COMMENTARY
Commentary: Finding a Balanced Labor Law
May 16, 2008
Christopher Bjorke, AFP

China's new labor law, as one report put it, aims for a "harmonious relationship between employees and employers." But it may also create more confusion among firms over their freedom to hire and fire workers.

Authorities this month released draft implementation regulations for the labor contract law, created as a protection against abuses of workers. The regulations are an elaboration of the law, which was passed last summer and went into effect Jan. 1. Unfortunately, they still leave many questions for employers.

"Overall, our feeling is that the draft regulations do not clarify many of the uncertainties and ambiguities in the Employment Contract Law, and in some cases raise more questions than answers," Jonathan Isaacs, a Shanghai-based lawyer, wrote in an e-mail message. "Hopefully, the draft will be improved upon before being finalized."

Balancing employee and employer needs

A big issue is long-term contracts for employees of long standing. Many companies in China have relied on temporary contracts for workers, allowing them staffing flexibility in a culture where employment until recently has been considered permanent.

Under the draft regulations, employees are entitled to open-ended contracts after 10 years of employment. The confusion is over whether companies lose their rights to fire staff or lay off workers during downturns and has resulted in some mass firings of workers who were nearing their decade marks, according to the Xinhua news agency.

The regulations state that employees can be fired in cases of incompetence, serious violations of regulations and dereliction of duties. Company bankruptcy is also a justification of layoffs.

In addition to setting rules for contract termination, the regulations also set requirements for compensating workers who lose their jobs.

The labor contract law is in many ways a reaction to abusive practices by employers exploiting poor laborers moving from rural to urban areas, eager for work and unaware of their legal protections.

However, the law creates complications for foreign companies trying to efficiently manage staffing needs or merge staffs after an M&A deal.

"While well-managed companies will already have the foundations for compliance in place, the scope and detail of the new (labor contract law) are likely to place significant extra demands on HR administration and generally require more staff to manage the new arrangements," PricewaterhouseCoopers warned in an advisory on the issue.

In trying to create harmonious relations between workers and companies, future elaboration of the law will need to balance protection of employees and the needs of employers.

Copyright © ChinaForum 2008