China Law Blog

As regular CLB readers know, I have been repeatedly preaching (right word) for some time about the massive impacts to expect from China's new labor contract law, which went into effect just this year. My consistent theme has been that disgruntled employees represented by Chinese litigators ready to pounce will bring an ill wind to all employers in China. To read some of my previous posts on this, check out the following:

1. "China's New Labor Law -- It's A Huge Deal. Huge I Tell You." (November 11, 2007)

2. "China's New Labor Contract Law." (November 25, 2007)

3. "China's New Labor Law Gives SOME Employers The Jitters." (December 19, 2007)

4. "China's New Labor Law. Still Coming. Still A Big Deal." (December 28, 2007)

5. "China's New Labor Law: Compliance Comes Easy." (January 3, 2008)

6. "NPR On China's New Labor Law -- Low Tech Getting 'Difficult.'" (January 8, 2008)

7. "China Labor Law: What's Good For The Law Firm And What's Good For The Lamb." (March 6, 2008)

7. "China's New Labor Law Means Tenure For Everybody." (April 7, 2008)

And that is exactly what has occurred, but even faster and in even greater doses than I expected.

Stan Abrams, of China Hearsay fame, and one of his co-workers, Kevin Jones, of DLA Piper fame, just wrote an article on this for China CSR, entitled, "Year Of The Rat Brings A Plague Upon Employers In China."

The article starts out noting how despite lawyers having seen this coming, "implementation has been slow," "litigation has picked up markedly" and "China's new Employment Contract Law continues to pose huge problems for employers." It need not be so bleak:

Employers who have been non-compliant in the past will be hit the hardest by the new law. But is the outlook really that bleak for all employers? The answer is no, not necessarily - for employers who have been largely in compliance with the 1995 Labor Law (which is supplemented, not replaced by, the Employment Contract Law), and who implement proper administrative procedures to ensure continued compliance going forward, the pain will be bearable.

The new law "effectively eliminates" consecutive fixed-term employment contracts:

The Employment Contract Law limits fixed term contracts to two consecutive terms, after which an open term contract is required to be offered to an employee. However, it is unclear as to whether an employer has the option to simply let the second term expire without offering a new contract to the employee. Draft implementing rules will apparently address this issue; it appears that the new rules shall stipulate that an employer is obliged to provide an open term contract if so requested by the employee. This would effectively give employers only one fixed term opportunity to evaluate employees.

It is not clear when Beijing will issue the implementing rules but it is clear that "employers need to be more mindful of when employment contracts expire and need to properly evaluate the long term employability of employees during the initial term."

The article states that "extensive press coverage of the new law's employee-friendly provisions" has educated Chinese employees of their rights and led to "a significant increase in formal labor disputes." They also predict (and I concur) that the number of labor disputes will increase "even further once the new Labor Dispute Conciliation and Arbitration Law comes into effect in May of this year." The new dispute law will eliminate arbitration fees and extend from 60 days to 1 year the time by which employees must file their claims. For more on the dispute law, check out this post, entitled, "May Day Is Also New Law Day," on the WSJ China Journal.

Employers will still be able to terminate employees for violating written company rules, but the new Employment Contract Law sets forth certain procedures employers must follow for even this to be the case:

For company rules to be enforceable under the Employment Contract Law, the employer must (i) discuss and seek feedback on proposed company rules with all employees or an employee representative congress, (ii) conduct negotiations with the union or an employee representative; and (iii) publish the rules. This effectively empowers a union or employee representative to bargain with employers over salaries, bonuses, training and other work-related benefits and duties. However, as the law currently stands this does not mean that unions or employees have veto rights over any rules.

The authors conclude their article by rightly positing "that non-action is no longer an option."

Travis Hodgkins over at the Transnational Law Blog views the new labor law in a much brighter light as he sees it (rightly so, I might add) as further proof that China is evolving towards rule of law. To find out more about what Travis has to say on the labor law, check out his post, entitled, "A Reason to Have Faith in China's Legal System: The Labor Contract Law."

I would love to hear from employers (and employees) regarding their labor experiences since China's enactment of the new law.