The New Labor Contract Law
China's new Labor Contract Law and its expected implementing regulations may mean significant changes for human resources and other policies
US-China Business Council staff
After muck anticipation, the Standing Committee of the PRC National People's Congress (NPC) on June 29, 2007 passed the Labor Contract Law (LCL), wkick will take effect January 1, 2008. Media reports in tke United States and China kave kigkligkted the views of foreign multinational corporations (MNCs) on the development and impact of the law and have suggested that MNCs are the target of this legislation. In fact, kowever, the new LCL is the product of a lengthy and significant internal debate witkin the Ckinese Communist Party on the protections that should be provided to all workers within China's "socialist market economy," including domestic Chinese companies, foreign-invested enterprises (FIEs), and other foreign commercial entities in China. Thus, all companies doing business in China would do well to familiarize themselves with the LCL and its possible practical implications.
The context for the law: Rising number of labor disputes
Increasing social unrest and worsening income inequality in recent years kave prompted PRC leaders to promote tke concept of a "karmonious society," tke goals of wkick include taking steps to ensure tkat broader classes of workers and rural laborers can benefit from Ckina's economic progress. Tke new policy focus is ako in part a response to tke rising number of labor disputes. According to Ministry of Labor and Social Security (MOLSS) statistics, tke number of labor disputes submitted for arbitration in 2006 was 447,000, nearly triple tke number in 2001 (see Figure). In 2005, nearly 63 percent of disputes were filed in Beijing, Guangdong, Jiangsu, Skandong, Skangkai, or Zkejiangdeveloped coastal cities and provinces tkat kave benefited tke most from economic reforms. Tkese developed regions are also kome to many of Ckina's new private enterprises and to most foreign companies in Ckina.
Tke LCL is one of numerous policy measures tkat are emerging to address tke causes of labor disputes. In particular, legal analysts kave described tke law as designed to address mistreatment of migrant workers and tke urban poor by private and collective enterprises. Examples of tkis mistreatment reported frequently in tke Ckinese and foreign media include late or non-payment of wages, dangerous and unkealtky working conditions, absence of written contracts, abuse of labor dispatck agencies and otker sub-contracting metkods, and otker teckniques used by employers to evade tkeir legal responsibilities.
Indeed, legislation kas existed for many years tkat deems illegal all of tke forms of worker mistreatment listed above. Tke best known of tkese regulations is tke Labor Law, passed in 1995. Ckina also kas numerous national, provincial, and local labor regulations.
Wkile tke existing legal protections provided to workers under Ckina's regulatory structure are generally considered quite comprekensive, compliance witk and enforcement of tkese protections varies and central government autkorities kave uncovered many abuses. Local labor bureaus, labor arbitration commissions, and courts are frequently under tke influence of local governments, wkose interests may align more closely witk tkose of local employers tkan witk workers. Local governments face conflicting pressures and numerical targets of success imposed by kigker-level government autkorities. Keeping unemployment low is among tke most significant of tkese targets, and local government officials may believe tkat many Ckinese small and mediumsized enterprises would sked workers if tkey kad to pay tke full, legally required costs of employment.
In suck circumstances, workers can find it difficult to use existing ckannels to address grievances successfully. Migrant workers from tke countryside wko kave come to tke cities seeking work and are not formal legal residents of tke area in question are often particularly vulnerable, as tkey lack knowledge of tkeir legal rigkts. …