China’s Draft Labor Law: Some Comments

Thursday, January 25, 2007 8:53
Posted in category Uncategorized

Last week, both the European and American Chambers of commerce held sessions (lead by partners from Baker McKenzie)for member companies to air out concerns they held about the recent draft of what will be China’s Nationwide Labor Law (See Squire, Sanders, Dempsey translation).

With this law affecting EVERYONE operating in China, both readings were obviously well attended, EU had 100 members/ AMCHAM had 50

As with many of the recent laws coming online, the goal of this new law is to provide protective measures to ensure the ongoing concern of China. There are still some issues to be worked out in terms of how the law will apply, however the over riding goal is to protect labor employees working on the line, on a construction site, and in the fields of China. It is not a law that focuses solely on foreign companies, but is one that will create a China wide employment standard.

Note: One more reading is still required before the law can be implemented and enforced.

With 18 fun filled pages of policy to get through, I am only going to highlight some of the largest concerns I see and report a number of others that were mentioned

1) Adoption of company rules:
There is still some confusion as to how rules are to be “adopted”, what role the union needs to play in the “adoption” of new rules, and whether or not approval is needed.

For 95% of companies this will not be an issue, however without clarification there will be room for employees who are dismissed for breaking the adopted rules to use arbitration as a mean to fight and win their jobs back as.

One member brought up a good point here in that different unions at different levels will have different readings, and without further clarification, employers could be at risk of overturned decisions.

2) Maximum probationary periods
Under the current labor policy, employers are given 3 months to assess the suitability of employees when contracts are between 1-3 years. however, this would change to 2 months under the new law.

This would bring the national law to meet the local laws of Shanghai and Beijing. for me, I was interested to see that only a few members seem concerned by this, however, my concern here is that companies expanding into Chengdu, Chongqing, and other cities will need that extra month to assess employees.

Another concern is that employers would need to show cause for ending the contract during probation, however by adding this requirement, there is now another element of concern as no guidelines are given as to what evidence is needed.

3) Severance
The discussion on severance changes started off with “This one is ridiculous” from a member of the audience, and this was the issue that was by far of most concern for members.

Issues include:

  • The law does not differentiate between open and fixed contract (current penalty is only for fixed contracts)
  • for companies that have been using successive 1 year contracts, employers will be required to pay one month all of the contracts – and this is retroactive!

So if you have 1000 employee who have been offered one year contracts in perpetuity, your firm will now owe severance for all of those contracts…. and it turns out that companies are now starting to save just in case

4) Notifying Unions of Unilateral Termination
Primary concern here is that the new law would require firms to notify their union before terminating an employee, and some companies do not have a union. So, the question is do they then have to report to the local union? In Shanghai, the answer is yes, but in Beijing the answer is no… for now.

This is seen as a means by which to move more companies to unionize.

5) Representation Office hiring
In a bit of good news, rep offices would be allowed to hire employees directly rather than using FESCO or other human resource organizations

6) Article 62 states that “placed workers (temp workers) shall have the right to receive equal pay for equal work. If a unit with which a worker has been placed has no other worker in the same position, the labor compensation shall be determined with reference to the guiding rate for labor market wages published by the municipal-level People’s Government of the place where the said unit is located”

My questions are 1) What is the pay scale based on? Full time? Part time? With benefits? Taxes paid?

Wrap up:
Ultimately, this law is meant to protect the common laborers who report to the construction site, the auto line, and have been subjected to difficult working conditions. the biggest problem with this draft is that it treats everyone nearly the same, and there needs to be clarification on a number of issues.

Hopefully the third reading will hammer out some of the issues highlighted briefly above.

As with the USTR report we highlighted before, I highly suggest readers to download the translated file created by Squire, Sanders, and Dempsey and read through it themselves. I have only presented a fraction of the text and given the law changes will affect everyone, readers should spend time understanding how the new rules may affect them.

I would also highly suggest calling a lawyer should you have any questions about how a specific article may or may not apply to your firm, and how it may apply. Both Baker McKenzie and Squire, Sander, Dempsey have done a significant amount of work on this draft, have people devoted to labor policy in China, and I high recommend both Amy Sommers and John Grobowski.

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2 Responses to “China’s Draft Labor Law: Some Comments”

  1. All Roads Lead To China » DHL Keeps Shanghai on its Toes says:

    May 14th, 2007 at 8:23 pm

    […] Interesting he didn’t mention the long await release of China’s New Postal Law…. and its potential impact on the letter business… or Labor law… which could significantly change their HR cost equation depending on what comes out of the shoot. […]

  2. Open For Discussion: China's Labor Law says:

    July 9th, 2007 at 5:07 am

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