China's New Labor Contract Law Into Practice

Watch Telenovelas - Scene: More than 100 customers standing impatiently in approx. 25 queues waiting to pay. In each queue, there's only one cashier busy collecting money. "There used to be 3 cashiers in each queue and one additional person helping with packing ! " some people complained. "Why doesn't Carrefour hire more staff?" someone questioned. Each one has to wait averagely 30 minutes before they could pay for what they bought.

Such scene and criticism is not unusual these days.

With reports emerging of mass layoffs preceding its implementation, and factory closures or relocations to cheaper jurisdictions afterwards, the newly-effective Labour Contract Law has drawn criticism from both large employers, who complain that it adds unreasonable costs, and from employees, who are disappointed that the Law does not offer as many benefits for them as compared to the original draft. Employers are becoming very cautious to increase new staff.

These impacts are especially evident in labour-intensive manufacturers. There are many reports since end 2007 and early 2008 that Hong Kong, Taiwan and South Korea invested manufactures in China are closing its factories in China due to the increase of manpower cost.

Not only Asian investors having such concerns, Olympus Corp. and Yue Yuen Industrial (Holdings) Ltd., the largest branded athletic and casual footwear manufacturer who produce OEM for major international brand names such as Nike, adidas, Reebok etc. has decided to gradually relocate its manufacture to Vietnam in order to reduce cost.

China's largest telecommunication manufacturer Huawei has pushed the disputes about China new Labour Contract Law to the peak. Starting from Sept. 2007, Huawei has persuaded 7000 staff who has been working more than 8 years with Huawei to resign. Huawei afterwards re-hired all these staff and signed new agreement. This action is to avoid the term in the new Labour Contract Law: -

1. "If the employee has been working for the employer for a consecutive period of not less than 10 years, an open-ended employment contract shall be concluded, unless the employee requests the conclusion of a fixed-term employment contract."

2. "prior to the renewal, a fixed-term employment contract was concluded on two consecutive occasions, an open-ended employment contract shall be concluded."

This resign-rehire action has cost Huawei more than USD14 million. But the huge cost and criticisms from media and Chinese government have not stopped Huawei from implementing it.

Starting from end 2007, Century Dragon and our strategic partner Beijing Limin Law Firm have been busy with revising employment contract and providing consulting and training on the new Labour Contract Law for our customers. Every employer is becoming very cautious and nervous when hiring new staff and signing agreement. Many of our customers have stopped their recruitment plan this year.

This article is not to criticize the new Labour Contract Law, but we believe it deserves time and efforts to evaluate the effect of the new law. If you are seeking for legal advice on the employment no matter you are employer or employee, we welcome you to contact with our lawyer.