The Days of Limited Enforcement and Few Labour Regulations in China Are Over ! Don't Blame Labour Contract Law for Rising Costs, A Top Official Says !

Starting from 1 January 2008, the Chinese Labour Contract Law has come into effects and becomes legally binding on all the enterprises and employees in mainland China, including the PRC based foreign investment enterprises or the so-called products processing enterprises familiar to most of the Hong Kong businessmen. The new labour contract law intends to protect both parties of employers and employees, but is negatively commented by the employers for it seemingly protects employees' interests, leaving employers with higher costs and liabilitiesby, widely welcomed by the employees for limits placed on overtime work, doubling the monthly pay of a worker if the employer fails to enter into a contract with the employees.

The Chinese central government official may tell one side of the new Labour Contract Law. The Chinese Vice Minister of Labour Sun Baoshu said recently that manufacturers were wrong to blame the new Chinese labour contract law for the rising cost of production. Mr. Sun also rejected calls to amend the legislation, because the manufacturers had violated the legal rights of their workers(i.e. while maximising profits by cutting costs, the companies had exploited workers)for years and misunderstood the law.

The Hong Kong manufacturers or its national people's congress representatives may tell another side of the new Labour Contract Law. The labour contract law may lead to lay-offfs and shutdowns of more than 10,000 mostly Hong Kong owned factories in the Pearl River Delta, those factories are also facing increasingly stronger yuan, soaring raw materials and production costs, higher corporat income tax as well as unfavourable state policies on exports and tax refunds.

The Employment Promotion Law , which also came into effect on 1 Janury 2008, specifically prohibits employment discrimination on the basis of ethnicity, race, sex and religion.

The new law on the Mediation and Arbitration of Employment Disputes is scheduled to take effect on 1 May 2008, which will surely worsen the rising factory floor tensions. The arbitration bill was open to abuse as workers would be allowed to file claims or complaints against their bosses for free, which would lead to more disputes. The arbitration will make it easier for the employees to bring a legal action against their employer by extending the time for the employees to bring a claim, reducing the cost of certain actions, and limiting the right of the employer to appeal.

The foreign investment companies in China therefore shall actively consider taking or studying immediate steps to bring their human rsources practices into compliance. This would include, for example:

1. Company Rules

Companies need to ensure that their policies(including codes of ethics, anti-harassment, and discrimination policies)go throught the new, statutory "consultation" procedures.

2. The Employment Contract Law may prevail over existing company policies, so any rules that have not gone through this statutory procedure might not be enforceable.

3. Employment Contracts

An increasing number of employees will be entitled to "open terms"(or permanent) employment contracts. Since contracts can not be terminated at will, companies must revisit their hiring practices and possibly find ways to limit the number of long-term employees.


Also, most companies will need to strengthen their human resources systems to increase their ability to terminate employees within the framework of law, if necessary. And outside consultations to employment lawyers or labour specialists shall frequenty/at intervals be made, as the saying goes: one needle saves nine.

4. Staffing Agencies

Companies should stop using staffing agencies for employees who are not "temporary, auxiliary, and substitute" personnel. Such employees could be considered de facto employees. Such de facto employees could be entitled to double wages and a permanent employment contract.

(Notes: the aforesaid contents assemble from several recent reports, especially the one written by Andreas Lauffs and Joseph Deng from Baker & McKenzieon as shown in the South China Morning Post of 10 March 2008, with Jason's amendments or adjustments or comments)