Will China's New Labor Law Change Labor Relations

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Jim Vescovi
October 4, 2007 (NEW YORK) -- New labor laws in China that address poor labor conditions was the subject of an October 3 talk given to students and faculty by Xie Zengyi, associate professor of law at the Chinese Academy of Social Sciences, and sponsored by the Center for Chinese Legal Studies.
Labor law is a relatively new phenomenon in China, with the first comprehensive law passed in 1994. The new law, adopted in June, seeks to redress some of the poor working conditions found in China, particularly those of the average worker. Prior to the law’s passage, most Chinese employees in small- and medium-sized firms lacked employment contracts. Moreover, most contracts were short-term, giving employers the flexibility to frequently bring in new, often cheaper, hires whenever they saw fit.  Employers also often refused to pay overtime and some even relied on forced labor.
In theory, the new law should go far in improving the situation, Xie said. Under the law, employer-employee contracts are mandatory and employers are encouraged to grant long-term rather than short-term contracts. All employees who have worked at a company for at least 10 years will have long-term contracts, which ensure that they can only be fired with good cause. Additionally, any employee who has fulfilled consecutive short-term contracts, which typically last no longer than a year, will also be entitled to a long-term contract that ensures job security. The law also mandates severance pay of at least one month per year of employment.
Trade unions also were given greater room to organize under the new law. Moreover, if government officials charged with oversight of the new regulations fail in their duties, they now are exposed to the possibility of civil suits.
While the new law is an important step in improving labor conditions in China, it contains loopholes, according to Xie.  For instance, a new penalty against employers who fire workers without good cause before their contracts expire merely doubles the employees’ severance pay.  But this can encourage employers to lay off workers early in their contracts, when they are not yet entitled to significant severance packages.
The larger issue is enforceability, Xie said. “We have yet to see how many of these provisions are going to be enforced.”