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2007-08-09 | All chapters

Workplace Change May Be on the Way
Liu Jie, China Daily, 9th August 2007, page 15

The new labor law will take effect from next year. It is expected to bring significant change by setting standards for mandatory contracts, dismissal and severance pay, and giving more power to trade unions.

The existing Labor Contract Law dates back to 1994. Experts say it doesn't meet the challenges of current conditions, given the rapid economic development and market liberalization of the country.

A string of industrial relations disputes have flared up over the past two years - most recently LG firing employees with five to nine years' tenure, fast food chains McDonald's, KFC and Pizza Hut underpaying part-time workers, and Wal-Mart's trade union storm. Cases like these spurred the government to overhaul its labor law to provide a framework for solving these problems.

Legislators began drafting the new law two years ago. Numerous changes have been made to the original draft, which was first published in March 2006 and received feedback from more than 190,000 individuals and organizations.

Get it in writing

"One of the key features of the new law is clarification of the contractual relationship between employees and employers. By defining the components of written contracts it will provide greater protection to staff both during the probation period and at termination (of the contract)," said Jill Malila, business development director of Mercer Human Resources Consulting (China).

The new law will also set up a formal process for retrenchment, in which employees and unions must receive advance warning of any issues that may impact the workplace.

The law also includes a process to monitor compliance and sets down fines for failure to meet its requirements.

"This (the new labor law) will facilitate long-term and secure contracts for employees," said Malila.

LG Electronics shed 10 percent of its workforce in China in June without any notice. The majority of the retrenched workers had been with the company for five to nine years.

The company said the job cuts were part of its corporate business reorganization and did not offer any compensation to its long-time staff, according to a Nanfang Daily report.

Companies will have to offer financial compensation to retrenched workers when their contracts are broken under the new labor law.

Power to the unions

The role of trade unions, including representing employees through collective bargaining on issues like wages, dismissal and welfare, will also be bolstered by the new labor law.

Many foreign-funded and private companies have refused to set up trade unions, fearing it may add to costs and encourage disputes.

The All-China Federation of Trade Unions (ACFTU), the national trade union body, has been actively lobbying foreign companies to set up unions.

Fast food giant McDonald's came under fire in May after Guangzhou-based New Express reported it was "violating labor laws" by underpaying workers - mostly university students. Under public pressure, McDonald's has since allowed its employees to organize unions to negotiate labor issues with the company.

International retail chain Wal-Mart gave up its resistance to the establishment of trade unions last year. The US company has since set up union branches at all 64 of its outlets in China - at a pace of close to one a day.

"Unions can help remove the barrier between employers and employees and facilitate their development," said Wang Ying from the ACFTU's Grass-Root Organization and Capacity Building Department.

Unions can also educate and organize workers and improve their skills, Ying said.

The ACFTU was involved in the drafting of the new labor law and is set to play a greater role in industrial relations under the new regime.

There were 764 million Chinese in jobs at the end of 2006, including 150 million union members, according to government statistics. The ACFTU said it plans to increase membership in foreign companies by up to 80 percent by the end of 2007.

The European Chamber of Commerce in China said its members are unconcerned about the effect of the law on European investment in the country.

US law firm Baker & McKenzie is skeptical of how effective the new law will be.

"It remains to be seen how this (the new labor law) can be effectively implemented," said Andreas Lauffs, head of employment law at Baker & McKenzie, adding that it will not greatly affect foreign operations here.

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