Same Rights For Everyone?

Same Rights For Everyone?

On June 29, 2007 the Standing Committee of the National People's Congress passed a new labour law that will come into effect on January 1st, 2008.

The law was approved amid forced labour scandals including the most recent in the brick kilns of Shanxi province where rural labourers worked under slave-like conditions. Following concerns about labour rights the new regulations intend to strengthen employee rights in China and ensure equal treatment of all work forces.

New Labour Law Regulations

Employers are required to sign written contracts. If within one month, no written contract is signed the employers have to pay double salary. If within one year, still no contract is signed, an indefinite contract is deemed to be signed.
Each employee can be offered a maximum of two fixed-term contracts. The third contract will be considered as indefinite.
Employees who have worked for the same employer for ten years are entitled to an indefinite contract unless they request a fixed-term contract.
The length of the probation period is linked to the duration of the contract and only applies once.
Salary during the probationary period cannot be lower than 80% of the salary after probation.
Labour unions have the right to negotiate contracts and company policies with employers on behalf of employees.
Changes concerning hours, safety, insurance and allotment of holidays must be submitted to the employee representatives for discussion (this regulation already applies for labour union members).
Employers are limited in their demand for training cost repayment when staff leave before the end of their contract.
Employers are forced to pay severance if they do not renew employees’ fixed-term contracts, unless they can state a valid reason.
The non-compete obligation is limited to two years and only applicable for senior management and technical personnel and other staff who are subject to confidentiality obligations.

These changes may seem drastic at first sight. In fact, they are not. Or better to say: the changes themselves are not. The new labour law is more likely to be enforced than the old one and, much more importantly, it may be primarily enforced at the expense of foreign companies. In line with the Chinese government's concerns about labour rights and working conditions comes its recent aim to fine-tune its foreign investment policies and not allow foreign investment at any price.

Hence, it is not the regulations in the new labour contract law that will make the difference, it is the strictness they are enforced with. Playing by the rules of diplomacy, the central government has stated that all companies will be treated the same under the law, regardless whether they are foreign or Chinese invested firms.

As always (or probably even more now than ever),consistent enforcement is the true key to making the law work. If the rules are the same for everyone, foreign companies will not lose their competitive edge in China. But if Chinese firms ignore the law or use creative HR strategies to get around it, the playing field will no longer be level. Chinese firms might be able to gain a cost advantage because they will not pay the same "employee costs" that foreign firms must.

At the same time, foreign firms cannot afford to dodge the law as the central and local governments are more likely to keep a watchful eye on them. Therefore it is recommended that foreign firms strictly follow the new law as they will be the first to be made an example of in any future crackdowns.

So the question of equal treatment also applies on another level. Will the new labour law be enforced for Chinese and non-Chinese companies in equal measure?

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