Monday, July 06, 2009

The Impact of China's Labor Contract Law

Before vacation I had the chance to attend a discussion hosted by Atlanta law firm Womble Carlyle on the ramifications of China's Labor Contract Law.

The Labor Contract Law, which took effect January 1 of last year, offers a series of protections for workers legislated in reaction to labor abuse within the Chinese factory system.

As Guamming Fang outline in her presentation, the planks of the new law include:
  • Specific requirements for written contracts for all employees
  • Regulations that effectively ban firing an employee without cause
  • Aggressive severance policies covering most terminated employees
The law dramatically increases the power of labor unions and opens the door for employees to directly pursue factory owners via the court system. It also limits the reach of non-compete agreements, addresses factory shut downs and layoffs, and disciplinary policies for employees.

Almost a year into the new policy a number of changes in China's labor landscape were reported:
  • 97% increase in the number of formal labor disputes
  • Increase from 7 million to 27 million in the headcount of workers classified as temporary employees, and as such not initially covered by employment contract requirements
  • In total, Chinese enterprises are estimated to absorb a 10 - 20% increase in their operating costs to comply with the new rules
A key insight was that the Law somewhat evens the playing field in China. JVs and foreign owned enterprises, often operating with their own labor policies in place, aren't receiving the blow suffered by China-China companies.

You can view Ms. Fang's presentation in its entirety here.

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