. Lu, Wang and Chu could not communicate with each other rationally. Liu tried to moderate the tension between the two, but only ended up feeling tortured by both of them. Chu talked with Liu every night on the phone, since she was too busy during the day, and the phone calls always lasted until midnight. Wang, on the other hand, always complained about Chu’s new management procedure in Liu’s office during the day. Moreover, a salesman threatened Liu over the phone because he could not get his travel expenses

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Page 6 9B14C054 reimbursed due to the new lean management. Liu felt exhausted under the pressure, and started to search for a new job. FROM FRIENDS TO ENEMIES Meanwhile in Beijing, Cheng received a stream of phone calls when Chu and Wang were having their dispute. Only one month after Chu’s assignment, Wang called Cheng to complain that Chu had asked all the salesmen to bypass the sales managers and report to her directly. Chu had also sent a proposal to the head office to transfer someone from Shanghai to be the vice sales manager in Hangzhou. Cheng realized that a new sales manager from Shanghai would only make the chaos in Hangzhou worse, so he rejected Chu’s proposal. He sensed there would be a replay of Chu’s disputes with her Shanghai team. Cheng reminded Chu repeatedly about the importance of getting along with the Hangzhou executive team. Unfortunately, instead of seeing an improvement in the relationship between Chu and Wang, Cheng learned that these two had been shouting at each other during a company meeting. The fight had arisen over fundraising in Hangzhou Company. Since Hangzhou Company often had cash issues, Wang and other employees had loaned funds to the company, and Chu had transferred cash from Shanghai as well. Chu had found out that the interest rate for the raised funds had the highest bank rate, while the loan from Shanghai was paid with the regular bank interest rate! Chu was furious — Wang was obviously profiting at the company’s expense! When she learned that Wang was urgently in need of cash for his down- payment on a new house, Chu had realized that it was a good opportunity to give all the employees in Hangzhou a lesson. So when limited funds were available, she had repaid the debt to the Shanghai subsidiary but had not repaid Wang. As a result, Wang had raged, shouting at Chu in her office. Although Cheng knew about the conflicts between Chu and the Hangzhou management, he was not located in Hangzhou, and all he could do was give suggestions to Chu after receiving complaints from Wang and others. The latest poll in Hangzhou Company showed that not only Wang but also others were feeling constrained by Chu. The sales managers had been suspended, the sales business had been frozen and production had halted. Finance manager Liu and R&D manager Dai, who were trusted by Chu, began to believe that Chu was destroying the company. Liu was the closest one to Chu. She said to Chu during their midnight telephone meetings: “What you have said and done are reasonable, but if you want to implement the new system, you need to be tactical about how you do it. Do not force people.” Chu, a strong-willed individual, knew change was not easy, and decided to stick to her convictions. She worked in Hangzhou three days in a row every week. After every busy day, she went through the current business procedures, and drafted new administrative regulations at night. She instructed every department to develop new work regulations. Standardized procedures had to be followed for all jobs. For example, a department was going to sell a used car, which used to be a casual and quick decision in Hangzhou Company. Now, it had to go through a standardized process, including receiving quotes from multiple potential buyers and filing a written report. Each step had to be approved by Chu to move forward. Chu’s intention was to train the employees on new standards and regulations. However, the employees felt that Chu had no trust in the employees of Hangzhou at all! SHOULD CHU STAY OR NOT? It was 8 p.m. on September 14, 2008, and Cheng went to the hotel to meet the eight executives from Hangzhou. Looking at the busy streets with people enjoying their holiday, Cheng made up his mind that

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Page 7 9B14C054 the assignment of Chu would depend on the opinion of Liu, the finance manager, and Dai, the R&D manager. They were the two who were most trusted by Chu. If they could still support Chu, it would mean that Chu would be able to continue her work in Hangzhou. Otherwise, Chu would have to go. Upon his arrival at the hotel, Cheng invited Liu and Dai to his room. They both looked upset, and were about to speak but said nothing. When Cheng asked about their opinion on Chu’s assignment in Hangzhou Company, Liu and Dai gave a consistent and absolute answer: “No. The company will stop running if Chu stays.” Cheng followed up: “You supported Chu and her new system at first, so why do you want her to leave so firmly only after six months? Is there any other concern besides the business?” After a long silence, Liu said, “I am afraid.” Looking at Cheng’s confused expression, she explained, “There are several times, I have made payment to suppliers according to Chu’s instructions over the phone, but she denied it when I asked for her signature afterwards. As Chu works in both Shanghai and Hangzhou, it is common to make instructions via phone calls, and it is possible to forget her words. But I don’t think it is common to ‘forget’ several times.” Liu had worked as Cheng’s subordinate in the Finance Department of Rainbow Group, and she had worked in this company for years. Cheng trusted Liu. Actually, among the eight executives involved in the collective appeal, everybody had experienced similar situations with Chu several times, and Liu might have been the last one to say so. Cheng realized that Chu’s “new management” had gone too far. Now, it was clear for Cheng that he could not keep Chu as the general manager in Hangzhou anymore, although Chu had been appointed by him and had been strongly supported by him during the last six months. Cheng was very frustrated. He asked Wei to meet with the other managers from Hangzhou, and left the hotel alone. On the way home, Cheng asked himself over and over, “What was wrong with Chu’s appointment?” He was also angry with Wang, who had thought highly of Chu’s competency and been very happy about Chu’s appointment. Wang had been willing to give his position as GM to Chu and had been happy to fully support Chu, but six months later, he had led a group of executives to Beijing to remove Chu! Cheng was even angrier with himself: the personnel decision that he had racked his brains to make had failed so quickly and intensely. More importantly, if such a collective appeal worked, the future GM, whoever it was, would face a very difficult situation in Hangzhou Company. On the other hand, Hangzhou Company would not survive without change. Should he reverse Chu’s appointment in Hangzhou? When Chu came to the head office in Beijing, she explained to Cheng that the lean management initiative had come across unexpected difficulties, but the company had made some achievements with her efforts. Employees, especially first-line employees, had realized the drawbacks of the traditional management style. Chu believed that Hangzhou Company would definitely get on the right track within three months. The eight executives who had made the collective appeal would be convinced by the facts. Chu was willing to discuss this with the group if the head office would give her another three months. She said, “It is the key moment for Hangzhou’s change. My stay is critical for the new management system. I only need three months to get Hangzhou Company on the right track!” Three months! Cheng hesitated. Should he give Chu another three months? Could he admit failure? He knew the saying that “success belongs to the persevering.” Moreover, there was no better candidate to replace Chu at the moment. “Maybe I should give Chu another three months?” he thought. “It will at least give me some time to search for another candidate.” (see Exhibit 3)

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Page 8 9B14C054

EXHIBIT 1: RAINBOW GROUP’S SUBSIDIARIES IN CHINA

 Subsidiaries in the engineering construction business are located in Shanghai, Hangzhou, Nanjing and Qingdao;

 Subsidiaries in the regional environmental business (wastewater treatment) are located in Beijing, Taicang, Fenghua and Kunshan;

 Subsidiaries in environmental equipment business are Hangzhou Equipment Manufacturing Company and Baiante Equipment Sales Company (located in Beijing).

Source: http://map.ps123.net/china/UploadFile/201304/2013042921185412.jpg.

EXHIBIT 2: ORGANIZATIONAL STRUCTURE OF HANGZHOU COMPANY

Source: Company profile.

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Page 9 9B14C054

EXHIBIT 3: LABOUR CONTRACT LAW OF THE PEOPLE’S REPUBLIC OF CHINA (EXCERPTS) Order of the President [2007] No. 65 June 29, 2007 The Labour Contract Law of the People’s Republic of China was adopted at the 28th Session of the Standing Committee of the 10th National People’s Congress of the People’s Republic of China on June 29, 2007, and is hereby promulgated and effective as of January 1, 2008. President of the People’s Republic of China: Hu Jin-tao Article 26 The following labour contracts are invalid or partly invalid: (1) Conclude or change the labour contract in violation of the true meaning of the party by deceptive means or threats, or taking advantage of the party’s precarious position; (2) Exempt the employing unit from the statutory responsibility by itself or exclude the rights of labourers; and (3) Violate the mandatory provisions of laws and administrative regulations. Where there is a dispute over the invalidity or partial invalidity of a labour contract, it shall be confirmed by the labour dispute arbitration authority or the people’s court. Article 27 Where a labour contract is partially invalid and does not affect the validity of other parts, such other parts shall still be valid. Article 36 Where an employing unit and a labourer have reached a consensus after consultation, they may dissolve the labour contract. Article 39 An employing unit may dissolve the labour contract where the labourer is in any of the following circumstances: (1) The labourer is confirmed to fail to meet the employment conditions in the probationary period; (2) The labourer is in serious violation of the rules and systems of the employing unit; (3) The labourer is in serious dereliction of duty or practices graft which brings about significant harm to the employing unit; (4) The labourer establishes labour relationships with other employing units at the same time that brings about serious impact on the completion of tasks of the employing unit, or the labourer fails to make rectification after the employing unit informs it of the issue; (5) The labour contract is invalid in the circumstances prescribed in Item 1 of Paragraph One of Article 26 hereof; or (6) Criminal liability is pursued against the labourer in accordance with the law. Article 40 In any of the following circumstances, an employing unit may dissolve the labour contract by giving the labourer a prior written notice of 30 days or pay the labourers an additional month of wages: (1) The labourer is sick or injured due to reasons unrelated to work, and fails to perform the original work after the prescribed treatment period or fails to perform other work arranged by the employing unit; (2) The labourer is not qualified for the job, and after training is given or the position is changed, the labourer still fails to be qualified for the job; (3) There is a significant change to the objective circumstances on which the conclusion of the labour contract is based, leading to the non-performance of the labour contract, and after the consultation between the employing unit and the labourer, no agreement can be reached in respect of the change of the content of the labour contract.

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Page 10 9B14C054

EXHIBIT 3 (CONTINUED)

Article 41 In any of the following circumstances, where there is a need to make 20 or more personnel redundant or make less than 20 personnel redundant but they account for more than 10 per cent of the total number of labourers, the employing unit shall report to the labour union or all labourers 30 days in advance to solicit the opinions of the labour union or labourers. Personnel may be made redundant after the redundancy plan is reported to the labour administrative department where: (1) The employing unit is restructured in accordance with the provisions of the Enterprise Bankruptcy Law; (2) There is a serious difficulty in production and operation; (3) There is a change of production, reform of significant technology or adjustment of the mode of operation of the enterprise, redundancy shall still be made after the change of labour contracts; (4) There is a significant change to the objective circumstances on which the conclusion of the labour contract is based, leading to the non-performance of the labour contract. To make personnel redundant, the following personnel shall be retained in priority: (1) The personnel who have concluded a labour contract with fixed terms of a relatively longer period with the employing unit; (2) The personnel have concluded labour contracts with unfixed terms with the employing unit; (3) There is no other personnel in the family who is in employment and there is a need to financially support the elderly or the underage. Where the employing unit makes personnel redundant in accordance with Paragraph One of this article, it shall inform the personnel that have been made redundant if recruitment of personnel is required within six months and the personnel that are made redundant shall be employed on the same terms in priority. Article 47 The economic compensation shall be made to a labourer pursuant to the years of service of the labourer in the employing unit on the basis of the standard of one month of wages for one full year of service. If a labourer is employed for more than six months but less than one year, it shall be treated as one year. If a labourer is employed for less than six months, economic compensation of half a month of wages shall be made thereto. Where the monthly wages of a labourer are three times more than the average monthly wages of employees of the previous year of the locality announced by the people’s governments of municipalities directly under the central government and municipalities with districts in which the employing units are located, the employing unit shall make an economic compensation to the labourer at the standard of three times of the average monthly wages of employees, and the maximum year of economic compensation made shall not exceed 12 years. For the purposes of this article, the term “monthly wages” refers to the average wages of a labourer within 12 months of dissolution or termination of labour contracts. Article 87 Where an employing unit violates the provisions hereof by dissolving or terminating labour contracts, compensation shall be made to the labourer at a rate of two times of the economic compensation standard prescribed by Article 47 hereof. Source: “Labour Contract Law of the Peoples Republic of China,” 2008, www.laodonghetong.org/1031a9.html, accessed November 6, 2014.

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