Just received an email from a friend stating/asking the following (note that I have changed some elements of the email to strip it of any even potentially identifying information):

I am heading off again to work for a few years at our China Rep Office.  My new employment contract with the head office says that [foreign country] law will apply.  Will it?  And what if there is a conflict between [the foreign country] law and China’s laws, which will control?

We get this question far too frequently and we have seen way too many employment contracts written as though U.S. law (it was actually not a U.S. company in the above instance) applies all around the world. The reality is that if you are working for a Chinese company in China (be it a Rep Office, a WFOE, a JV, or whatever), Chinese law is going to apply to your employment relationship.  I know of no country that would allow otherwise.  I mean, imagine if a United States subsidiary of a Pakistani company were to claim in a U.S. court that it should not be required to pay overtime because their contract with the employee calls for Pakistani law and Pakistani law does not provide for that, or that it can discriminate against women because there is no such law prohibiting that in Pakistan?  Even if the employee at issue were a Pakistani citizen, there is absolutely no way in the world a U.S. court would go along with any of those arguments.  In fact, the argument is so bizarre I am not even aware of anyone ever having made it.

Any employer-employee relationship between a Chinese company and an employee working in China is going to be governed by China law, no matter what the contract says.  So in China there would be no conflict of laws because Chinese law would simply apply. This is why we also advocate for drafting China employment contracts and employee manuals with Chinese as the official language.  Chinese courts and Chinese administrative bodies are the only rightful jurisdiction for China labor law disputes stemming from employment in China (yes, this is true for expats too) and so it only makes sense to have these documents in the language they are sure to understand.

Here is a more interesting/complicated related question: what would happen if a U.S. company had a contract with a U.S. citizen and that contract provided that the U.S. citizen would go work at the U.S. company’s WFOE for a few years and that contract called for application of U.S. law.  Now as I have said above, no Chinese court would apply anything but Chinese law to this relationship, but what would happen if the U.S. citizen were to flip around and sue the U.S. company in a U.S. court for failing to abide by some particular U.S. law?  I do not know the answer to this question (any U.S. employment lawyers out there), but I can tell you that if it were to benefit my client, I would argue that Chinese law applies and I think I would prevail on that.  But, I can also tell you that if it were to benefit my client, I would argue that U.S. law applies.

Anyone know how a U.S. court would rule?

Last night, I saw John Patrick Shanley’s 2005 Pulitzer Prize and Tony award winning play, DoubtTo grossly oversimplify it, there are three main characters: a strong and certain nun; a priest accused of molesting an alter boy; and very weak young nun who wants to ignore facts so as to be able to be able to avoid confronting that which she does not want to believe.  The priest misleads the young nun and she believes all.

When it comes to China’s labor laws, think of the New York Times as the priest and the overwhelming bulk of the blogosphere as the young nun.

The New York Times did an article on China’s proposed labor laws, going after those that oppose them:

China is planning to adopt a new law that seeks to crack down on sweatshops and protect workers’ rights by giving labor unions real power for the first time since it introduced market forces in the 1980s.

The move, which underscores the government’s growing concern about the widening income gap and threats of social unrest, is setting off a battle with American and other foreign corporations that have lobbied against it by hinting that they may build fewer factories here.

The New York Times article is off on two points.  First, the proposed labor laws, though likely to improve workers’ pay and conditions, do little to nothing to give workers “real power.”  Second, near as I can tell, the American and foreign corporations have not expressed their wholesale opposition to the proposed laws.  Rather, they have expressed opposition to the proposed provisions that will making it nearly impossible to fire even bad workers and expressed concerns about them applying only to foreign companies.

The Chinese Law Prof Blog links over to China’s Proposed Labor Law (in Chinese) and to the American Chamber of Commerce’s White Paper (in Chinese and English) on those laws.  I read AmCham’s comments and I found myself agreeing with nearly all of them.  The complaints seem to focus mostly on the difficulty of firing bad workers.  There are few to no complaints regarding the bulk of the proposed laws, and certainly nothing justifying the accusations that AmCham’s members want to be able to maintain sweatshop conditions.

Because labor is such a touchy/highly political issue, I feel called upon to stress my almost obsessive neutrality on it.  My father was at one time in a union.  I was at one time in a union.  I grew up in heavily unionized (at least it was when I was growing up) Michigan.  I fervently believe in the right to organize, yet I cannot remember ever taking sides in a labor dispute; I view them as one big powerful force up against another with no moral underpinnings.  But, when it comes to countries like China, where workers’ rights are still very much in their infancy, I generally consider myself to be pro-worker and pro-union.  Neither I nor my law firm handle China labor matters much beyond writing employment contracts, employee manuals, trade secret contracts, non circumvention contracts, and non disclosure agreements for our clients employing people in China and elsewhere.

Now back to China’s proposed new labor laws.  My sense of those laws (based on a fairly quick review of them in English) is that they are a definite step forward for China if, once enacted, they will be enforced.  But, as a capitalist and as an employer, there is one aspect I greatly dislike.  The proposed laws will make it extremely difficult, indeed, nearly impossible, to fire the bad employee.  Such laws discourage hiring and are therefore bad for both employer and employee. These laws may indeed decrease hiring of Chinese employees by foreign companies doing business in China.

It is this difficulty in firing on which AmCham is focusing its opposition to China’s proposed laws, not the laws as a whole.  But wanting to see this as a big morality play, the blogosphere has jumped on this issue and painted AmCham and its corporate members as fighting for sweatshops and oppression against a Chinese government fighting for democracy and the common man.  Multinationals (MNCs) bad.  China and the New York Times good.  A sampling from just those blogs deemed by Technorati to have the “Most Authority” shows this position:

  1. China’s Move to Strengthen Workers’ Rights is Undermined by U.S. Corporations,” on A Human Rights Blog, stating that U.S.-based corporations are trying to stop a proposed law that “would crack down on sweatshop abuse and strengthen important human and labor rights by improving pay, treatment, health and safety, and other standards for Chinese workers.”
  2. U.S. Corporate Mafia Fighting Chinese Efforts to Help Workers,” on Thomas Paine’s Corner, stating that “greedy and powerful American companies not content with using economic inequality to devastate working- and middle-class Americans are now using their clout to fight efforts in China to combat economic inequality there.
  3. Independent Unions in China,” on Le Revue Gauche, stating that MNC opposition to the proposed labor law is because American Capitalists oppose “the idea of labour law liberalization and loves the old style Stalinist party controlled apparatchik unions.”
  4. Tom Friedmanism Punishes China for Trying to Stop Sweatshops,” [link no longer exists] on the Sirotablog, which quotes the New York Times as saying “China is planning to adopt a new law that seeks to crack down on sweatshops and protect workers’ rights by giving labor unions real power for the first time since Beijing introduced market forces in the late 1970s.”  It goes on to say that’s great news, “but here’s the kicker: the new law is setting off a battle with American and other foreign corporations that have lobbied against it by hinting that they may build fewer factories in China.”
  5. Multi-Nationals Fight Advancing of Labor Law in China,” on the Left in the West Blog, stating that MNCs “are threatening to close factories in China if the People’s Republic embraces reforms targeting sweatshops and giving Chinese unions real freedom to represent workers — one more sign that the ‘free trade’ agenda is more about lowering standards, exploiting workers, and the interests of capital above all else than it is about truly free trade.”
  6. American Companies Fight For Right to Bleed China,” on Truthdig, stating that “In the face of vast poverty and exploitation …. American corporations, eager to maintain their fiefdoms in the middle kingdom, have lobbied fiercely against the proposed legislation.
  7. China Makes Move to End Sweatshop Labor, Upsetting Foreign Investors,” on 3quarksdaily, which quotes extensively from the New York Times article.
  8. China Empowering Unions,” on the Musings on Earth blog, stating that China is embarking on labor reform allowing union organizing and empowering the worker to demand better working conditions,” against which is pitted the “Ugly American businessman [who] is protesting and threatening to stop building factories.”
  9. Union Sundown: The Corporate Elite Takes Off Its Mask,” on Become the One, stating that “[n]othing encapsulates the obscene and depraved mindset that drives the corporate elite — and their avid partners in government — than the first two paragraphs of this straightforward New York Times business story.  It then goes on to say that the “elite are saying — openly, brazenly — that they might choke off economic growth in China if they can’t keep paying peon wages to defenseless people in hell-hole conditions.

I did come across a single blog post, however, that actually engaged in some thought and analysis on these issues.  In a post, entitled, “Unions in China,” on the decidedly pro-union Peter Levine blog, Mr. Levine actually seeks to discern what is going on with China’s labor laws and with the American Chamber’s (AmCham) opposition to them.  The post notes that AmCham” takes a relatively moderate tone” and then quotes the following from AmCham’s White Paper:

The new draft Labor Contract Law, scheduled for enactment by the end of 2006, contains much that would affect the operations of multinationals. AmCham commends authorities for their recently announced decision to invite public comment. Concern over the draft legislation is high given a variety of its provisions. For example, under a recent draft, if an employee was hired under a thirty-six month contract and terminated for cause after six months, the firm would still need to compensate him for another thirty months of pay. AmCham acknowledges China’s need and desire to target unethical employers, for which provisions such as these may be targeted, but the impact of these and other equally onerous provisions on responsible FIEs serve to undermine the attractiveness of China’s labor market, one of the key factors that make China such an enticing place to do business.

He then goes on to note the following:

I am not sure “if the 30-month provision is wise, but it may be a red herring. The Times and Global Labor Strategies assert that the American Chamber is working against the whole new labor law. The Chamber represents so many firms (e.g., Wal-Mart, Google, UPS, Microsoft, Nike, AT&T, and Intel) that it’s hard to envision a targeted response. If we could single out a few leaders in this effort, I would definitely boycott them. I can’t think of a clearer case in which the companies to which we give our money use it against our interests and against human rights. Alas, there are so many culprits that it’s extremely hard to boycott them.

Levine then goes on to say in an addendum that he is “beginning to think” that the New York Times article was misleading because the proposed law would not in “any way increase the independence of unions in the PRC. It would impose some new labor laws, but they might not be enforced fairly. Workers would have no voice in their enforcement. There would be no increase of pluralism or democracy.”

Bravo, Mr. Levine for starting an important discussion that just about everyone else in the blogosphere seems to want to avoid.