"An employer can terminate an employee without cause but must pay the employee double severance. Severance equals one month’s pay per year of service."

Oh well.

I don't know. I know US labor law only a bit and that is becuase I took two labor law courses in law school only because they were taught by an excellent prof. As compared to the US, these laws seem more favorable to workers, but let's face it, the US is not exactly a worker's paradise. I'm guessing workers have much more protection in places like France and Germany, but I really do not know. Anyone?

Is the law going to have retroactive effect for employer's who don't have written contracts with their employees resulting in double damages for months that the law wasn't on the books?

I believe employees can only seek up to 12 months salary, doubled, for time spent working without a contract.

I am sorry, but I do not understand your second question. Can you please re-phrase it. Thanks.

What do you mean oh well? This was important enough to Huawei to pay 7,000 of its employees to resign. Let's see, 7,000 x 20 x $12,000. Seems like a lot to me.

Wrong, wrong, wrong. I would probably have agreed with you if this required government enforcement, but it doesn't. It requires lawyer enforcement and there are plenty of hungry lawyers in China who will sue early and sue often on this. I can assure you of that.

How right you are!

I don't think so. That's why I see this lawsuits being brought on January 1, 2008, right after employees have a full year of employment under their belt, without there having been a written contract.

Serves foreign companies right for coming to take advantage of 1 billion potential low wage, 16 hour*7 day a week labor. In addition to the downpour of lawsuits that is coming with the first business day of 2008, what would theoretically happen if the foreign entity couldn't pay the court mandated amount?

Here's my theory: the court could order the hard assets (cash, IT gear, manufacturing gear, office space, office building) of the foreign company put into escrow until the home office comes up with the due amount OR the court simply seizes and liquidates the assets OR orders the local gov't to take control of the assets as state property in order to pay the employees their due compensation.

Nationalization of foreign assets is now happening and all according to the law.

This will trash US, EU and Japanese (of course the Japanese will be targeted) MNC global profits, which will of course impact the global stock exchanges.

moowaaaaaahahahahahah!

I guess I'm confused... How can they seek damages for months spent working without a contract on January 1, 2008, if the law comes into effect that day? Article 97 seems to say that if there was no written contract then the contract automatically expires on 2/1/08 at which point you start counting up the months for determining double damages. So, a worker could sue for double damages for one month on 3/1/08. I'm concerned on this point because either many businesses will get reamed or legal resources will go to waste pursuing suits that can't be brought, and it'd be best if both of those outcomes are avoided. Regardless, the last sentence of your first paragraph seems to be the point.

I also want to take this time to apologize for my defense of Beijing in previous comments on this blog. I was in BJ last November and haven't been back, but came back on Saturday and after only 2 days here, I can say the city is now virtually unlivable, its a tragedy what has happened here...

Nice job of flagging this coming change and its importance. Thanks!

Regardless of how it compares to labor law in other countries, it is likely the first time a labor market of this size and significance has so swiftly "shifted the balance of power away from the employer and into the hands of the employees," as Inside Counsel put it. Which means no precedent to refer to for employers, employees or the gov't as they all move forward.

Will Lewis might have been wondering about the date you gave for the slew of lawsuits -- Jan 1, 2008. Did you mean the lawsuits will start on Jan 1, 2009 (not 2008), one year after the law takes effect? Or are employees in China who had no employment contract during the 12 months of 2007 going to be able to sue for compensation for that period on Jan 1, 2008? Or do you foresee a lot of lawsuits on Jan 1, 2008 by misinformed employees who think/hope they can sue for 2007?

Many questions relating to the new Labor Contract Law will be answered by regulations that are going to be issued by the Ministry of Labor and Social Security according to the director of the Legislative Affairs Department Yan Baoqing. This announcement was issued recently so we should hopefully have a few answers soon. So stay tuned.

China's courts are already inundated with labour disputes from factory workers suing over unlawful termination and unsafe working conditions, and migrant workers seeking unpaid wages and protesting compulsory overtime in excess of the number of hours stipulated in the Labour Law. Retirees are also suing former employers or local government for failure to pay pensions, raising important social policy issues in the absence of an effective welfare system. The courts are also hearing an expanding range of discrimination claims brought with respect to the rights of migrant workers, education, the reitirement age for female workers, and the new propertied class is also turning to the courts in ever increasing numbers to protect their main assets - their homes. Land disputes are exploding both in urban and rural areas as local governments in pursuit of economic growth requisition land for developers, often raising issues of corruption and collusion (I myself once witnessed a protest by a group of farmers on the outskirts of Guangzhou, on a work trip I had to make to a well-known university that had colluded with local government to rob locals of their land, which the university needed for expansion. Interestingly, the protesting peasants were playing The Internationale from loud speakers, set up in front of the university's main gates).

I'm wondering therefore whether the courts have the capacity and resources to deal with the expected sharp influx in the number of cases brought before them....the system is already stretched beyond its working capacity, is it not?

The Chinese state, to quote Peerenboom again, "lacks the resources to prevent many of the conflicts from arising in the first place...as a lower-middle income country, China is hard-pressed to meet the demands for greater public spending on education, health care, social security, and pollution control, much less to address the large regional differences in levels of wealth and the rural-urban gap."

I'm wondering then, whether maybe China is perhaps moving a little too fast when it comes to introducing such legal reforms, for it now runs the risk of trapping itself in transition. This could be a case where the rate of economic development is being out-paced by jurisprudic reforms - which rather than fascilitating further economic development, may in fact slow it down, leading to an escalation in social tensions.

Dan, you mention Steve's claim that Chinese courts heavily favour workers. Mmmm....I'm afraid I'm not convinced. Labour unions are tightly controlled in China and to date have been only marginally effective, often serving merely as a bridge between workers and management. Many foreign investors have opposed the formation of strong unions within their companies (Walmart is but one of many examples) and PRC law does not recognise the right to strike (hardly a favourable law towards workers).

This new Labour Contract Law may very well be progressive, and a step in the right direction, but will it work in practice, and is it a case of too much reform too quickly?

We shall just have to wait and see.....of course!

This new law might sound good and everything, but its not very likely to have a big impact on most people's lives. Foreign lawyers like you Dan might be all excited, but that's because you see it as creating many new business opportunities for lawyers like yourself. The dollar signs are flashing in your eyes, right?

"It's a huge deal" you say. Yep! A huge business deal. One that will allow foreign lawyers like yourself to make money by representing China's seriously over exploited workers. If they lose you still win, right? And if they win, you win even more because winning is for you good advertizing.

I tell you what would be a really good law, a really impressive thing for the government to do. They should introduce a law that establishes a democracy, with free open multi party elections. Then I'd say it was a "huge deal" for workers and for ordinary people.

Some other people have suggested this is an American-style round of layoffs. Hopefully some of these workers weren't induced into quitting with the false promise of new contracts.

It would be straightforward for China to rapidly increase the number of courts and judges. One of the big advantages of civil law systems as opposed to common law systems is that you can rapidly increase the number of judges quickly.

Common law judges are usually practicing attorneys with decades of experience, whereas civil law judges are people who have taken a specific course of study in college, and could be fresh out of school. This works for a number of reasons, one of which is that common law judges are expected to invent new legal principles whereas civil law judges are expected to interpret the instructions of the legislature, and the latter requires much, much less skill.

The other issue is that the vast majority of cases in any legal system are resolved out of court. If a company is clearly in the wrong, then most companies would prefer to write a check rather than push the issue further since the risks and costs of pushing the issue are usually higher than the risks and costs of backing down.

But I think you might find that in practice, significantly increasing the number of courts and judges is far easier said than done.

The fact that many cases are resolved out of court is important to keep in mind, as you say, but it doesn't take away the fact that the courts are already stretched to beyond capacity, and that this problem is likely to worsen before it gets better, especially with the introduction of this new labour law.

This sort of regulation also have many positives aspects to is: it will result in an HR market where references and resumes are far more important, perhaps I'm too optimistic but hopefully it would decrease the rate of "job hopping" as hiring would be taken far more seriously.

Beijing has already had a growing bend against foreign companies in part because of the "us vs them" mentality it drills into the heads of its youth and in part because of stupid corporate tricks like the outsourcing of ice cream production by Haagen Daaz, faulty BMWs and Mercedes with no real warranty protection, etc, etc. Leftists and nationalists in Beijing and on the streets of China are pressing for "China for Chinese" and "no special treatment for the foriengers" and this is another, albeit major step in that direction.

It is also a step in the direction of labor protection and real rule of law in China.
MNCs didn't come to China to pay living wages, obey environmental laws and guarantee product quality, they could have stayed in the EU and US for that.

Now corporate bosses are about to feel the true power of Beijing and there is literally nothing they can do about it.

I have a better idea. Foreign companies comply and avoid your scenario.

Mea culpa. Thanks for noticing this. I am horrible with dates and 2008 seemed so far away for me that I thought it was a full year down the road. I should have put 2009 and in a violation of blog etiquette, I have gone ahead and just fixed it. Thanks again for noticing my mistake.

Thanks for sharing your personal observations about the impact of this law, particularly since what you say supports my view that it will be huge.

Strong words about Beijing!

Good question. I do not know the answer, and I doubt the law itself addresses it. I would guess the contract is void, but I am not sure.

I made a mistake (since fixed). I meant to say 2009. Thanks for catching it.

Good point. The hope is always that the regs clear things up, but they have also been known to create their own questions.

Interesting points. I do not know if China's courts can handle the influx of labor cases. My own experience is that the Chinese courts move pretty quickly, but then again, the cases we oversee in China are going to move quickly because they always have foreign company involvement and they involve much greater sums than typically at stake in Chinese court cases.

You make a good point about Steve's comment about the courts tending to favor the workers and I am wondering if he just meant that to apply to worker's cases against foreign companies, which is definitely the case.

My question regarding this new law is whether it will cut down foreign investment into China to China's own detriment. Again though, all of this remains to be seen.

Interesting points. I do not know if China's courts can handle the influx of labor cases. My own experience is that the Chinese courts move pretty quickly, but then again, the cases we oversee in China are going to move quickly because they always have foreign company involvement and they involve much greater sums than typically at stake in Chinese court cases.

You make a good point about Steve's comment about the courts tending to favor the workers and I am wondering if he just meant that to apply to worker's cases against foreign companies, which is definitely the case.

My question regarding this new law is whether it will cut down foreign investment into China to China's own detriment. Again though, all of this remains to be seen.

What you say makes no sense. First off, China is not protecting its workers to make the foreign media feel good. It is protecting the workers to win over the hearts and minds of the workers. Secondly, foreign companies are not happy about these new laws. Thirdly, are you saying you reject anything and everything China might do, no matter how good it is, because you are holding out for instant democratization?

I will not deny that it is law changes like this that bring in the business. Sure.

But there is no way either I or my firm will be representing "China's seriously over exploited workers." Only Chinese licensed lawyers can do that.

The Great Wall was built a brick at a time.

I think Huawei is doing exactly what you have suggested. They will hire (or re-hire, I guess) these workers and they will all be considered new hires.

Based only on those we have seen, they are typically six months, one year or two years, but they really are all over the map. Anyone else want to chime in on this one?

Chicago Liberal Defender seems to have trouble with perspective on this, I agree.

Yes, but new judges will cost money.

You are right about most cases settling, at least in the US, where something like at least 95% of all cases settle. But this is NOT true in China where very few cases settle. We have talked with Chinese judges and lawyers about this and they have all sorts of explanations for why this is true and all sorts of hopes this will eventually change.

I am pretty sure you can.

Nicely put. I agree completely.

It would greatly surprise me. This law applies to both domestic and foreign companies. I emphasize foreign companies here because my firm represents foreign companies in China, not domestic ones and most of the readers of this blog are foreigners. I am also not aware of any country (are there any) which have separate MNC or FIE courts.

Interesting idea though.

Every time you post, I keep thinking you are getting closer to being the first person banned from this site for sheer banality.

No on this being just for foreigners. Yes on this being another step towards rule of law.

It certainly will be. It certainly will.

Venture out of your Bejing or Shanhai comfort zones and you will see that Chinese workers are treated like absolute scum of the earth, they know it, the companies know it, the media knows it.

It seems to me that this law is designed to give workers the illusion that "the future is bright" (which it probably isn't) and that the government cares about them, which they don't.

I just talked to 10 random Chinese friends, ALL of them knew about this law, but none of them though it had anything to do with foreign companies, as they all know foreign companies are miles and miles ahead of Chinese companies in terms of treating workers right.

The government is facing a hell of a lot of problems in China, and the brain washing isn't going to cut it this time, they have to get the people back on side before its too late, and this law is a step in that direction. Does anyone in their right mind really think that this has anything to do with foreign companies?? The CCP is evil but not stupid, if foreign companies suffer, China loses money and jobs, something that the CCP really cannot afford right now.

You are absolutely right about this law not targeting foreign companies. The law does not target foreign companies, but the lawyers will. Lawyers instinctively go for the "deep pocket" and the "easy mark" and foreign companies qualify on both counts.

I disagree. It is going to have a big impact not so much because of the law itself, but because of the profitable law suits it will spawn. I completely agree with you though that there is no need to panic since a few fairly easy remedial measures (which measures many companies have been taking all along) ought to prevent any problems.

Come January, 2008, non competes must be paid for to be effective. How much is not clear and I would expect the regs will address that. Maybe one Yuan, probably some percentage of income. Who knows?

Regarding to your calculation : 7,000 x 20 x $12,000 = $1.68 billion

(I assume 20 is derived from the assumption that the average number of years of employment of those 7000 employees at Huawei is 10 years?)

Are you sure that you used the right figure for the monthly pay? The assumption that the average monthly pay of those 7000 employees at Huawei is $12,000 seems a bit too high. If you make a more reasonable assumption that the average monthly pay (of those 7000 employees at Huawei) = $1,000, then the calculation will be: 7,000 x 20 x $1,000 = $ 140 million. This figure would seem to be more reasonable to me, or am I missing something?

I should have been clearer, but I stand by my numbers.

The 7,000 is the number of employees.
The 20 is the number of years of employ (10), doubled because the damages are doubled.
The $12,000 is one year's salary, or the same $1,000 per month figure you want to use.

But in doing this now, I think the better way to do it is as follows:

7,000 X 10 X $12,000 X 2 = ANSWER

The answer is the same either way, but the second way is better. Am I missing something?

Oh yes it is. We work every day with two excellent litigation firms and both of them are armed and ready for this. They told us about it, not vice versa. Read the comment above from the guy who says everyone he knows is aware of this new law. The Chinese are surprisingly litiguous and getting more so every day. Chinese litigators love this new law and who can blame them. I don't understand even what it is you think is going to stop them from capitalizing on the money to be made off this, because I sure do not see anything stopping them. Chinese lawyers are as much ambulance chasers as any other lawyers. About once a month I get emails from lawyers in China asking me if I would be interested in their referring me Chinese plaintiffs to sue American companies in personal injury cases, sort of the epitome of ambulance chasing if you ask me.

I am not saying there will be so many new cases as to bend the courts, because I do not think that will happen, but there will be plenty such cases, of that I am certain.

From the passage "An employer can terminate an employee without cause but must pay the employee double severance. Severance equals one month’s pay per year of service." in your article, I just thought that maybe the monthly pay should be used instead of annual pay..., but I could be wrong...

You are right. Sorry it took me so long to get it.

I was using numbers for workers who worked without a contract. They get up to 12 months pay, doubled.

But Huawei no doubt terminated these people not for fear of them operating without a contract, but for fear of the cost of terminating them. You are right that if they worked for ten years, they get 10 months severance doubled and that would be $1,000 doubled. Mea culpa and thanks for persisting on this. My numbers were right but I had the wrong equation.

I am going to change it in the post.

Right, no doubt that Huawei did it "for fear of the cost of terminating them.", as you put it. But it seemed a bit too drastic and underhanded for such a well known corporation as Huawei...

I agree. It will not so much be the people still employed who sue, it will be those who were employed who sue. It's all a cost benefit thing, just like everywhere else.

It was rather surprising, but this is now going on all over China.

Yesm I definately agree that Chinese lawyers will go straight for the short & curlies of foreign companies, I should have said that in my post. But the main point is, the government won't tolerate too much penalisation of foreign companies, and don't forget who makes the final decision in court and who decides if the company actually has to comply with the verdict. In the current economic situation anything that scares foreign companies off could seriously mess things up.

Regarding to your comment that, “this is now going on all over China”, I thought the Chinese cares a great deal about "face" or “not losing face". Doesn't a first tiered Chinese corporation such as Huawei cares about its corporate image(face), as well as the feeling and loyalty of its employees?

thanks for providing this blog as a forum for discussing the issues pertaining to the new China Labor Contract Law.

I am CEO of a small foreign company operating in China and I can say that it is now 430 AM and I am up in my hotel room wonder what I am going to say to a technical guy whom we have an expired contract and I am not intending to renew in view of the CLCL. It is not that his work is poor it is that I do not feel that we can absorb or absolve the liability to be brought on by the CLCL and all the potential minor issues, which a Chinese workers can sue us for the sky. From the training courses I have attended it seems many issues including any delays in signing employment contract will brought limitless liability to the employer. However the employee can pretty much quit anytime they want with virtually no liability. Is this a balanced law??

Is it a balanced law?

I don't know. I don't know both because I have not thought about it until now and I do not know because I am not sure what a balanced law would look like.

I will tell you that this law gives employers essentially three options:

1) Terminate everyone;
2) Get in line with the legal requirements so future termination is possible and so potential damages can be minimized;
3) Fail to ocmply with the law and risk huge damages.

Each company has to make its own cost benefit analysis and it appears you chose option one. I just hope that in doing so you at least fully weighed the other alternatives, particularly number 2.

My sense of this law (from someone who only has a very general sense of what the laws are like in certain countries) is that it is about in the middle, worldwide, in terms of favoring employees vs. employers. Employees probably have more rights in most of Europe and less rights in the US.

I agree with you 100%. Those foreigners who are poo-poohing this law either have not read it or do not understand it. The Chinese companies sure as hell recognize its impact, however, and they are acting quickly and decisively. Not that there are not foreign companies that do not recognize the impact as well. We just hired a completely fluent English-Chinese paralegal to assist with the massive influx of employment contracts and employee manuals this new law has necessitated. I hate to agree with you, but you are right when you say the lawyers are the ones who benefit. Change is nearly always good for lawyers and big change is nearly always even better.

Perhaps the Chinese Government is sending a hidden message, by this CLCL, that they prefer all small and medium foreign companies to leave China? (but take their money anyway)

3rd line - "experiences"
7th line - "pregnancy"

Since you are probably a highly ethical company in comparison to local Chinese companies, I completely understand what you are going through.

However, I assure you that there is a flipside to this coin, I have been here 10 years and still have not met a single Chinese worker who has not been ripped off by their employer. There infinitely more cases of the employer ripping off the employee than the other way around, you are an exception to the rule.

In my business I put myself at the same level as my staff in every aspect I can, it takes some getting used to by the staff since they are used to being walked over by their previous employers. I find that a very thorough hiring processes coupled with fair staff benefits and genuine care of your staff and good communication (a combination which simply does not exist in any Chinese owned company) will give you honest and trustworthy local Chinese staff who will not rip you off. It's very hard to achieve but it can be done and is well worth the effort. The one time I have had a problem, all of my staff went out of their way and put themselves at risk in defence of the company.

We have got rid of various people and properly paid them off. They were doing an ok/below average job - we would not have terminated their contracts if it was not for the new labour law. This is not good for them but business is business.

Certain people that have worked for over 10 years [ who are highly professional and we want to keep ]. We are happy they will have open contracts. They deserve it.

New employees - I guess going down the line we will not be entering into 2nd contracts with them [ except if they really are so good]. OK turning staff is a pain but it will be a cost of doing business. This bit is a shame really and is really no good for employees.

I read an article in the China Daily [ or Shanghai Daily ] - I cant remember - by a prominent China Lawyer saying the new law is good for valuable long serving employees but for no one else.

In tidying up contracts with staff [ those that have not been renewed after the 1st year and we just let them carry on ] some staff refused to sign new contracts - they said they would only sign them in 2008 since they did not like the labour law as it stands in 2007. These people we identified as trouble makers and just terminated.