China’s New Employment Law: Enforcement Is The Key

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.

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