When enacted, probably later this year, China's new Labour Contract Law will have an impact on most businesses operating in the mainland. The second draft is under discussion and, among other things, proposes new standards for enforcing employment contracts, regulating severance pay and negotiating policies that affect the workplace.
If passed into law, such measures will oblige employers, including foreign-invested enterprises, to implement changes. It will be necessary for them to review in-house HR practices and to rethink some of their standard terms of employment. In certain areas, this will create a markedly different business environment and, if current noises are anything to go by, it seems not everyone welcomes the prospect.
"The multinational business community in China is a bit nervous about what is coming up," said Stella Hou Beili, general manager in Hong Kong for consultancy firm Hewitt Associates. "There is a lot of sensitivity about some of the issues."
She said some overseas enterprises had been raising specific concerns via their chambers of commerce and, in fact, gave every impression of opposing certain aspects of the legislation.
"The good thing is that the government is listening and there is a very clear process," Ms Hou said. This included seeking public opinion via a website, where the volume of feedback - a reported 191,000 comments on the law's first draft - had far exceeded expectations.
"This was a pretty big step for the government," she said.
Many of the key areas of concern were highlighted at a recent seminar featuring speakers from Hewitt and international law firm Baker& McKenzie. The objective had been to create greater general awareness and to alert companies of the need to keep relevant departments or head offices fully briefed, Ms Hou said.
Careful study was required because there were still signs the law contained ambiguities, meaning there could be problems applying it with consistency in different industries or different parts of the country.
In particular, she emphasised the importance of employers understanding the likely changes relating to fixed-term versus open contracts, consultation with representatives of labour unions, and non-compete clauses.
Specifically, the draft law allows an employee to have a maximum of two fixed-term contracts. That means if someone then asks to continue in employment when the second one expires, and the company agrees, an open-term contract must be signed.
According to Baker & McKenzie, when the law comes into effect, many enterprises will find most of their employees are entitled to open-term contracts.
However, certain provisos will apply. Most notably, employees without written agreements will have no right to demand open-term contracts, and employers will be able to terminate fixed-term contracts if a member of staff proves to be incompetent.
Besides that, if a fixed-term contract is not renewed, severance must be paid, except in cases where the employee rejects an extension that offers conditions at least equivalent to those currently in force.
In the second draft law, there is also a requirement to discuss with labour unions or staff representatives any company rules that have a direct bearing on employee rights or interests. This is taken to refer mainly to issues of compensation and work hours. The stipulation included in the initial draft that the union must give approval has now been dropped.
So far, however, it remains unclear how the proposed changes are likely to affect the adoption of new company rules. It obviously doesn't help the definition if what the consultation process entails is imprecise.
Since it is open to interpretation, it might simply involve giving notification and asking for feedback from staff, or more in-depth formal negotiations.
Two further points still require clarification. The first is whether the concept of consultation also extends to major decisions about corporate policy; the second is whether it should apply to existing company rules, as well as new ones.
"We hope the [final version of the] law will encourage clarity in issues like that," Ms Hou said.
Already, two of the provisions under consideration would give employees the right to challenge company regulations. One allows unions or individual employees to object to "inappropriate" rules and discuss methods to "improve" them; the other lets the labour bureau instruct an employer to make changes to rules that contravene applicable laws and to indemnify staff for any associated losses.
For non-compete clauses, the latest draft reflects the current law. It confirms that compensation must be paid after termination to enforce restriction on a former employee, but does not specify any amount.
However, no limits are now placed on the amount of liquidated damages the employer could claim if the non-compete clause was breached.
In principle, the two parties involved could agree a sum, which a court could change only in certain circumstances.
Baker & McKenzie pointed out that the second draft proposes that the representative offices of foreign enterprises should be allowed to hire mainland employees directly. This, they note, would do away with the need to use an agency such as Fesco, which has played a pivotal role in recruitment up to now.
Work to rule
The following draft employment-related laws are also under discussion. They are likely to be submitted to the National People's Congress before the end of the year:
Social Insurance Law would require expatriates to participate in China's social insurance scheme unless exempted by reciprocal government agreements
Employment Promotion Law would oblige employers to provide training and would prevent discrimination on the basis of age when hiring. It may also create government tax incentives to encourage employment
Law on the Resolution of Labour Disputes would require mediation as part of the process of resolving disputes, before going to arbitration. It would also extend the period allowed to file a claim and limit the right of appeal after a decision at arbitration. |
