Following the enactment of the Labor Contract Law in 2008, the collective groans of rage from foreign invested firms in China rose to the heavens, where they fell on the deaf ears of the Celestial Judiciary. A certain Western chamber of commerce made such a stink about it in their house magazine that the Chinese government allegedly threatened to hurl the unruly not-quite-registered chamber from the country.
While Chinese firms were quieter (lacking their own magazine, perhaps), as demand for export products plummeted and exporters found themselves unable to quickly lay off workers they no longer needed, they also objected, again to deaf ears.
To date, most of the coverage of this issue has focused on the law’s effect on the Chinese manufacturing sector. What has not been widely discussed is the fact that the Labor Contract Law, unlike certain other legislation, does not apply only to Chinese employees. Yes, expat managers, lawyers and all around running dogs are also entitled to full protection of their contracts. This has produced a new and darkly entertaining phenomenon: expatriates who once ridiculed the Chinese legal system as arbitrary, xenophobic and opaque (swiping at socialism with Chinese characteristics on the way) are now thanking the Celestial Edict that allows them to sue their employers for firing them without cause in the name of cost-cutting. To be fair, not all expats objected to the law, or hated socialism, and there is nothing hypocritical about them taking advantage of their new rights. But I think it’s fair to assume that in the financial services, manufacturing outsourcing and consulting sectors, such people are few and far between. Or at least, they were.
Problem is, expats are expensive. Even the cheap ones are expensive, and as one HR consultant pointed out, while slashing headcount isn’t always the smartest way to cut costs, it’s definitely easier than liquidating the factory. So in the past week I’ve met a slew of laid-off expatriates who tell stories of midnight visits from the pink slip fairy. Some are complacent, others not. Themistocles Nucleotide (not his real name), for example, was recently booted from the subsidiary he successfully managed. He was expensive, and that was that; he had half an hour to box his stuff and don’t let the door hit you on the ass on the way out. Well, under the new regime, it’s illegal to fire someone without notice or cause. Themistocles has a Chinese lawyer now. So do some of his friends. Many are suing, and it sounds like at least some are winning.
Companies are taking it seriously. One expat known to us came to China on a contract, worked for two years, and then when the economy cooled, the company promptly laid him off without severance. He threatened to sue. His employer buckled immediately.
However, it does appear that there may be some – how do we say this? – flexible implementation of the law. Themistocles explains: “Apparently what happens is, the expats go to the labor board, they demand full settlement according to the law, and the board gives them half of whatever they are entitled to.” And by full-package expat standards, what you are entitled to ain’t much. There’s a complex formula of caps and maximums, indexed to the average salary of the city you are living in, which keeps severance payments low. Also, allowances and other benefits (gym memberships, school fees for children) aren’t included in the formula. This law was designed to protect low-skilled workers and the Chinese middle class, which somehow manages to get by without three-martini lunches and serviced apartments. So while victory may taste good, better celebrate with beer, not champagne.
In summary, whatever the labor board decides, laid-off expats are going to have to cut back on the martinis, and maybe let go the live-in pedicurist. Wait. The pedicurist has a contract. He’s waving the employee handbook! Honey, go start the car!