China: the land where workers can’t be sacked


China: the land where workers can’t be sacked

Chris White, labour law researcher in Canberra, reports on China’s new IR laws — including the fact that some employees cannot be dismissed.


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Chris White, labour law researcher in Canberra, reports on China’s new IR laws including the fact that some employees cannot be dismissed.

New labour laws in China will affect any Australian businesses wishing to operate in the People’s Republic, and can also affect companies that do business with Chinese suppliers.

Included in the new laws is the provision that an employee with 15 years service and less than five years from retirement cannot be terminated.

China’s new labor law on Employment Contracts has applied from the 1 January 2008 and on Labor Disputes Mediation and Arbitration from 1 May 2008. This new labor law framework is a great improvement for regulating employment contracts. The policy is to end the excesses of exploitation of Chinese workers and to settle labor disputes fairly. The Government is strong on employer compliance.

Violation of employee rights

The capitalist violation of employee rights and the extent of forced labour had gone too far. Not only are migrant workers from the countryside in sweatshops factories not paid the minimum wage nor overtime when working seven days a week to finish contracts but, for months, they are not paid at all. All work, no pay is to end. Penalties are increased.

Widespread protests and unofficial strikes against no pay had threatened social stability.

For Australian business, check your suppliers' pay wages and penalties on time. The practice of hiding non-compliance deep in the subcontracting chain where suppliers could not ‘meet the bar’ has to change.

Government authorities are cracking down on bonded labour in its various disguises.

Employment contracts must now be in writing and failure means the employer is liable for double wages. The new law deems a written contract to exist with minimum wages and conditions and to be enforced in arbitration or the people’s court.

Must negotiate with union

Company work rules have to be consistent with the employment contract laws. They have to be negotiated ‘on an equal footing’ with employees and the union. Collective contracts require discussion and approval by employees and executed by the union.

Short-term contracts to avoid employer obligations such as accident pay and health benefits are to end. Companies have to ensure greater job security with ‘permanent’ contracts. There are now three types of contracts: fixed term, for the project and ‘open-ended’ permanent contracts without a termination date. After two short-term contracts, a permanent open-term contract must be signed. The third open-term contract then provides for benefits. The employer is now liable for severance pay of one month’s pay for each year of service. The employer cannot change these fixed-term contracts unilaterally but by negotiation. Employees with service of no less than 10 years or who are 10 years away from retirement have to be on the permanent contract.

Casualisation is excessive with all the job insecurities. Employers can now only employ casuals on an average of four hours daily and the maximum payment cycle may not exceed 15 days. The policy is to reduce long-term casualisation. Workers can no longer be on long probationary periods.

Abuse of out-sourcing

Employers lobbied against the strong regulation of ‘dispatch’ employees. But the abuses of ‘out-sourcing’ to the many labour-hire or dispatch companies are to end. The new policy is that there will not be financial reasons for management to outsource sections of their workforce, to replace them with cheaper ‘dispatch employees'. Dispatch employees are to be hired permanently for not less than two years. There is a formal written contract with equal pay as employees in the user firm. A minimum wage is paid even when not used. The disputes settlement law treats labour-hire companies and user employers as joint entities.

Termination law has moved away from dismissal at will. Increased costs for illegal dismissal are in place. Dismissal is now only on specific grounds such as the following: by consent; being incompetent; for serious misconduct; incapacitated by non-work related injury; for mass redundancies and termination by 30 days notice. An employer cannot dismiss for work-related injury. Female employees cannot be dismissed for pregnancy. An employee with 15 years service and less than five years from retirement cannot be terminated.

The social interests of workers in terminations over 20 are protected. Priority is for those with long service, those who are the only ones in their families to be employed and whose families have a senior citizen or a minor who needs to be provided for and have 30 days notice. The circumstances are explained to the union.

Fair play on termination

Employers are to use ‘fair play’ on termination. The policy is that the employer who terminates meets some of the costs: one month’s pay for each year of service. Such termination payments and processes are fair and intended to deter dismissal at will.

The employer may have a restrictive confidentiality clause with a professional or skilled employee or an employee who has the obligation to maintain the confidentiality of his employer’s trade secrets. Employers lobbied for this wide coverage of employees.

China has an appalling heath and safety practice. Thousands of deaths and major OHS problems for employees is a scandal. OHS employee and union rights for a healthy and safe workplace are enhanced.

There is one union allowed by law, the All China Federation of Trade Unions (ACFTU). The enhanced union role was strongly opposed by Chinese and foreign corporate lobbyists. But, in 2008, I advise companies to support the unions’ legal role.

The Employment Contracts law has stronger union consultation rights for collective contracts higher than the minimum wages and conditions. The labor law encourages pattern or industry bargaining. Industry-specific or area-specific collective contracts may be concluded with unions in such industries as construction, mining, and catering services. Tripartite regulations governing collective negotiating have been developed.

Wal-Mart unionised

In 2007, in a world first, the ACFTU unionised Wal-Mart in a traditional bottom-up campaign where the virulently anti-union Wal-Mart had to recognise the Trade Union Law that if 25 workers freely signed then this was the union with rights. The ACFTU’s ‘Grass Roots Organising Department’ became active in recruiting and with strategies to empower local union delegates in bargaining. The ACFTU unionised Wal-Mart first, then in 2008 is onto other foreign enterprises.

There were differing employer reactions to compliance. Initially, some companies went along the lines ‘do not do anything - there has been little compliance before, so ignore the new requirements’. This premise is risky. Most companies responded by putting in place revised internal policies to apply the labor law. Effort has to be made for the employees and their union to be effectively consulted on rules and collective agreements. Employees are to be treated fairly with respect and dignity. The opportunity is open for human resource management with strategies for a high social responsibility assessment. Employers can implement practices to not only have their employees enjoy these entitlements, but to do better.

The giant telecommunications company Huawei tried to avoid signing permanent contracts through ‘voluntary resignation’ before the operative date on 1 January 2008 so that veteran workers would not be permanents, but had to back-down and reach an agreement with the ACFTU to comply.

High-profile strikes

There have been high-profile strikes against companies not complying. The richest woman in China, Zhang Yin (CEO of Nine Dragons Paper), tried to outsource guards and cleaning services and did not want to give contracts, but the workers went on strike and won. It was an emblematic case: when one of the most powerful businesswomen in China could not sidestep the law, it means the Government wants compliance.

The Government had concerns with a labour disputes growth rate of 27.3% annually. It is too early to say whether the free, speedier and employee friendly processes to enforce their rights at work through the reformed mediation and arbitration and access to the people’s court provides fair play.

China’s labor law reforms afford workplace social justice. Will Australia’s new Fair Work Australia be as good a protection for Australia’s precarious workforce, enhance the unions’ role and ensure fair rights for collective bargaining and fair dispute resolution?

Full text of article

Inquiries relating to the full text of the article, ‘Labor Law Challenges for Australian Companies in China’, should be directed to the author: Chris White.


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