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New Labor Law in China - Appropriate Response?

Human Resources Management, Legal
Posted by Mulligan, Frank at Sunday, 12/09/2007 9:42 am
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3.1 from 178 votes
New Chinese employment legislation, the Labor Contract Law(LCL), is due to be promulgated on January 1st 2008.

The response to the law so far has been a kind of fearful anticipation but all of this hand wringing is not going to change the fact of the law’s promulgation. The best way to deal with any new issue is to make decisions about responses, and start implementing now. The key question centre on the specific things should HR be doing to keep itself on the right side of the new law.

Here are a few suggestions:

Employee Handbook or Policy Manual - Regardless of your company size, this needs to be set up now, as it is mandated in the new law. It should set out the internal rules and regulations that deal with employee relations, and specify procedures for dealing with conflict situations like termination. Under the new law you would be best advised to have a paper trail to deal with difficult situations, such as firing staff, and the end of the line for this paper trail is your Employee Handbook.

Salary Ranges - If your policy is to specify salary ranges to job applicants then review your advertising and make sure to state the range very clearly in advertisements. In addition to the new labor law, there is also the Employment Promotion Law which also takes effect on January 1st. It specifies that recruitment information in advertisements published by employers should be the same as that mentioned in job interviews. Again you have the paper trail issue.

Overtime - As an exercise, calculate the cost of overtime to your company. The logic is that you may be required to pay amounts that you had not considered before. Under the new law employees in China cannot work longer than forty hours a week. Any time worked over that is liable for overtime pay and the new law makes this enforceable.

Discrimination - Look for a new trap: discrimination. The new Employment Promotion Law says that applicants for employment will be entitled to sue employers for discrimination. This is based on ethnicity, age, gender, race, religious belief or physical disability. Although multinational companies have tended to be on the right side of this issue for a long time, it is still worth reviewing your current advertising and hiring procedure. You don’t know what lurks under rocks until you turn them over. (Oddly, the government will issue a list of ‘jobs unsuitable for women’ to assist companies stay on the right side of the law.)

Job Descriptions - Review your process, if you have one, for creating Job Descriptions. If you don’t have one, create one. The new law says that employees cannot be sacked at will anymore. You have to have well-defined reasons with a paper trail back to documents that the employee has signed, along with measures that support your claim that they are incompetent.

Documentation - Review every document that you sign with an employee, including NDAs and non-compete agreements. The new law makes you liable for any negative outcome because the assumption (mine) is that you hold all the cards, and have superior power within the employer/employee relationship. Any slip-ups will cost your company money, not the employee or the job candidate. (Note: Under the new law employees cannot be forced to sign non-competitive agreements. This belongs only to the realm of senior management.)

Temporary Staff - Deal with all and any temporaray staff that you have in your office or factory. You need to either hire them on a contract or let them go. You may have some leeway on this but any delay is at your own risk. Employees, backed by willing and well-prepared employment lawyers, will be able to claim double salary for months worked without a contract. The limit is 12 months’ salary but that’s not much comfort.

Permanent Staff - The use of employment contracts in China has been the norm for multinationals in China. At the end of the contract they have often been renewed without much thought because the impact of that decision was low.

Under the new law the employer is permitted to enter into only two employment contracts with the employee. After that they are on an open-term contract, which means they leave or stay largely at their own discretion, and of course excepting breach of contract. So every permanent employee needs to be reviewed. Or not. (This should have been dealt with some time ago and can only be seen as a legal loophole. One that you might not want to go through. Chinese professional staff have choices, and under the new law they also have power.)

Employee Council - The new rulings on the issue of unions is still not clear, but what is clear is that companies cannot bar employees from setting up unions.

An alternative is to set up an employee council that represents the employees and solicits their opinions. This body does have a say on issues like your Employee Manual, and it is advisable to have one because it can make the approval of this kind of document easier. If you don’t have an Employee Council you have to get every-single-staff-member to agree to each issue one by one. (The jury is still out on this one.)

It would also be advisable to create an Employee Council as a way of beginning a new kind of conversation with employees. Not having had previous experience of this issue, most Chinese employees do not have the language of employer/employee cooperation, and this council would give them the breathing space to develop that ability.

Public Relations - This may not seem like an obvious department to be involved in anything to do with the new labor law, but according to Image Thief the underlying narrative in China is “Chinese employee vs. callous multinational employer or foreign boss”.

Foreign companies are easy targets, with deep pockets and an aversion to negative publicity. He suggests that you consider the various possible negative PR scenarios that could happen, and prepare a response. It’s all about managing risk.

Clearly the power has shifted in favor of the employee in China. This is not to be feared, as fear tends to be immobilizing. The new labor law really only brings China in line with many other countries around the world. The bonus is that the establishment of the rule of law is an absolute good in itself.

That doesn’t mean you shouldn’t be prepared for the change because the new law may overreach on behalf of employees for a period of time, until employers push back.

(This post does not constitute legal advice. For that you need to talk to a qualified lawyer or keep yourself up to date with the China Law Blog.)

Show more comments (4)
  • Dorian Lennon Great suggestions - they seem to have been well thought out. I hope that employees will be prepared for the changes that are scheduled to take place, to reduce anxiety and fear which may lead to low productivity.
  • xiao ou ma new labour law is great chanllenge to HR
  • Daniel Zhang Thanks . Mulligan, Frank.
  • waseem iqbal HR should be implemented at all levels. There should be an employee advisor who is responsible for guiding employees about the direction etc so they may not do wrong or blunders. Mean that he/she should be stopped on the spot.

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