Workers unite

If the draft Labour Contract Law (LCL) comes into effect in May, it will dramatically alter the employee-employer relationship in China in favour of the employee.

by Far Eastern Economic Review
Last Updated: 23 Jul 2013

While some people support the law for this reason, others bemoan the fact that it will impose new administrative and legal burdens on domestic and foreign employers alike. For instance, employers will be obliged to discuss policies and rules that are of 'vital interest' (a term that is left vague in the present wording) to staff with either them or their representatives. If a labour contract has not been agreed between the main parties, then it will be regarded as a non- fixed term employment agreement.

Fixed-term labour contracts will become difficult to terminate under the new proposed rules, even in extreme cases such as when employees cannot perform their duties because of disabilities or illness. Where employers want to lay off more than 50 people, they will have to persuade either trade unionists or staff that a major change has taken place to the labour contract, which has rendered the contract incapable of being carried out.

The new law also changes the rules about probation periods, setting them at between one month and six months (the latter being for senior technicians and the former for non-technicians). Any extended probationary period will be declared invalid, even if both parties have agreed to it.

On the important issue of commercial secrecy, the draft law addresses only non-competition agreements for employees (where an employee agrees not to pursue a similar profession or trade in competition with the current employer) without separately addressing non-disclosure agreements.

It is not clear, therefore, if an employer will be able to execute a non-disclosure agreement against an employee because the penalties in the courts may not be allowable. In the case of non- competition agreements, the new law limits the geographic scope and duration of such contracts and provides for only minimal penalties should the employee renege on the agreement.

Employees will be able to take their employer to arbitration to cancel the labour contract should they believe that there are 'material misunderstandings' between the parties in the contract or it contains any obviously 'unfair terms'. Both of these terms are unspecified, which will make cases against the employer difficult to defend. In M&As, companies will be obliged to keep staff and there will be restrictions on laying people off.

Severance pay will have to be given to staff in a wide range of cases, even when the employee has resigned. Where foreign firms hire people via a labour service agent, such contracts will last only a year. Local authorities will be given new powers to inspect companies and implement the new law, and any disputes that have not been settled when the law comes into effect will be subject to the new rules.

China's onerous new labor law
Alexander May and Tong Jia
Far Eastern Economic Review, Vol 170 No 1, Jan/Feb 2007

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