Workplace organizations that are so close to insolvency to have entered into the statutory consolidation period, or encounter significant problems in production or business operations, may "cut back" (i.e. reduce) their number of employees, if actually necessary, according to the law.

The Regulations of the Shanghai Municipality on Labor Contracts reinforces the function of negotiation by and between the workplace organizations (employers) and the labor unions or the employee representatives, furnishes room for such negotiations, and enhances the participating and supervising functions of the labor unions or employee representatives. This can be seen from the aspects where the finalization of the extent of the production or business operation difficulties and remediable measures that should be taken before cutting back the number of employees, shall be subject to determination by and between the workplace organizations and the labor unions or the employee representatives. The plans for cutting back the number of employees shall be addressed to the labor unions or to the whole group of employees, and their opinions shall be heard and accepted, if appropriate. Upon this base, reports shall be presented to the competent labor administrations.

The labor unions and employees themselves shall, 30 days in advance, be informed of the execution of the plans for cutting back the number of employees formulated by the workplace organization. It is stipulated that in the case of any re-employment within six months, the laid-off employees shall be recruited in a preferential manner.