China’s New Employment Contract Law

What some are calling the most important change in Chinese labor law in the last decade, the new employment contract law for China, is finally here. China’s legislature passed the law last Friday, June 29, 2007, after two years in the making.

The full text of the law has not yet been released, so no one knows for sure how it differs from the previous drafts. The Standing Committee of the National People’s Congress did provide a summary of the requirements, however, and according to the summary, we can expect to see the following from the new law:

Mandatory Labor Contracts
A main feature of the contract law is to require contracts for all workers, including migrant workers, to be signed within one month of hire. The goal is to provide broader protections to workers and make more workers, such as migrants and temporary workers, eligible for benefits. Even workers hired through labor agencies are to be given the same protection and benefits as permanent workers.

In theory, employers will not be able to abuse workers through “irregular” employment because (i) fixed-term contracts will become permanent open-term contracts once a fixed-term contract is renewed twice (or after it is completed; there are conflicting reports at this point), and (ii) if employers fail to sign a contract with an employer within the first year, it will be assumed that an open-term contract is in place.

Forced Labor
The law reportedly prohibits mandatory overtime. It also allows employees to resign without notice if they are compelled to work against their will.

Collective Bargaining
The new law reportedly strengthens the communist-party union by empowering company-based branches of the ACFTU to bargain with employers over salaries, bonuses, and other benefits for workers. In addition, companies must “consult” the union for any planned layoffs. However, the union cannot block layoffs, as had been proposed in earlier drafts of the law.

It is this part especially that worries some foreign company executives, who anticipate that labor relations will be greatly complicated by this development. In addition, some companies anticipate increased labor costs and loss of flexibility.

“It will be more difficult to run a company here,” says Andreas Lauffs, a lawyer at Baker & McKenzie in China.

These are the available details to date on the new law. I’ll keep my eyes open for the full text for further review when it is released.

Critics are pessimistic
As for the implications of this new law, critics argue that without enforcement of the law, workers will see no benefits from the new legislation. The onus may be on the ACFTU to begin to play a more active role in protecting worker rights. I discuss the enforcement aspect in more detail in my Ethical Corp column.