China New Labor Contract Law: some learning
I had dinner at my aunt’s home this weekend and somehow we ended up talking about the new
Meanwhile, the company I work for is building a team in China and I want to learn about it. This new version of Labour Contract Law was signed by Chairman Hu Jingtao on Jun. 29, 2007 and has come to be effective on Jan. 1 2008. A reporter from jrj.com (a website of China Financial Online Co. (NASDAQ：JRJC) Wei Heping (魏和平) said on an article “Why are Entrepreneurs Panicked at Talking about the New Labor Contract Law?”(谈新劳动合同法企业家为啥恐慌) on Jan.21, 2008:
“On 2007 China Entrepreneur Summit (6th annual conference) held in Dec. 2007, President of Lenovo Group Liu Chuanzhi expressed his concerned that the new Labor Contract Law is too protective for the employees, which is an disadvantage for the development of companies. Professor Zhang Wuchang (张五常), dean of School of Economy and Finance Hong Kong University also blogged about the new law. He believed that the new law could be ‘protecting lazy people’ and ‘there is a possibility {for the new law} to blow up the current well-reformed economy’.”
The reporter also presented two statistics to show how “panicked” the entrepreneurs are:
- He tried to contact ten entrepreneurs who often “actively talk about corporate social responsibility (CSR) in front of medias”, but only four of them agreed to accept an interview on this topic.
- He didn’t find many comments by entrepreneurs like Liu Chuanzhi on this topic since last June. But he found a few reports about some well-known enterprises announcing mass lay-offs by Jan. 1 2008.
According to Professor Zhang, the most debated four topics are:
- Dispatch (派遣) between Organizations. (I don’t understand what does ”dispatch” means and it is not defined in the law. To my best understanding, it can be translated as “outsource” (外包)).
- Probation period.
- Compensations on various situations: not signing a contract, terminating a contract or lay-off.
- Non-fixed term contract.
No. 4 “non-fixed term contract” is the main reason of panic, which can be understood as “an employee is automatically granted a permanent contact after serving a company for 10 years continuously”. Professor Zhang compared this rule with the tenure system in American universities and he believes it will protect lazy people and be unfair to young people in the coming decades when all the “tenure” positions have be felt by senior employees.
In industries, according to Wei’s interview, Lenovo president Mr. Liu felt that to keep the “permanent employees” or pay the compensation when ending a contract will be a huge burden for a company in long term. But Liu Jianguo, the CEO of a new startup (aibang.com) and also former CTO of Baidu.com, said the “permanent employees are the most valuable assets of a company, and the new law will help to improve the overall management level in China.” Shanda President Tangju commented that people felt panic “because they think management cost will increase. But in order to be a socially responsible corporation, a company must be responsible to its employees first.”
China Law Blog’s China’s New Labor Law — It’s A Huge Deal. Huge I Tell You will help you to understand maybe only Chinese entrepreneurs are “panicked”. China Briefing (a law firm) have cleared up several common misperceptions here . (Updated on Feb. 1, 2008: Note: I didn’t verfiy every statement in these two posts by refering them to the orignial LCL in Chinese language. AND i am not a lawyar and don’t have a law degree. These two citations are quick references for readers who are interested in this topic. Thanks our commentor Fidelmeister: both authors don’t read Chinese language. )
Here are some details about hiring part-time helpers in China (as I am interested in this part). FYI.
• Definition: Paid by hour, daily working hour is less than 4 hours and weekly total working hour is less than 20 hours.
• Contract format: verbal agreement is accepted.
• Probation: No probation allowed.
• Contract termination: Either party can terminate the agreement any time without advanced notice, and employers don’t need to pay any compensation.
• Payroll interval: Maximum 15 days.
Download a Chinese version of NEW and OLD (1994 version) Labor Contract Law here. (Author: Li Qiang) (Note: This is a version I found online and NOT guarantee it is the the 100% original version.)
5 Responses to “China New Labor Contract Law: some learning”
Non-fixed term contract: How could this protect lazy people? If someone is lazy and not performing under the terms of the contract before they got to this stage, that would be grounds for terminating the contract. Any manager who kept a “lazy” (non-performer?) on contract shouldn’t be a manager.
It sounds like some Chinese business people’s idea of a “contractor” is somewhat antiquated by other standards. It seems to be a way around granting employee benefits etc. Under many Western legal systems, a contractor could legally claim to be an “employee” (i.e. an “employer-employee” relationship exisits) unless the following independent contractor conditions exist:
Indicators that the worker is a self employed individual (i.e. contractor):
The worker is usually free to work when and for whom he chooses and may provide his or her services to different payers at the same time.
The worker does not have to perform the services personally. He or she can hire another party to either complete the work or help complete the work.
The worker can generally choose the time and the manner the work will be performed.
The worker does not need to be at the payer’s premises.
The worker can accept or refuse work from the payer.
The working relationship between the payer and the worker does not present a degree of continuity, loyalty, security, subordination, or integration, all of which are generally associated with an employer-employee relationship.
It sounds like the new law is an attempt to gradually bring Chinese labour law in line with generally accepted practices elsewhere. 10 years on contract?? In some parts of West for example, one would likely have a strong case to argue one was an “employee” not a contractor (see “continuity” for starters, above). Hence presuambly the Chinese term “permanent contract” after 10 years is really a way of adressing the issue “employer-employee” relationships.
Just to be clear, Chris Devonshire-Ellis is NOT a lawyer anywhere. Ask him. He never even graduated from university. Please be careful with your citing on legal matters. Neither he nor Dan Harris (who you also cite) can read Chinese either, which is pretty important when it comes to interpreting a Chinese law, would you not think?
@Fidelmeister –
You are correct that I (Dan Harris) cannot read Chinese, but my co-blogger, Steve Dickinson can read it like a native and it is Steve who reads and interprets laws like these. Steve has been fluent in Chinese and involved with China law for around 25 years.
@China Law Blog,
Thanks for your comment, and for reducing my brain-damage trying to understand the compliance around this law. Steve post was great. Do 2 things: (a) employee handbook, (b) written contract. that’s it!
@Fidelmeister,
Thanks for your comment! Min Guo will respond to your comment and @Michael’s too. Yes, we are not trying to dispense any legal advice at all, just share our own experience trying to deal with all these legal matters. Min and David can read Chinese fluently, but I cannot. So there my disclosure statement! Thanks again for visiting.
About Chris Devonshire-Ellis:
http://www.china-briefing.com/news/2008/03/24/setting-the-record-straight.html
Famous guys always get dissed in China.