China’s New Contract Labor Law

China’s new Labor Contract Law was enacted by the National People’s Congress on June 29th. It will go into effect on January 1, 2008.

The law was enacted with an unusual amount of debate and controversy both in China and worldwide. GLS has written extensively about the attempts by foreign corporations to gut important provisions of the law. The law's final version has received mixed reviews from the foreign corporations and their lawyers doing business in China.

According to the New York Times:

Many multinational corporations had lobbied against certain provisions in an earlier draft of the new labor law. An early draft gave unions greater powers and made it more difficult to fire workers.

Companies argued that the rules would substantially increase labor costs and reduce flexibility, and some foreign businesses warned that they would have little choice but to move their operations out of China if the provisions were enacted.

International labor experts said several of the most delicate clauses had been watered down. But lawyers representing some big global companies complained that the new law still imposed a heavy burden.

''It will be more difficult to run a company here,'' said Andreas W. Lauffs, head of Baker & McKenzie's employment law group, which represents many of America's biggest corporations in China.

The Christian Science Monitor reports,

"As is always the case with China's laws, the real question 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."

Final passage of the law took place against the backdrop of a scandal involving the slave labor of children and adults that has dominated the media and enraged Chinese public opinion in the weeks prior to the bill’s passage. 

The Washington Post reports,

The country was alarmed two weeks ago, for example, by the discovery that hundreds of Chinese were forced to work in conditions resembling slavery at dozens of brick kilns in Shanxi province while local Communist Party officials did nothing to stop it.

In reaction, lawmakers at the last minute added a provision to the long-discussed labor code to mandate punishment for officials who are shown to be negligent or corrupt in allowing entrepreneurs to abuse workers. This and the unusual public rollout of the new law seemed designed to show the Chinese public that the central government of President Hu Jintao is determined to crack down on corrupt officials and protect those left behind by the swift economic growth of the past 25 years

Lawyer Mary Margret Utterback writing on the web-site of Theblen Reid, a major corporate law firm, just days before the law’s passage commented:

In its current form the law is likely to increase the cost of doing business in China.  Larger companies will feel the need to have human resources capability in-country.  Severance payments, non-compete payments, and the decrease in probationary period length will all increase the employer's labor costs.  The undefined role of the labor union may complicate the relationship with management.  The ambiguities for justifying a lay-off may also result in increased costs to the employer.  If Beijing decides that this is an appropriate time to send the message internationally that the PRC takes labor conditions seriously, we may have a new law approved within the month.  For now, we are still waiting for the other shoe to drop.

Meanwhile, Dan Harris, the Harris and Moure lawyer, writing in the China Law Blog says,

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.

The American Chamber of Commerce in Shanghai (AmCham)—the organization that led the opposition which succeeded in weakening key provisions in earlier drafts of the bill—issued a statement supporting the law’s passage. AmCham writes,

We support the law and the process by which it has been developed.

We stand firmly behind the Chinese government’s efforts to protect the rights and interests of employees through a balanced and fair Labor Contract Law for China. The new law will set standards for China’s rapidly changing labor market, and in particular address standards for labor contracts. …

As we have previously stated, consistent enforcement of the labor laws will be crucial to solving many of the labor practice problems in China.”

The European Union Chamber of Commerce also issued a statement of support.

The European Chamber welcomes the fact that many of the articles presented in this law stem from labour laws in Europe. There is no doubt that the passing of the law and its strict implementation will drastically improve the working conditions in China….

After the comprehensive drafting process, the European Chamber is not concerned about the effect of the law on European investment in China.

It’s not just US and EU corporate interests that have weighed in on the new law, the Korea Times reports that many medium sized Korean firms are quite worried:

An alarm is ringing for Korean firms operating in China after Beijing passed a stronger labor law aimed at protecting workers' rights last week.

When the new law goes into effect in January 2008, it will reduce labor flexibility and increase operational risks for Korean firms while improving the basic rights of local workers, experts say.

The impact is expected to be heavier on small independent firms that account for 98 percent of Korean businesses operating in China, while conglomerates and other big firms are better prepared for the change.

`The Chinese government has passed the Contract Labor Law that has a heavy focus on workers' rights. There is a high possibility that labor costs will go up for foreign firms,'' said Kim Kyung-yong, a senior manager of the Asian team at the Korea International Trade Association (KITA), an interest group representing some 65,000 companies. ``Firms have to cope with the changes while they still have the time to do so….

The law has some provisions that can be considered too rigid to the eyes of Korean employers, who generally anticipate lower wages and less stringent labor regulations in China than here.”

In private, many US companies have a somewhat different view of the law’s effects.

A poll of 435 businesses in China released this Spring, after the basic provisions of the new law were known, by Baker & McKenzie, a big corporate law firm, and Hewitt Associates, a corporate consultancy, revealed that more than half of all respondents thought that law would have a “negative” or “very negative impact” on their operations in China.

This negative view of the law by corporations squares with conversations that we at GLS have had about corporate attitudes with knowledgeable people in China.

Is this law significant?

Many argue that because labor laws are not strongly enforced in China, new laws, even decent laws, are not significant. We disagree.

The new law is, of course, deeply flawed. It does not allow for freedom of association, the right to independent unions, or the right to strike—the core labor rights that workers everywhere have fought for over the last century. But the new law does provide some basic employment rights  and standards common in the rest of the industrialized world.  No small thing in a country that had no labor market at all 25 years ago. Since the new law is more closely modeled on European labor law—it bars employment at will and provides statutory rather than collectively bargained standards—on paper it is in some ways better than US law.

The Labor Contract Law, like all law, does not exist in a vacuum. It is embedded in a whole set of social relations including the give and take of workers and employers, existing technologies, demographic trends, customary practices, the level of trade union activity, competitive pressures, and politics, and its application will be shaped by all these factors. 

US and EU companies frequently complain that Chinese labor laws are weakly enforced against Chinese companies which frequently evade or ignore the law—whereas US and European corporations are law abiding, they maintain. While we remain skeptical of this distinction, foreign corporations now have an opportunity to live up to their claims by creating a space within the Chinese economy that ensures full rights and decent jobs for the millions of workers they directly employ and compliance by the suppliers they control and do business with.

Non-Chinese unions and organizations can help by demanding that foreign corporations doing business in China obey law.

In a later blog we will discuss the key points of the law.

M.O.

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[State Labor Laws]

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[State Labor Laws]

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[Marypierce]

This labor law is going to be used to club foreign companies over the head with, and local companies will get off scot-free.

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[Grandus]

Oh yes, foreign companies are a thousand times better at treating their workers better. It's the locals who are responsible for the everyday disgusting practices that you see. Go ahead, ask some recent graduates who they'd rather work for.

This labor law is going to be used to club foreign companies over the head with, and local companies will get off scot-free. It's not about "a space within the Chinese economy that ensures full rights and decent jobs"...it's about Chinese companies driving their foreign competitors out of business, and then buying their assets for a song. Come on, does anyone actually believe that claptrap? A space within the Chinese economy...please!

[Old Tales Retold]

One portion of the law seems to already be having an effect: the provisions on fixed term contracts. There is anecdotal evidence that companies are firing old workers to avoid having to take them on as permanent employees when the law begins to be implemented in 2008. I've got a brief blog post on this: http://oldtalesretold.blogspot.com/2007/07/labor-contract-law-and-lay-offs.html
Hopefully, this shows that managers, at least, think parts of the law will be more strictly enforced than past regulations.