From News, page 3, issue no. 342, November 19th, 2007
Translated by Zuo Maohong
Original article: [Chinese]
To await the destiny of being laid off, or to take the initiative in quitting? To renew the contract, or fight for reinstatement?
The above conflicts are highlighted by a recent, 7,000-strong, mass voluntary resignation at Huawei, China's biggest telecommunication equipment maker. Other companies and trade unions have also joined the tug-of-war between laborers and employers, and their conflicts have cascaded into a wider public debate throughout the country.
The source of it all is the new Labor Contract Law, which will come into effect on January 1st of next year.
Four Unpleasant Regulations
The basic principle of the Law is to "protect the rights of employees", according to Zhang Shicheng, deputy director of the administrative law office of the Working Committee of Legislative Affairs under the Standing Committee of National People's Congress.
Among 16 articles in the "Legal Liability" chapter, only one and a half focus on employee obligations. Many articles have been likened to strict military rules imposed on employers.
As a result, Liang Zhi, from All-China Lawyers Association, has been busy giving lectures on the new law to companies all over China. He points out that one of the rules that alarms employers is the "open-ended employment contract".
According to the 14th article of the Law, an employee who has served a company for more than 10 years; or who is under a fixed-term employment contract for two consecutive terms, shall be offered an open-ended employment contract, unless he or she refuses.
"Many Companies regard this rule as a scourge," says Liang, the association's deputy director for Committee of Labor and Social Securities Law.
The other main sticking point for companies concerns the probation period.
According to the 19th article, for an employment contract lasting between three months and one year, the probation period may not exceed one month; for a contract between one and three years, the probation period caps at two months; whereas for a contract beyond three years (or open-ended), six months probation is the maximum. An employer may only impose probation period once on an employee.
The third inconvenience lies in the rules on staffing, says Liang.
The Law demands that employment agencies have a registered capital of 500,000 yuan and above. The employment contracts between them and workers shall be a fixed term of two years and above, with the agencies paying their contract labors on a monthly basis. When there is no job placement for a worker, the agency is still required to pay its labor a minimum wage prescribed by the local law.
Liang says these rules required such agencies to take on more responsibilities and burden.
The fourth rule that affects companies significantly is related to "severance payment", says Guo Jun, minister of Democratic Management Department of the All-China Federation of Labor, who has engaged in drafting the law.
The law states that in the event of contract termination, the worker shall be paid a compensation of one month salary for each year of service. As for high-salary employee, the compensation shall be three times the monthly average wage in the locality capped at 12 years of service.
Misinterpretations of the Law?
The above rules have elicited counter-measures from companies, including Huawei. But legal experts believe the companies' reactions arise mostly from misinterpretations of the law and a sense of collective panic.
The incidents of Huawei's "mass voluntary resignation" and Wal-Mart's recent large-scale termination were largely due to misinterpretations of the new ruling on open-ended employment contracts, Liang Zhi says.
Guo Jun, on the other hand, explains that, "an open-ended employment contract is not the same as a lifelong guaranteed job as adopted in the times of planned economy."
Back in the days of planned economy, employers offered lifelong job appointments. Even if a company went bankrupt, it was responsible in arranging new job placement for its unemployed staff.
The open-ended employment contract, however, is different. Several articles in the new Law prescribe the conditions for termination initiated either by the employer or the employee.
The introduction of open-ended employment contracts is meant to encourage both sides to establish long-term working relations, says Li Yuan, director of the administrative law office of the Working Committee of Legislative Affairs.
"To satisfy some employers' desire to extend probation periods, some experts suggest that they can extend the probation period to two months by offering a contract of one-year-and-one-day; and to qualify for six months probation by having a three-year-and-one-day contract," Liang says, adding that this is an overt counter measure intended to lower costs by compromising the employee's legal rights.
On severance payment, Guo says that only two situations call for such compensation: one being the expiry of the contract, and the other being the dissolvent of a company due to bankruptcy, or a merger.
Guo says under the first scenario, when a contract expires, the employer can simply renew the contract to avoid severance payment. By continuously extending the contract up to a staff's retirement age or legal age to claim for social security insurance, the employer is free from shouldering the severance payment. To Guo's understanding, the rule actually lowers the operation costs of companies.
On staffing regulations, Liang believes they are meant to standardize recruitment channels and system. For example, in the hope of shunning responsibilities, many employers today have appointed employment agencies to arrange for labor placement.
Under the new Law, both staffing agencies and hiring firms should bear joint responsibilities and liabilities. The agencies are obligated to establish employment contracts and pay for social security insurances; meanwhile, the hiring firms are responsible for over-time payment, welfare package, working conditions, and salary adjustment.
