Be prepared. This was the overarching theme of the day as legal experts and company representatives met to discuss the implications of China’s new labor legislation.
CHINA ECONOMIC REVIEW’S event, held in Shanghai at the end of January, tapped initial responses to the labor contract law and employment promotion law, which both came into effect January 1.
Over 150 people gathered to hear the views of labor law specialists from foreign and domestic law firms as well as experts from the human resources industry. The latter included representatives from Randstad, a global temporary and contract staffing organization, and China Team, a domestic headhunting firm.
The government has always said the law’s primary objective is to strengthen workers’ rights. For employers, this means higher labor costs and greater accountability – they must understand the more codified system now in place.
“We recommend that foreign multinationals pay attention to this law; doing so will relieve a lot of the disputes,” said Linda Liang, a partner at Chinese law firm King & Wood.
While many foreign firms have management systems that meet international standards, there are still areas where they may be tripped up by specific requirements of the Chinese legislation.
Key changes include mandatory written contracts with full-time employees, while new recruits cannot be made to serve as probationers indefinitely. Non-fixed term contracts are to become more widespread, making employment termination more difficult (and more expensive as there are also clear rules regarding severance pay). The law also states that rules relating to overtime will be more strictly enforced.
In addition, trade unions now have greater license to get involved, whether it is through consultation on internal regulations or collective contract bargaining.
Companies that fail to address these issues properly may well end up in court.
“The new law makes it very easy for employees to sue,” noted Dr Andreas Lauffs, head of Baker & McKenzie’s employment law group in China.
However, employers can also expect to benefit from the labor contract law. Clauses on non-competition and information security there to protect firms, while higher labor costs can be offset by lower staff turnover. With more stable contracts, people stay at their jobs longer, develop skills and add value to the firm.
Ultimately, compliance largely comes down to proactive HR management.
“If you have reasonable regulations and a consultative process, there will be greater employee compliance and retention,” said Michael Rosenthal of consultancy Waterville International.