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China’s New Employment Law: Enforcement Is The Key

China employment lawyer

The Christian Science Monitor just quoted me in an article on China’s newly enacted labor law, entitled, Key issue for China’s new labor law: enforcement:

“As is always the case with China’s laws, the real questions will be in whether the new laws are enforced, how they are enforced, and against whom they are enforced,” says China Lawyer Dan Harris, from Harris Bricken. But, he adds, “there is a feeling the new labor law is more likely to be enforced than the old and, in particular, will be enforced against foreign companies.

The Christian Science Monitor article quotes Xin Chunying, deputy chairwoman of the National People’s Congress Law Committee, as claiming “it would be in favor of foreign investors because local governments have great tolerance for them in order to attract and retain investment.”

The law is scheduled to come into effect on Jan. 1, 2008. It essentially requires employment contracts be put in writing within one month of employment, it makes hiring of temporary workers much more difficult, and it gives fairly clear recourse to employees whose rights have been violated.

The foreign investors with whom my firm’s China employment lawyers have spoken regarding this new law  expect it will be enforced much more vigorously against foreign companies than as against domestic companies. We have written countless times how this is virtually always true of Chinese laws and we have every reason to believe this will be true of China’s employment laws as well. This means you as a foreign company must be sure to abide by every provision in this new law, even though you are being told by your Chinese “partner” this is not necessary and even though you see Chinese domestic companies doing otherwise.

We find many aspects of the new law to be rather vague and, in some ways, even somewhat contradictory. This is to be expected as the law has been worked out over a long time, with huge amounts of input from hundreds of thousands of people from all perspectives.

The proposed law very generally talks of how employment relationships shall comply with the principles of fairness and good faith and specifically mentions that the union shall assist in employee terminations. But in dealing specifically with termination, the law gets quite specific and we presume the specific portions will trump this general, more politically palatable language.

The law permits for fixed term employment agreements which essentially expire. However, it appears employers may enter into only two fixed term contracts with an employee and on the third go round (or if the employee has been with the employer for more than ten years) the employment term must be open ended.

The law provides that an employer can terminate an open ended employee for what in the United States would be deemed “cause,” without having to pay severance. This includes the employee stealing from the company or working for another company. The law also provides that employers can terminate open-ended employees for incompetence, by providing thirty days notice or by paying thirty days in wages. The law does not appear to allow laying off one or two workers due to economics, so how “incompetence” ends up being defined will likely prove very important.

Overall, we see the law as a compromise that will improve things for employees more by its mere existence than by anything it specifically says. We anticipate the publicity surrounding the new law will serve to inform employees of their rights and perhaps embolden them to do more to enforce them. We do not see this (at least not in the short term) as doing much to increase labor costs for foreign companies doing business in China.

19 responses to “China’s New Employment Law: Enforcement Is The Key”

  1. Does China’s Passage Of New Comprehensive Labor Reform Law Spell Good News For “Buy American” Campaign And Bad News For Wal-Mart?
    Just what on Earth is this guy talking about, you ask. Bear with me friends…
    First, absorb THIS:
    China Passes a Sweeping Labor Law
    By JOSEPH KAHN and DAVID BARBOZA
    BEIJING, June 29 — China’s legislature passed a sweeping new labor law today …

  2. Chris D-E —
    That’s a great story and one I will be telling to our foreign clients when they assert to us that their Chinese “partners” insist they need not comply with Chinese law.

  3. Read the pdf, Dan. Good stuff. Chris D-E ought to read it as well. There is money to be made in China’s self-induced poisoning.

  4. “The law also provides that employers can terminate open ended employees for incompetence, by providing 30 days notice or by paying 30 days in wages.”
    My understanding was 30 days notice + 30 days in wages, or 60 days in wages. This was confirmed by several people. It is actually the same with the current labour law. You seem to have a different interpretation?

  5. Benoit —
    That is how I read it, but I am reading a translation, which is an absolutely unacceptable way to interpret any statute. So I will contact our people in Shanghai (who have no trouble readding Chinese) and get their views on this and then revert.

  6. “As is always the case with China’s laws, the real questions will be in whether the new laws are enforced, how they are enforced, and against whom they are enforced, says Dan Harris, an expert at the law firm Harris & Moure.
    Agree with Dan 100%!

  7. “will be enforced against foreign companies.”
    Against.
    1. It would be interesting to see the implications for hiring through an agent.
    2. This and the new taxation might prove somewhat of a blow to China’s manufacturing status. There are still other options around.
    3. Would a contract have to be standard and authorized by the local authority? If not, would it be possible/legal/acceptable to add every possible reason that would lead to acceptable dismissal?

  8. Will there be a two-year statute of limitations with respect to the new labor law provisions? It seems to me that two years is typical for civil cases in China and I note that Art. 50 of the B&M translation requires employers to maintain terminated contracts on file for not less than two years but has anyone seen anything definitive in this area?

  9. “The law permits for fixed term employment agreements which essentially expire. However, it appears employers may enter into only two fixed term contracts with an employee and on the third go round (or if the employee has been with the employer for more than ten years) the employment term must be open ended. “Should this be understood as “Starting from Jan 1 2008, employer may enter into only fixed terms contracts (…), or would previously expired and renewed fixed term contracts be considered, meaning that if over 2 contracts have already run their course then starting Jan 1 2008 the employee should be considered as having an open term contract ?

  10. China’s New Labor Law Gives SOME Employers The Jitters
    Nicely balanced article out in today’s Guardian on China’s new labor law, set to come into effect on January 1, 2008. The article is entitled, “New Chinese labour law give employers the jitters,” but it essentially concludes that while it will raise em…

  11. Don’t worry about the employres. The workers are being held in slavery conditions in some organisations. I live in China and am mostly pro China, but the law is totally biased towards the employers. Staff are regularly kept a month or more in arrears with their pay, if they quit they don’t get their pay, they are required to work overtime without pay, and so on. This is entirely against the provisions of the Labour Law *and the previous one too), but their is no enforcement.

  12. China’s New Labor Law. Still Coming. Still A Big Deal.
    Very good Los Angeles Times article on China’s New Labor Contract Law, set to go into force on January 1. The article is wrongly entitled, “New workers’ rights being undermined in China.” I say “wrongly entitled” because though the article focuses on a…

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