China’s new Labor Laws: employment contract reforms

November 2007

China’s new labor law system on employment contracts promises to protect their precarious workforce from the excesses of capitalism.

The 10th National People’s Congress (NPC) passed Labor Law Contracts on June 29th 2007. They are in force from 1st January 2008.

What are the industrial relations issues addressed? What are the new rights at work?

In Part One, I give an overview of the provisions to regulate employers whose exploitative practices have gone too far. Professor Liu Cheng comments on their likely impact.

In Part Two, I report on the initial compliance reactions. Major corporates prior to January 1st 2008 sought to avoid the new law by dismissing and re-employing their workforce. But now they have been publicly exposed, they have to comply. The role of the All China Federation of Trade Unions ACFTU is stronger.

In Part Three, rather than going down PM Rudd’s collective bargaining road, the debate in China is on a new arbitration system.

Readers may compare these modest Chinese labour law reforms for precarious workers with the reforms from PM Kevin Rudd and Minister for Industrial Relations Julia Gillard for Australia’s precarious workforce.

Australia’s democracy decisively rejected Howard’s WorkChoices. It provided less protection for vulnerable workers than these new Chinese employment contract reforms.

Australia, after the great strikes and lockouts of the 1890’s, turned to arbitration to prevent and settle disputes. The ghost of Judge H. B. Higgins may be shaping China’s labour reforms!

Part One The Reforms and their Impact

I reported in Evatt On-Line in February 20071 on China’s unprecedented public debate in over these new Labor Laws. As well, the US corporations with their neo-liberal ideology lobbied National People’s Congress (NPC) delegates hard to water down the original provisions. They had some success on the details.2 These labor law contests in China have relevance for workers and their unions’ worldwide.

I returned to Shanghai on October 12th 2007. I followed up a key adviser on the labor laws, Professor Liu Cheng, from Shanghai Normal University, Law and Politics.

Liu Cheng: ‘In the context of globalisation, Chinese labor law is not only something of China its own, but also of America, Europe, and other parts of the world. The trend of “race to the bottom” and deregulation should be deterred by way of global unity. Chinese labor legislation has suffered MNCs’ attack; Chinese labor rights has been endangered by not only Chinese dark-minded employers but also dark-minded employers abroad-such MNCs as Wal-Mart is exploiting Chinese workers by way of driving down acquisition price to make its suppliers non-profitable. This compels the suppliers to exploit workers by way of violating labor law in order to ensure their profit. What’s more, it also hurts fair competition–the dark-minded employers will take advantages of low cost to beat moral employers. It’s apparent that without labor law, there would be no fair competition; without labor law, there would be no social stability.’

I asked about Liu Cheng’s US and Europe visits.3

Liu Cheng: ‘I found it necessary to get support from outside China, to counter the foreign corporations lobby, otherwise there may have been something worse for the Chinese workers. So I made USA visits explaining to the NGO anti-sweatshop lobby, unions and Congress the debates. I argued with four lawyers from the American Chamber of Commerce, but did not convince them.

I received good responses from European unions and NGOs who made contact with National People’s Congress delegates to support the changes. I interviewed some European government leaders, some employer organisations and spoke to about 50 foreign journalists at a press club. European employers now support the new Employment Contract laws…so although the end represents compromise, with some details in the protections for workers and the union role curtailed, it is a victory.’

The provisions apply to all employers. The main reason is to regulate the exploitative employer practices in China’s majority private sector enterprises. Here there are millions of precarious and marginalized workers. In China’s state sector, there is more job security, payment of wages, respect for labour law etc and union consultation, and these new laws still apply.

The key solutions are described. These indicate the industrial relations problems being tackled.

Back pay and no forced labour

It is unbelievable, but such is the capitalist violation of labour rights and the extent of forced labour in China that not only are migrant workers from the countryside in sweatshops factories not paid the minimum wage nor overtime when working seven days a week to finish contracts, but for months not paid at all.

Unofficial strikes over employers not paying wages are widespread. Stories in the Chinese press reveal workers treated as slaves4 and ‘wildcat’ strikes and workers beaten to death by company thugs for protesting about not being paid!5

The new law says wages and overtime have to be paid. The Labor Bureau can direct an employer to pay wages owed within a specified period, failing which an order for damages at between 50 and 100% of the amount outstanding can be made.

Liu Cheng: ‘In the past many employers regarded the labor law requirements to pay wages when due as rubbish, but now employers have to take these new laws seriously, and this is a big improvement. Some 40% of overtime is not paid, so the new law is to ensure overtime and penalty rates are paid.’

Can migrant workers not being paid go to a judge in a People’s Court for an ‘order to pay’?

Liu Cheng: ‘Yes, they can go directly and it should be speedier. The cost of litigation is most important, for if the cost is very high the workers will not be actually protected and the employers can violate the law. The employers have to be punished efficiently if they do not pay the wages and have to take the new law seriously. Although more detailed dispute settlement processes are to be determined later in 2008, this Labour Contract law helps give the worker more protection.’

I read in a China Labor News Translation a report6 where a Shenzhen furniture factory worker fought long and hard to get back unpaid two years overtime through the court system.

From no contracts at all to deemed minimum contracts

Liu Cheng: ‘Much past practice in four in five private enterprises in China have not even signed job contracts with their workers. The lack of contracts leaves workers in a legal limbo. This meant work rights were not enforced and no access to the pension fund as there was no proof of an employment contract and the employer denied liability. So now the employment contracts must be in writing and failure to do so means the employer faces liability for double wages. The new law says there is a written contract and provides minimums.’

In 2008, Chinese Courts have to recognise that labor law deems a contract to exist. Minimum wages and conditions are based on comparable collective agreements or regional provisions.

Liu Cheng: ‘Also the Labor Bureau can order damages if the employer refuses to comply…so minimum living standards are much more protected.’

Crack down on forced labour

When hiring workers, an employer may not require them to provide any surety or collect property from the worker as collateral. The employer may not retain the workers’ resident identification cards or other papers.7

So a crackdown is promised on the prevalent practice of forced or bonded labour, in their various disguises. The ACFTU has to unionise these migrant workers. We shall see.

Short-term contracts at an end

Liu Cheng: ‘In many private companies which signed contracts with workers, the duration was often less than one year. Employers concluded employment contracts with the same workers four times in one year. Casualisation is prevalent. The employers refused to sign long-term contracts to avoid legal obligations such as accident pay, health benefits etc.’

‘Now with the new law, after two short term contracts a more permanent open-term contract must be signed. That has to happen so as to prevent many short-term contracts. The third open-term contract then provides for health insurance and the employer is liable for severance pay.

A fixed term contract now has severance pay of one month’s pay for each year of service. Most fixed term contracts can’t be changed by the employer but by negotiation.’

The more permanent contract is also compulsory for those workers with service of no less than ten years, or is ten years away from retirement.

When reemploying after a state owned enterprise has restructured the permanent contract is to be used, as it is when the renewal occurs following the conclusion of a fixed-term employment contract on two consecutive occasions.

Combating casualisation

Provisions regulating part-time work are made. A ‘Part-Time Labor’ category is allowed in the final law, a ‘non-full-time engagement of labour’.8 This employment is remunerated by the hour and is terminable at any time without notice or severance pay. But it is restricted to its status, to an average of four hours daily and ‘the maximum remuneration settlement and payment cycle for part-time labor may not exceed 15 days. Article 72.’

This is a legitimate ‘casual’ position. If implemented, it will assist in reducing long-term casualisation, with its many problems.

Probation no longer to be abused

Workers can no longer be on long probationary periods. An employer may stipulate only one probation period with any given worker and not less than 80% of the local minimum. The new standards are: less than one year contract, less than a month probation; 1 to 3 years, 2 months; not less than three years, 6 months.

Transmission of business and contract

The employers cannot avoid liability with a change in the name of the company. Transmission of business also transfers the employment contract, ‘…under the new law, the employment contract will be maintained into the new company…’

Sacking at will to cease

Corporations opposed the termination reforms. These have moved dramatically away from dismissal at will. Employers sought to reduce the costs of terminating workers.

Greater job security is to be put in place for those workers engaged on an ‘open-ended’ regular basis. There are costs for illegal dismissal.

Dismissal is to be allowed only on specific grounds: such as by consent; being incompetent; for serious misconduct; incapacitated by non-work related injury; for mass redundancy (where there are substantive and procedural requirements); and termination by 30 days notice. An employer cannot dismiss for work related injury and e.g. pregnancy.9

The Law enhances the role of the union in the termination process

Where an employer unit plans to dissolve a labor contract unilaterally, it shall give the trade union advance notice of the reasons. If the employer unit violates the provisions of laws and administrative statutes or the labor contract, the trade union has the right to demand that the employer unit take corrective action. The employer unit shall study the trade union’s opinions and notify the trade union in writing of the outcome of its handling of the matter. Article 43.

The social interests of workers in redundancies of over 20 are recognised. Article 41 gives priority for protection for those with long service, those who are the only ones in their families to be employed and whose families have a senior citizen or a minor who needs to be provided for. They have 30 days notice and the circumstances explained to the union.

Are these tougher restrictions an incentive for employers to use avoidance tactics, such as forms other than regular on-going contracts?

Liu Cheng: ‘In theory it looks like this, but in practice they cannot, because of severance pay of one months pay for each year of service for most dismissals. Even with shorter terms, still severance pay applies. And if this does not occur, then the employer has to pay the penalty of double salary to the employee, so in practice the risk is so great and the economic consequences strong. Maybe there will be some employers who use part-time and casual contracts, but most employers won’t put all their employees onto part-time or casual.’

I read reports where employers preparing for the new laws are converting short-term workers into permanent contracts. Others are trying the reverse to pre-empt the changes (see below).

I asked about contracts for project work where severance does not apply. Liu Cheng said most employers would not employ workers on separate projects.

Liu Cheng: ‘ With projects such as building bridges, the employer may conclude one project contract, but may not in practice do more as the employer wouldn’t get labour for the next projects…maybe one off, but not continuously.’

There may be grey areas, where the provisions appear ambiguous. But the employer risks severance pay if dismissing. ‘The cost of violation is very important. The cost will compel the employers to abide by the labour laws.’

Liu Cheng does not think that the more skilled workers will have greater job security over the unskilled. I thought this was the experience in other countries. Will this assist migrant woman?

‘I think in the recent past in China the migrant worker was hurt by the employer, but now their living standard can be improved when the employers abide by the new laws. So now we inform the migrant workers of their rights.’

The ACFTU aims to unionise millions of these migrant workers coming from the countryside into the cities and sweatshop factories.

It is not easy for the ACFTU to move from its servicing model to a new grass roots organising model. There is debate whether this is happening.

Staffing issues: Labour-hire regulated

Employers lobbied against the strong regulation of many labour-hire firms and their use of ‘dispatch’ workers. The new law means there will not be financial reasons for management to sack sections of their workforce to replace them with cheaper labour-hire with ‘staffing firms.’

All dispatch workers from staffing firms must be hired permanently for not less than two years. There is a formal written contract with the same rate and benefits as workers in the user firm in similar work. A minimum wage is paid even when not placed. The worker may join the user firm’s union. Restrictions are a prohibition on user firms ‘on-selling’ dispatch workers to other firms; labour-hire be implemented ‘generally for short-term, supplementary and substitute positions’; and employers may not arrange to have staffing firms to place workers with themselves or their subordinate units.10

Liu Cheng: ‘The employers say that this is very tough, but it is only a slogan. In practice, the assessment of discrimination will be difficult, but the tactics of labour hire firms will not be as discriminatory. The outcome does no longer require the employer to hold money in reserve to cover workers insurance. Nor is there an automatic conversion to a permanent basis.’

Non-competition

The employers’ lobby watered down earlier drafts for workers who leave with a confidentiality clause, a non-compete clause on trade secrets or intellectual property.11

When a professional, skilled or worker who has the obligation to maintain the confidentiality of his employer’s trade secrets, the employer may have a restrictive confidentiality clause. This stipulates the employer shall pay financial compensation to the worker on a monthly basis during the term of the competition restriction after the worker leaves.

If the worker breaches the competition restriction provisions, he shall pay liquidated damages to the employer. There is less compensation for the worker affected, one month’s salary rather than one-year. Geographic restrictions are dropped.

As the Chinese workforce move into more highly skilled technology companies, these restrictions protect existing employers, not the new technology companies. They inhibit the movement of professional and skilled labour.

Liu Cheng: ‘ I think there should have been a ceiling for the damages on the worker and for the compensation to the employer, otherwise employers will take their advantages…to more profitable workers, so, I think there should be more reforms and damages should be lower than three times the yearly wages and the compensation should be no less than 40% of their normal wage, and without such ceiling and floor, it will not be better. In 2008, there will be more detailed rules formulated for these labour laws promulgated by the State Ministry of Labour and Social Security.’

OHS tougher

The lack of compliance to OHS obligations is notorious in China. One new provision is:

‘Article 32 Workers shall not be deemed to be in violation of their labor contracts if they refuse to perform dangerous operations directed in violation of rules and regulations or peremptorily ordered by management personnel at the employer unit. Workers have the right to criticize, report to the authorities, or file complaints against their employer units over working conditions that endanger their lives or health.

Worker and union involvement improved

Major opposition came from employer lobby groups against the earlier draft to require the employer to gain the consent of the employees’ representative works congress and the union to the required changed work rules.

This is watered down to a form of ‘negotiations’. But, still, a form of workplace democracy.

‘Article 4 Employer units shall establish and improve labor rules and regulations in accordance with the law to ensure that workers enjoy labor rights and discharge their labor obligations. Employer units seeking to formulate, revise, or decide on rules and regulations or significant matters that have a direct bearing on the immediate interests of their workers, such as those concerning remuneration, work hours, rest, leave, work safety and hygiene, insurance, benefits, employee training, labor discipline, and work quota management, shall determine the matters through negotiations conducted on an equal footing with trade unions or employee representatives, after employee representatives’ conferences or all the employees have held discussions and put forward proposals and comments.’12

Liu Cheng still sees this as an important procedure, as does the ACFTU.

Liu Cheng: ‘This is still a restriction on the employers’ behaviour. Workers and their trade union can indicate if the work rule is inappropriate and the employer is then to make ameliorating amendments to the work rule after consultation. There is a greater role for the local trade union, and if ignored, a higher-level trade union authority is involved. Employers can still be punished if there is no consultation on new company work rules, and may be later found to be invalid and not varied. This procedure is still very important for the workers. The employer may not enforce the work rules if challenged in any arbitral proceeding. There is a greater democratic process for work rules.’

How tough will the Labour Bureau be against employers not complying? How will China’s overly legalistic judicial system respond?

Work conditions on hours, OHS, leave etc are in individual or collective contracts. Employers work rules cannot override them, as contracts are changed only by agreement.

Liu Cheng: ‘The problem still is at the moment that most contracts are minimum state wages and standards with little negotiation…China still has a long way to go in many areas, such as more collective bargaining, including in state enterprises…but in some provinces, even in the private sector collective bargaining is changing. I think it needs time.’

Union to Assist and Collective bargaining

‘Trade unions shall safeguard the lawful rights and interests of workers in accordance with the law and oversee the execution of labor contracts and collective contracts by employer units. If an employer unit violates labor laws or regulations or a labor contract or collective contract, a trade union has the right to raise its opinions or demand corrective action. If a worker applies for arbitration or institutes legal proceedings, the trade union shall provide support and assistance in accordance with the law. Article 78’

The enhanced union role, for the ACFTU is important. They are pressed to improve representation over grievances and litigation rights. They are establishing new legal centres.

Liu Cheng: ‘The ACFTU is the only trade union in China, from the period of the planned economy. It’s very strong on the top, while very weak at the grass-root level. In recent years, it has begun to reform. For example, the pilot of direct election of trade union leaders at the grass-root level has been taken for some years, and unionisation such as at Wal-Mart by way of mobilization has also begun.’

The ACFTU wants new legal rights for the election of union delegates at the workplace level. This is because when workers join the union, the employer wants to control the election of the union delegates!

Collective contracts with collective bargaining higher than the minimum wages and conditions are encouraged, as is pattern13 or industry bargaining.

‘Article 53 Industry-specific or area-specific collective contracts may be concluded between representatives of trade unions on the one hand and of enterprises on the other hand in such industries as construction, mining, and catering services in areas below the county level.’

The ACFTU is pushing for greater rights for union collective bargaining later in 2008

I asked that with the requirement of greater consultation with the elected Staff and Workers Representative Congresses (SWRC), would there be greater use of SWRCs to respond to poor management, as in the past in the public sector. Liu Cheng thought this might be only a formalism in the private sector. However, there is scope for a form of Works Council.

Part Two: Compliance or Avoidance?

The state apparatus for compliance is strengthened.

Employers’ legal liability is detailed. These new Chinese ‘Rights at Work’, are to ensure changed employer behaviour and a crack down on the exploitative practices of the capitalists with ‘dark minds’, as Liu Cheng calls them.

The government is educating workers and employers on these laws. In Hangzhou, I read a newspaper for University students explaining their new Rights at Work in 2008.

The Labour Administration departments are given powers to ensure supervision and inspections and are to organise tri-partite compliance rules.

Lawyers for big global companies complain that the new law imposes a heavy burden. ‘It will be more difficult to run a company here,’ says Baker & McKenzie’s employment law group, which represents America’s biggest corporations in China. Lawyer Mary Margret Utterback, a major corporate law firm, just days before the law’s passage (cited in Global Labor Strategies):

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. Beijing may decide that this is an appropriate time to send the message internationally that the PRC takes labor conditions seriously.’

Other lawyers advised employers there would not be enforcement, as in the past.

Liu Cheng disagreed. ‘In the past, the cost of violating labour laws was very low, but now the cost is higher, so most employers will not prefer to violate the labour laws. …This is a strong national law, but also at the regional and local government level, there has to be enforcement. At the moment, there is publicity on the new laws and I think nearly all employers will see the cost will be much higher and the local authorities have to comply.’

The pressure will be on MNC’s to see their Chinese suppliers comply.

Liu Cheng: ‘I think that the multi-national corporations will be compelled to enhance their purchase price, otherwise most of their Chinese suppliers could not afford to comply and became sweat-shop producers, but this will now change.’

European HR managers say they can comply and one line of legal advice for overseas corporations is that their labour cost increases will stay within a controllable range.

Liu Cheng: ‘…in the long run, their good will towards the workers, will mean they can maintain their profit making process, otherwise they should pay the cost of turmoil or instability.’

Corporations look at avoidance strategies. From Global Labour Strategies:

‘…it appears that some companies operating in China are already using an avoidance tactic for existing dispute resolutions cases. On June 8, 2007, the American Chamber of Commerce in Shanghai sponsored a conference on “China’s Trends” where one influential lawyer representing numerous global firms “promoted using an offshore arbitration clause…” He argued that his firm had a high rate of success in getting foreign business-to-business arbitration awards enforced in Chinese courts. Some favorite arbitration off-shoring locations include Hong Kong and Singapore.

For years global corporations have been moving their operations to whatever country offered the weakest labor and environmental regulations. …if the government passes modestly progressive legislation they’ll respond by drafting contract clauses that “ship” the dispute to business-friendly shores. This has been common practice in the US for decades.’

Compliance contest

That this compliance contest is underway is shown by the following reports.

‘ACFTU: Huawei agrees to suspend controversial employment scheme after union talks www.chinaview.cn 2007-11-10 21.

BEIJING, Nov. 10 (Xinhua) — China’s Huawei Technologies Co. Ltd has agreed to suspend its controversial “voluntary resignation” scheme after talks with trade unions, the All China Federation of Trade Unions (ACFTU) said Saturday.

The ACFTU said it called on China’s biggest maker of telecommunications network equipment to protect workers’ interests after its plan sparked fears that the company was trying to sidestep a new labor law.

The ACFTU and union organizations called on Huawei to solicit workers’ opinions and respect their rights while making regulations related to their benefits.

A company source confirmed on condition of anonymity they had reached a consensus with the trade unions.

The company agreed to suspend the plan but the exact date to implement the suspension will be decided after workers’ opinions were solicited at the impending workers’ conference since the plan was launched with the consent of workers.

Huawei initiated a plan, calling for its staff who have worked for eight consecutive years to hand in “voluntary resignations”, according to the Nanfang Daily, a local newspaper in southern China’s Guangdong Province, where Huawei is headquartered.

The staff would have to compete for their posts, and sign new labor contracts with the firm once they were re-employed, while those who lost out would receive compensation.

Officials with the Shenzhen Federation of Trade Unions met with a vice president of Huawei and the two sides reached a consensus on three issues, said an official with the ACFTU on condition of his own anonymity and that of the vice president. They agreed that:

— The company needed to create a welfare system to guarantee the workers’ benefits and rights and in return, the trade unions supported the company’s reform and innovation to unite the workers for the company’s future development.

The company needed to abide by the law, and to solicit workers’ opinions and negotiate with trade unions while making regulations related to workers’ rights and benefits.

— The company needed to consult with the workers on an equal basis while making contracts for workers’ pay, workings hours, vacations, work safety and insurance.

The Huawei vice president reportedly said the company always valued the rights and benefits of workers and respected their contributions, said the union official.

Critics said Huawei was making a last effort to avoid signing open end-of-labor contracts with its employees through “voluntary resignation” before the new labor contract law came into effect on Jan. 1, 2008.

Under the law, employees who have worked for an employer for ten consecutive years are entitled to sign a labor contract that has no fixed term, on agreement by both parties.

The new law meant these “veteran” workers would become “permanent” employees, except in circumstances of willful resignation or retirement.

The ACFTU also called for better publicity of the new labor contract law and closer supervision of companies to avoid similar cases occurring.’

Here is the Global Labor Strategies report November 2007:

‘The Battle for Labor Rights in China: New Developments’

Huawei-the Chinese owned telecommunication company with ties to many foreign firms-recently instituted a personnel program widely believed to be an effort to avoid a key provision in China new Labor Contract Law. That provision automatically grants open-ended contracts to workers with either 10 years of service or two consecutive fixed term contracts. Open ended contracts allow workers much more job security-since there is no renewal date and workers can only be removed for just cause-and they provide for more severance pay should a layoff occur. Under Huawei’s program 7,000 long-term workers were offered economic incentives to quit and be rehired on 1 to 3 year fixed term agreements. The layoff program was widely reported in the Chinese press and roundly criticized by labor rights advocates inside and outside the government.

Now, under intense pressure from the public and the All China Federation of Trade Unions (ACFTU), China’s sole legal union, Huawei has suspended the program.

There is a widespread sense that many firms are engaging in similar practices as they position themselves for life under the new law.

And it’s not just Chinese owned firms. Wal-Mart has also come under scrutiny in the Chinese media for some staff reductions. Wal-Mart said that the reshuffle of its employees is not aimed at the new labor law. …but more than 100 employees had been laid off, including 40 in Shanghai and 60 in Shenzhen. A woman who works in the Shenzhen center, said she has been working there for four years and was laid off last month. She was told she would receive three months salary plus some additional compensation. She said she expected to be off for one to two months before returning to the company.”

Back at Huawei, the Asia Sentinel reports on how pressure was applied to long time workers:

We were called into our supervisor’s office about one month ago”, an unnamed Huawei employee who has been working with the electronics company since 1999. “We were encouraged to voluntarily resign within two weeks. My stock will be kept for six months. If I can get reemployed by the company, then I can get the stock back. Otherwise, I’ll be paid cash.”

It is not clear from press reports what will happen to the employees who have already resigned. But the official news agency Xinhua reports, officials with the Shenzhen Federation of Trade Unions met with a vice president of Huawei and the two sides reached a consensus on three issues (see above.)

In what may be a sign of the times in China, despite efforts to mask the layoff programs as legitimate corporate restructuring schemes, many people weren’t fooled. The official on-line news service China.org reports:

A recent survey, organized by the Investigation Center of China Youth Daily, shows that 42.7 percent of the 2,212 interviewed applaud Huawei’s staff reforms, while 57.3 percent do not.

According to the survey, opponents consider this a display of capital power, because “the employees working more than 10 years at Huawei are the backbone of the company, and they are the most important for the survival of the enterprise. Huawei’s attitude toward its ‘veteran’ workers will definitely make the company less attractive to talented professionals.”

The survey further found,

….87.4 percent of the respondents believe the new law does not provide excessive protection for employees, while 69.4 percent think the protection is not enough.

Nearly 70 percent feel that employees don’t have the power necessary to protect their rights.

In the wake of the Huawei controversy the government and the ACFTU have issued warnings to both Chinese and non-Chinese companies on compliance.

The ACFTU reports that it has “…carried out probes….” to pre-empt evasive actions. The China Daily reports,

Chang Kai, an official with the Legal Affairs Office of the State Council, asked the companies to study the law properly before initiating a move against it…..

“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 said.

According to the interpretation, a firm will be seen as trying to dodge the law if it prompts mass resignation, 21st Century Business Herald quoted him as having said. And “violators will have to pay a heavy price.”

The controversy and highly publicized cases like Huawei may be good news for a number of reasons.

First, while some companies are worried about the law and are conducting covert campaigns to circumvent its impact, the government and the ACFTU seem serious about its implementation. This could be a step in the direction of establishing the rule of law in China.

Second, what happens at big companies like Huawei could have a ripple effect, at least in some industrial sectors, by setting the tone for what happens at smaller firms. One HR official at a smaller IT company, quoted by China.org, says, “I have paid great attention to Huawei’s ‘voluntary resignation scheme’ since the beginning…. I want to know how relative departments will deal with…. problems so we can use [it] as a reference in the future.”

Third, the agreement reached at Huawei looks a lot like conventional collective bargaining. Of course, whether and what kind of bargaining actually takes place will depend in part on the actions of the ACFTU which, to date, has generally worked in close collaboration with management-indeed, is often staffed by managers. The ACFTU could become an agency to help impose the new law in China’s workplaces and economy, or it could continue to be just a vehicle for quieting down worker upheavals. Time will tell.

Finally, the Labor Contract Law may function like the National Labor Relations Act did when it was enacted in the US 70 years ago, defining rights that employers try to ignore, evade, or repress-thereby creating the conditions in which workers demand implementation of the rights that they have been told they possess. We may be witnessing an early skirmish in that battle.’

Other reports give a balanced assessment of adjusting to doing business in China.14 Important changes for making profit in China.

No Right to Strike

I was cited in the China Biz news that Chinese workers are not to have the right to strike.15

‘On the lawful strike to protect workers, the right to strike, the ACFTU are not in favour. They see their task as more consultation, negotiation and prevention of disputes. Wildcat strikes and social workplace disturbances, public protests e.g. against unpaid wages are on the increase and not organised by the union, but where the union has to settle the dispute with a return to work.

…there is now quite some reluctance on guaranteeing the right to strike in the law. Chinese know the routine of striking all too well, White notes:

“There is neither a lawful right to strike or for strikes to be illegal, so there is both tolerance and repression, where strike leaders are arrested not for organising the strike but usually some trumped up criminal offence or disturbing the peace.”

So, the debate is on, but what is most likely going to happen in the short run? In China’s campaign-like style of pushing forward change, we are probably going to see public tests in getting collective agreements in place, probably with some foreign enterprises as guinea pigs. It is not going to be a revolution, nor a dramatic change for most companies. It is going to be an interesting learning process, both for the Chinese trade union and the companies involved.’

I asked, as I had read16 that shortages of labour mean a turning point for the Chinese economy.

Liu Cheng: ‘its mainly in some advanced technics markets, but not in the market as a whole where labour is a surplus driving growth. In some areas yes, such as the Pearl River delta area. But even here it is not real labour shortages, it’s owing to the wages are so low workers won’t come to work. It will still be ten or twenty years until there are labour shortages.’

Part Three: A New Dispute Settlement Law: A Mediation and Arbitration System

First, there is Chinese tripartism.

Article 5 The labor administrative departments of people’s governments at or above the county level shall, together with trade union and enterprise representatives, establish a sound tripartite mechanism for coordinating labor relationships and jointly study and resolve major issues concerning labor relationships.

Next, new labor process laws will come later in 2008. There is a first draft of a new Labor Settlement Disputes law, ‘Mediation and Arbitration of Labour Dispute’ submitted to the National People’s Congress on August 26, 2007 (I have a copy).

The focus is on a reformed dispute mediation and arbitration system. Chinese workers lack the right to strike, so arbitration is one of the few institutional ways for workers to address workplace grievances.

The mediation and arbitration law is to address a number of government concerns. According to the China Daily, PRC figures reveal that:

‘Labor dispute cases in China are continuously increasing in recent years. Statistics show that labor dispute arbitration organizations at various levels dealt with 1.72 million labor dispute cases involving 5.32 million employees from 1987 to the end of 2005, with a growth rate of 27.3 percent annually.’

‘New law will give workers free arbitration in labor disputes (China Daily October 25, 2007)17
Arbitration services for employees in labor disputes will be provided free of charge if a new law is given the go-ahead. Draft of the law on mediation and arbitration of labor disputes…proposes public funds cover the cost of arbitration committees. It also says employers must present relevant evidence to the committees as required or face punishment.

…the granting of final decision-making powers to arbitration committees in three kinds of cases. These are: disputes over labor payments, workplace injuries, compensation and pensions; disputes over holidays and social security; and disputes over collective contracts.

The current regulation, adopted by the State Council in 1993, comprises a dispute-settlement process of mediation, arbitration and a trial. The new procedure aims to greatly shorten the time taken to settle labor disputes and cut costs,” Yang Xingfu, a standing committee member of the congress, said.’

Liu Cheng is critical of the details of this first drafting.

‘In my opinion, the principal problems with the first draft are as follows: First, the mediation procedure is in disorder and has no binding force; second, the relationship between arbitration and litigation is the same as that of civil procedure which is employer-friendly; third, there is no proper litigation procedure.’

Global Labor Strategies explains.18

‘Under the current arbitration system, workers are granted access to the court system only if arbitration fails. And many companies have gamed the system by delaying proceedings. According to a recent article in the Beijing Review:

Against a backdrop of intensifying tension between labor and management, people have begun to question the 20-year-old arbitration solution. The major complaint is that it takes a long period to reach a verdict…The confirmation of employment relations and the appraisal of work injuries usually have to be conducted several times between arbitration and trial, which explains why in some extreme cases the whole process has taken 19 years. The biggest victims of these slow procedures are usually the employees, who often badly need compensation from their employer for medical treatment or simply to buy food and other necessities.

Many legal experts and senior lawyers have expressed worry that arbitration more often than not will give a verdict favoring the interests of management and sometimes this is a result of bribery. In other cases, the arbitration committee, which is heavily influenced by the government, will refuse requests for arbitration from employees under the government call for creating a favorable environment to attract investment. Such a response has also eliminated any judicial means for workers to safeguard their interests.

At least a few of the provisions are pro-worker. These include:

  • Ensuring that workers can petition courts for cancellation of unfair arbitration judgments or parties’ failure to comply;
  • Extending the deadline for initiating arbitration from 60 days to six months from the day the parties know or should have known of the harm;
  • Mandating that if an arbitration court fails to deliver verdict within 45 days workers may file a lawsuit in People’s court;
  • Granting workers the right to petition the court to take enforcement measures if employers refuse to comply with mediation agreements on wages, benefits or work injuries (although this right appears to be severely limited by the fact that if the employer answers the charge in writing, the enforcement order abates).

Chinese labor scholars are far from pleased with the initial draft and are pushing for major revisions.

We know for sure there is at least one major flaw in the law…and it’s a big one. The current draft is silent on the majority of Chinese labor arbitration disputes. According to Professor Chang Kai, a distinguished labor law scholar based at Renmin University and drafter of the Labor Contract Law: “The current law is drafted for solving the labor disputes of individual workers rather than those involving a group of workers. But in reality, a lot of labor disputes concern a group of workers.”

Recent studies show that group labor disputes have been on the rise and now represent roughly 60% of all workers involved in disputes. Professor Chang argues that the new law needs to be grounded in China’s existing realities by elevating the importance of group labor disputes: “If the law remains focused on solving individual labor disputes, in 10 years we will have many problems that cannot be solved under the current legal system.”

I understand that the Labor Arbitration bureaucrats are resistant to change and want to continue their (inadequate) role. We shall see what model prevails.

Party leadership support Labor laws

With the recent 17th National Communist Party Congress, Hu Jintao, Party Secretary and President of China, consolidated his political leadership. He stressed how important these new labour laws are for his ‘harmonisation’ in industrial relations in China’s unique ‘socialist market economy’.

This CCP leadership generation promise more focus on human as well as economic development; economic development balanced with environmental action; regional disparities between western and central regions to develop as in the coastal eastern sectors; crackdown on corruption; tackling gross inequality of wealth; social security measures dealing with inequality; and these new labor laws. These are fascinating times.

Who is to prevail, the Chinese political leadership or the corporations? Whether Hu Jintao’s ‘scientific development with Chinese characteristics’ prevails will be known soon.

After WorkChoices?

As China’s competitive production puts downward pressure on wages and working conditions, these IR outcomes are of great relevance for Australian working families.

Australian Companies have to comply with these new laws. PM Rudd should insist.

Liu Cheng said it is important with corporate globalisation that overseas unions visit China and discuss these IR issues and be a balance to the corporate world’s influence.

He said there would be soon the first US AFL-CIO delegation visiting China. Other US unions have visited regularly, including Change to Win delegations.19 Australian unions are increasingly being asked to visit and engage on these IR issues.

These labor laws are also important in the negotiations over an Australia-China Free Trade Agreement, now to be negotiated by a Rudd government.

One reason that Howard’s WorkChoices went down badly with workers and with voters is that Howard lied when promising protection or fairness for an increasing numbers of precarious Australian workers, casuals, out-sourced, in labour hire, and those in enterprises less than 100 who can be unfairly dismissed, restructured and made redundant.

Arguably, China’s modest labor laws afford some workplace social justice to workers and are better than in WorkChoices.

It is going to be interesting to see the modest rights for Australia’s precarious workers to get a ‘fair go’ and collective bargaining reforms from PM Kevin Rudd and Deputy PM Julia Gillard.

Australia and China’s industrial relations reforms have different social, workplace and political contexts. Nevertheless, our IR debates and contests over strategies are reasons to participate and compare the ongoing campaigns over rights at work.

November 23 2007

Chris White is a Labour Law and Industrial Relations writer living in Canberra. References whitecd@velocitynet.com.au

1 I use the English translation of the Labor Contracts from the Beijing Xinhua Domestic Service — China’s official news service, New China News Agency. In February 2007, I attended a Beijing Industrial Relations conference and interviewed those involved in the new Labour Laws. My Evatt Foundation report is ‘China’s New Labour Law The challenge of regulating employment contracts. China moves beyond WorkChoices,’ http://evatt.labor.net.au/publications/papers/193.html. My interview with the All China Federation of Trade Unions ACFTU ‘Organising China’s Wal-Mart’ Evatt Foundation http://evatt.labor.net.au/publications/papers/194.html
See an analysis of these new employment contract provisions in the November 2007 UNSW Law Journal. The November 2007 Journal of Industrial Relations volume 49, number 5, has the issue on China. See, e.g. on the background to China’s labour law, Sean Cooney “China’s Labour law. Compliance and Flaws in Implementing Institutions.’ Page 673. For earlier China labour law, Ying Zhu, Economic Reform and Labour Market Regulation in China, in LAW AND LABOUR MARKET REGULATION IN EAST ASIA 177 (Sean Cooney et al. eds. 2002). Sean Cooney, ‘Making Chinese Labour Law Work: The Prospects for Regulatory Innovation in the People’s Republic of China’ (2007) 30 FORD HAM INTERNATIONAL LAW JOURNAL 1050, 1081-1086. Also, Rolf Geffken (2006) Labour and trade unions in China (European Trade Union Institute for Research, Education and Health and Safety). Kan Wang (2007) A Changing Arena of Industrial Relations in China What is happening after 1978 Renmin (People’s) University of China, Beijing.
2 See Global Labor Strategies on the contest between corporations and NGOs and unions ‘Behind the Great Wall of China. U.S. Corporations Opposing New Rights for Chinese Workers. Opposition may harm workers in the U.S. and other countries.’ www.laborstrategies.com For their 20/2/2007 reply to the corporate lobby, see JapanFocus.org Earl Brown ‘Chinese Labor Law Reform: Guaranteeing Worker Rights in the Age of Globalism’ JapanFocus 24/11/2006; ‘Multinationals Accused of Hypocrisy over China Labour Law Reform’ International Textile, Garment and Leather Workers’ Federation (ITGLWF) 26/10/2006.
Global Labor Strategies: http://laborstrategies.blogs.com/global_labor_strategies/2007/07/chinas-new-cont.html Update October and November2007.
3 Reports on Liu Cheng’s US visits http://www.commondreams.org/archive/2007/04/03/280/ His papers are available from the author.
4 ‘Shanxi Scandal Gives Urgency to Draft Labor Contract Law.
Chinese lawmakers deplored the forced labor scandal uncovered in north Shanxi Province and recommended that the top legislature urgently ratify the labor contract law and thus better ensure the legal rights of employees.
… the investigation found that 2,036 of the 3,347 brick kilns had been devoid of any legal licenses and collectively employed 53,036 illegal workers. (The story was exposed first by Chinese bloggers).
This scandal had emphasized the needs for stronger protection of employees’ legal rights. Items of the draft labor contract law could be applied to illegal labor cases such as the one in Shanxi.
The forced labor scandal… sparked public outrage and grave concern among the upper echelons. The workers were treated as slaves, forced to work long hours without payment in brickyards, mines and other small works. Shanxi provincial governor Yu Youjun has formally apologized over the forced labor scandal, promising to use his full power to root out any more cases of such illegal practices. (Xinhua News Agency June 25, 2007)’ http://www.china.org.cn/english/GS-e/218983.htm
5 Worker Beaten to Death over Pay Strike. One unpaid migrant worker was beaten to death at a building site in Guangdong Province and hundreds of his workmates who were striking to get delayed salaries were injured by thugs the building owner hired. The attackers, armed with shovels, steel pipes, axes, and knives, injured many of the strikers and killed Lei Mingzhong, a laborer from Kaixian County. Nearly 300 workers went on strike at the site after working for four months without payment, because the owner, a subsidiary of Shenzhen based Fuyuan Energy Group, had delayed paying the contractor millions of yuan. Having failed to coerce the workers to end the strike, Fuyuan then hired hundreds of thugs to fight them and force them back to work. Ye was reported to have led the thugs when they rushed the workers and beat them. The workers, most of who were reported to have been empty-handed, suffered injuries in the fierce attack, even after police arrived at the scene. Lei was killed while two of his workmates were forced to jump from a high wall into the Dongjiang River. The thugs even threw rocks into the river after them, the newspaper said. Fuyuan Hydropower Co, a subsidiary of Fuyuan Group, plans to build a hydroelectric power station on Dongjiang River. With a total investment of 316 million yuan (US$41 million) from Fuyuan Group, the power plant is expected to produce 90 million kilowatt hours a year.
Miao Shouliang, the boss of Fuyuan Group, was listed as the 19th richest real estate tycoon last year by Rupert Hoogewerf, a former Forbes China employee who established his own luxury business listing company – Hurun Report – in Shanghai. Miao denied delaying the payment of money to the contractor but hung up when reporters asked him to comment on the incident. (Shanghai Daily July 2, 2007). http://www.china.org.cn/english/China/215751.htm Earlier: China Daily 31/12/2006 ‘Migrants frustrated over unpaid wages’ about anger over ‘the death of a young rural worker who was beaten up last week while claiming unpaid wages…’
6 CLNT translated two articles: the first is a newspaper report on the case with a brief comment from a legal expert; the second is the worker’s own description of the process, published in an NGO magazine. These are available from this author.
7 Article 9; Chapter two Conclusion of Contracts.
8 Chapter V. Section 3 Part-Time Labor. Articles 68, 71.
9 Chapter IV Dissolution and Termination of Labor contracts; article 39; article 42; 44.
10 Articles Staffing services 57 to 62. Article 66. Article 67. It will be interesting to see how these are enforced.
11 Chapter Article 24
12 Article 4; also chapter vii Legal Liability
13 WorkChoices outlawed industry bargaining industrial action. This breached ILO Conventions. Kevin Rudd’s policy is also in breach. Check my guest blog at ‘What limits the right to strike?’ http://larvatusprodeo.net/2007/05/21/guest-post-by-chris-white-what-limits-the-right-to-strike/

14 There are many legal firms and consultants advising: e.g. Global Risk Alert from AON Global; and lawyers King and Wood www.kingandwood.com; Baker and McKenzie www.bakernet.com
15 http://www.cbiz.cn/news/showarticle.asp?id=2458
16 Ross Garnaut & Ligang Song. ‘The Turning Point in China’s Economic Development’ (2006 Asia Pacific Press).
17 http://www.china.org.cn/english/government/229625.htm
18 http://laborstrategies.blogs.com/global_labor_strategies/2007/10/chinas-new-draf.html
19 The US union movement split at the top, with now the ALF-CIO and the Change to Win, already invited into China by the ACFTU.

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One Response to China’s new Labor Laws: employment contract reforms

  1. John56 October 22, 2009 at 6:37 pm #

    In addition, it is easy for staff and other parents to assign cultural labels to behaviors that have very little to do with group values and much more to do with poverty and its associated lack of access to supports and opportunities. ,