China Law Blog

The Christian Science Monitor just quoted me in a very fine article written by Jude Blanchette 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 Dan Harris, an expert at the law firm Harris & Moure.

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, the 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 law gives oversight power to labor unions for collective agreements and the implementation of new employment regulations, but because independent labor unions are illegal in China, this duty will fall to the government-sponsored All China Federation of Trade Unions, an organization with deep ties to the Communist Party and local government officials."

The draft of the law was amended just last week "to punish officials who ignore labor abuses with prison time or other penalties. Ms. Xin said that "The labor contract law makes detailed provision concerning this issue following the exposure of the forced labor scandals."

The foreign investors with whom I (CLB) have spoken regarding this new law do expect it will be enforced much more vigorously against them than against domestic companies. I have written countless times how this is almost always true of Chinese laws and I have every reason to believe this will be true of these laws as well. As always though, these means that 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" that this is not necessary and even though you see domestic companies doing otherwise. For more on this foreign-domestic dichotomy in Chinese law enforcement, check out "China Law: Selective Law Enforcement As Big Coincidence," and 'The Painted Veil On Chinese Law."

My view of this new law is as that much of what is in it is already in China's labor laws in similar form. But, the feeling among foreign companies in China is that this new labor law is more likely to be enforced than the old laws and, in particular, it will be enforced against foreign companies. As is always the case with China's laws if you are a foreign company, the real questions will be whether the new laws are enforced, how they are enforced, and against whom they are enforced. Those are all unknowns at this point.

I 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 termination. But in dealing specifically with termination, the law gets quite specific and I 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's stealing from the company or working for another company. 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. The law does not appear to allow laying off one or two workers due to economics, so how "incompetence" ends up being defined may prove very important.

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

International mega law firm Baker & McKenzie posted an excellent English language translation of a very recent draft of the new labor law on AmCham Shanghai's site, here [pdf]. For those seeking more on this new law, I suggest the following blog posts:

"Accolades For China's New Labor Law," at China CSR

"Labor Law Reform in China," at Workplace Prof Blog

"New Labor Contract Law Passed," at Recruiting Techniques in China Blog

"Does China's Passage of New Comprehensive Labor Reform Law Spell Good News for 'Buy American Campaign' and Bad News for Wal-Mart?" at The Gun Toting Liberal Blog

"I'll Believe It When I See It," at The Glittering Eye Blog.

"New Labour Laws In China," at Economic Objectorvism Blog

"New China Labor Law," at Big Monkey Helpy Chalk Blog.