An FDI company prepares to restructure about 80 positions across two plants. Before deciding, the board orders a termination compliance audit: what gets reviewed, which contracts carry legal risk, how much severance to budget, and whether to hire independent counsel or run the review internally.
Governing legal framework
The review anchors on the whole termination block of the 2019 Labor Code: termination grounds and notice periods in Articles 34 to 40; consequences of unlawful termination in Article 41; restructuring, technology and economic conditions and the workforce plan in Articles 42 and 44; severance and job-loss allowances in Articles 46 and 47; and settlement duties in Article 48. The second layer is file integrity: contracts still in force versus expired-but-still-working cases (Article 34(1), Article 20), salary appendices as the severance base, pending discipline files, and commitments inside any collective agreement.
What this means for an FDI employer
The audit produces four reports. One, a contract risk map: contracts about to convert to indefinite-term by default, invalidly extended probations, and contracts with unhandled adverse clauses. Two, a financial-liability table per reduction scenario: severance, job-loss allowances, pay in lieu of notice if the company wants earlier endings, and untaken leave — aggregated into the restructuring budget. Three, a procedural-conditions assessment: whether genuine restructuring or economic grounds exist, how far the workforce plan must be built, and which specially protected workers sit on the proposed cut list. Four, a recommended handling roadmap in rising legal-safety order — voluntary agreed terminations first, plan-based reductions after.
On whether to hire counsel, the deciding criteria are scale and dispute potential: a reduction of several dozen workers or more, with long-serving staff carrying large severance seniority or an active union, makes independent legal review a reasonable spend, because it adds an assessment layer separate from the HR team that will execute the cuts. An internal audit still works for small rounds, provided the same standard checklist is used and the review file is kept as a formal governance document.
Recommended sequence of actions
- Extract all contract data: contract type, expiry date, seniority, severance salary base, protected-group flags.
- Score each contract’s risk on the termination checklist and flag files lacking grounds or procedure.
- Build the allowance budget table per reduction scenario and submit it for board budget approval before acting.
- Lock the execution roadmap in order: voluntary agreements, workforce plan, and properly grounded unilateral termination last.
FAQs
Before restructuring, what must be reviewed on labor matters?
Review four areas: validity and type of every running contract including default-conversion risk; existing termination-ground files — KPI appraisals, discipline, health; accumulated financial liabilities by seniority and salary base; and the procedural conditions of the planned restructuring under Articles 42 and 44 of the 2019 Labor Code, including specially protected worker groups.
Which contracts carry legal risk?
They are contracts: expired while the worker still works with no new signing; second fixed-term contracts nearing expiry with the worker continuing; contracts containing unlawful clauses on probation, salary or termination; and contracts of workers in protected periods such as pregnancy, raising small children, or occupational-accident treatment.
How much severance should be budgeted?
The estimate is built from per-person data: severance service after the unemployment-insurance deduction, six-month average salary, the Article 46 or 47 allowance factor by scenario, plus notice-period salary, untaken leave, and a buffer for cases needing above-statutory support packages to reach voluntary agreement.
Should lawyers be hired for the review?
Hire counsel when the reduction is large, many workers are long-serving, or collective-dispute risk is present, because independent counsel both verifies the legal grounds and creates a governance shield for the board’s decision. A small review with few people and clear grounds can run internally on the same checklist, but conclusions should still be cross-checked by legal or an external adviser.