Here is a review of the fast moving and important developments in the run-up to the January 1, 2008 implementation of China’s new Labor Contract Law.
As we reported in our last post, Huawei—the Chinese owned telecommunication company with ties to many foreign firms—recently instituted a personnel program widely believed to be an effort to avoid a key provision in China new Labor Contract Law. That provision automatically grants open ended contracts to workers with either 10 years of service or two consecutive fixed term contracts. Open ended contracts allow workers much more job security—since there is no renewal date and workers can only be removed for just cause—and they provide for more severance pay should a layoff occur. Under Huawei’s program 7,000 long term workers were offered economic incentives to quit and be rehired on 1 to 3 year fixed term agreements. The layoff program was widely reported in the Chinese press and roundly criticized by labor rights advocates inside and outside the government.
Now, under intense pressure from the public and the All China Federation of Trade Unions (ACFTU), China’s sole legal union, Huawei has suspended the program.
There is a widespread sense that many firms are engaging in similar practices as they position themselves for life under the new law.
And it's not just Chinese owned firms. Wal-Mart has also come under scrutiny in the Chinese media for some staff reductions. According to the independent on-line Asia Sentinel:
Dong Yu Guo, Public Relations director of Wal-Mart China, told the Jing Hua Times newspaper that the reshuffle of its employees is not aimed at the new labor contract law. Dong noted that Wal-Mart China has two business areas ‑ procurement for its worldwide operations and stores for the local market. Yu said the staff reduction is not going to affect its nearly 100 department stores and Sam’s Clubs, and that more hiring beyond the current 44,000 employees in the retail division is expected.
However, on October 22, the Global Procurement Center for Wal-Mart announced in an internal meeting that more than 100 employees had been laid off, including 40 in Shanghai and 60 in Shenzhen. A woman who works in the Shenzhen center, who asked not to be named, said she has been working there for four years and was laid off last month. She was told she would receive three months salary plus some additional compensation. She said she expected to be off for one to two months before returning to the company.”
Back at Huawei, the Asia Sentinel reports on how pressure was applied to long time workers:
We were called into our supervisor’s office about one month ago”, an unnamed Huawei employee who has been working with the electronics company since 1999, told Asia Sentinel about the Huawei resignations. “We were encouraged to voluntarily resign within two weeks. My stock will be kept for six months. If I can get reemployed by the company, then I can get the stock back. Otherwise, I’ll be paid cash.”
It is not clear from press reports what will happen to the employees who have already resigned. But the official news agency Xinhua reports that,
On Friday, officials with the Shenzhen Federation of Trade Unions met with a vice president of Huawei and the two sides reached a consensus on three issues, said an official with the ACFTU on condition of his own anonymity and that of the vice president. They agreed that:
-- The company needed to create a welfare system to guarantee the workers' benefits and rights and in return, the trade unions supported the company's reform and innovation to unite the workers for the company's future development.
-- The company needed to abide by the law, and to solicit workers' opinions and negotiate with trade unions while making regulations related to workers' rights and benefits.
-- The company needed to consult with the workers on an equal basis while making contracts for workers' pay, workings hours, vacations, work safety and insurance.”
In what may be a sign of the times in China, despite efforts to mask the layoff programs as legitimate corporate restructuring schemes, many people weren’t fooled.
The official on-line news service China.org reports:
A recent survey, organized by the Investigation Center of China Youth Daily, shows that 42.7 percent of the 2,212 interviewed applaud Huawei's staff reforms, while 57.3 percent do not.
According to the survey, opponents consider this a display of capital power, because "the employees working more than 10 years at Huawei are the backbone of the company, and they are the most important for the survival of the enterprise. Huawei's attitude toward its 'veteran' workers will definitely make the company less attractive to talented professionals."
The survey further found,
….87.4 percent of the respondents believe the new law does not provide excessive protection for employees, while 69.4 percent think the protection is not enough.
Nearly 70 percent feel that employees don't have the power necessary to protect their rights.
It’s not clear how the survey was conducted, but it is interesting that it appeared in the official media.
In the wake of the Huawei controversy the government and the ACFTU have issued warnings to both Chinese and non-Chinese companies on compliance.
The ACFTU reports that it has “…carried out probes….” to pre-empt evasive actions. The China Daily reports,
Chang Kai, an official with the Legal Affairs Office of the State Council, asked the companies to study the law properly before initiating a move against it…..
"The national and local legislatures, the State Council and government agencies will soon issue judiciary interpretation and guidelines to stop employers from trying to dodge the law," Chang said.
According to the interpretation, a firm will be seen as trying to dodge the law if it prompts mass resignation, 21st Century Business Herald quoted him as having said. And "violators will have to pay a heavy price."
The controversy and highly publicized cases like Huawei may be good news for a number of reasons.
First, while some companies are worried about the law and are conducting covert campaigns to circumvent its impact, the government and the ACFTU seem serious about its implementation. This could be a step in the direction of establishing the rule of law in China.
Second, what happens at big companies like Huawei could have a ripple effect, at least in some industrial sectors, by setting the tone for what happens at smaller firms. One HR official at a smaller IT company, quoted by China.org, says, “I have paid great attention to Huawei’s ‘voluntary resignation scheme’ since the beginning….I want to know how relative departments will deal with….problems so we can use [it] as a reference in the future.”
Third , the agreement reached at Huawei looks a lot like conventional collective bargaining. Of course, whether and what kind of bargaining actually takes place will depend in part on the actions of the ACFTU which, to date, has generally worked in close collaboration with management—indeed, is often staffed by managers. The ACFTU could become an agency to help impose the new law in China’s workplaces and economy, or it could continue to be just a vehicle for quieting down worker upheavals. Time will tell.
Finally, the Labor Contract Law may function like the National Labor Relations Act did when it was enacted in the US 70 years ago, defining rights that employers try to ignore, evade, or repress—thereby creating the conditions in which workers demand implementation of the rights that they have been told they possess. We may be witnessing an early skirmish in that battle.