China Prepares for New Contract Law
As January 1, 2008 draws nearer, China is preparing for the implementation of the new Employment Contract Law, adopted last June. The government and individual companies are taking preparatory steps, but some may argue these steps are in opposite directions.
On the one hand, the government is preparing implementing regulations of the Employment Contract Law and has committed to issue these prior to the end of 2007. According to the Baker & McKenzie law firm, the Ministry of Labor and Social Security "has been informally soliciting comments as part of the process of drafting implementing regulations..."
Local governments are waiting with bated breath to amend their own regional contract laws once the implementing regulations are issued. We should see a flurry of related legislation over the next three months.
On the other hand, some companies are in the midst of dismissing and rehiring their entire work force in order to avoid having their workers move to open-ended contracts - arguably a less flexible and potentially more expensive form of employment.
In early November, telecom equipment maker Huawei Technologies asked 7,000 workers with 8 or more years of employment to voluntarily resign with the promise of re-hire and a newly revised employment contract. The move was widely viewed as an evasive tactic to avoid provisions of the new contract law that allow employees with 10 years of consecutive employment to move to an "open-ended" or permanent work contract that is difficult to terminate.
The All China Federation of Trade Unions (ACFTU) launched an investigation, but most of the workers had already stepped down. The ACFTU finally pushed Huawei to suspend the voluntary resignation scheme and is now calling for closer supervision of companies to prevent similar actions from other companies.
According to some media sources, the practice is widespread. There are reports that Wal-Mart recently laid off 100 workers in their Shanghai global procurement center and LG Electronics retrenched 11% of its China workforce.
Interestingly, and perhaps different from what's been seen in the past, the China government seems to be serious about enforcing this new law. "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 Kai, an official with the Legal Affairs Office of the State Council, told the China Daily. That would mean labor inspectors might enforce the strict penalties envisioned in the new law, including high monetary fines for non-compliance.
The "implementation question" has been debated since the law was passed in June. It has been hailed as a law that dramatically changes the employment landscape in China, if it is enforced. And that is a big "if." Or so we assumed.
Given these recent developments, it's time to re-examine the implementation question. If the current attitudes of officials in China are to be a gauge, we could all be in for a surprise next year as the ACFTU takes on a new prominent role in targeting non-compliant companies and the government provides a mandate to local labor bureaus to enforce the new law.
Of course, we must keep in mind that there are other ways for companies to evade compliance with the restrictive new law aside from the layoffs we are seeing now. Olympus, the Japanese camera maker, has announced it will consolidate its two China factories into one in an effort to reduce operating costs. They will then move one facility to Vietnam. They likely aren't the first - and won't be the last - to head to the greener, or less regulated, pastures.
