Mainland Media

ACFTU Comments on the Proposed Contract law

Below is an IHLO translation of a prominent article by Guo Jun, director of the ACFTU’s trade union democratic management department [1] that appeared in the official newspaper the Workers’ Daily on 6 March 2007.

The article comes into the debate rather late and is in part a response to claims that the ACFTU has been remarkably silent during the past 12 months of public and often heated debates.  In part however it reveals some serious misgivings about some of the changes contained in the second draft of the law.

According to sources the ACFTU played a major role in the drafting of the first draft and was relatively satisfied with its input into the first draft. The second draft, while its notes some improvements, it also uses quite strong language for an official editorial – for example regarding the removal of the trade unions right to monitor mass layoffs the author writes; “ACFTU is sorry to see such a change.”  Regarding the changes to the consultation on companies policies with the workers congresses (as opposed to either the congresses, the union or collective consultation as contained in the first draft) the author writes that the revision is impractical.

The drafting and open consultation of the labour contract law have drawn concerns and various comments from all levels of the society. The second draft was released in December 2006 and though it is not a perfect version, it has improved a lot when compared with the first draft. Here are some main concrete changes and issues that need to be better addressed.

1) “Labour Law” as the principle of legislation to protect workers’ legal rights and interests.

Due to the imbalanced relationship between employers and employees, individual employees are usually found in a disadvantaged position in the actual labour relationship. Therefore the “Labour Law was promulgated to “protect the employees’ legal rights and interests”.

For the same reasons, the labour contract law should not simply be drafted by assuming both sides in the labour relation are equal. The second draft gives a better evaluation of the labour relation, for instance, labour contracts are forbidden to require employees paying any form of deposit, which gives employees more freedom to terminate their labour contract. It also allows employees go directly to court to apply for immediate payment (of wages / other legal compensation) from their employers or even for a writ of execution.

2) Wider coverage to protect employees at public services units.

The second draft clearly requires that, excepting civil servants or those being employed under civil service regulations, state institutes, public services units and social associations must standardize their “employment contracts” [2] and follow the labour contract law. The second draft has taken the historical factor of “employment contract” into consideration. In its annex, it states that “if the State Council makes specific regulations on certain employment contracts within the public services units, these decisions would prevail”

The regulation on “other forms of employment” was added in the second draft, so part-time employment is no longer unlegislated. [3] Part time / non-full day employment could become valid after a verbal agreement, or by signing at least one labour contract. However, no probation period should be required for a part time labour contract. Also both parties are free to terminate the contracts without any financial compensation required. Such an arrangement is different from a full time contract and encourages flexible employment and increases jobs.

3) Strengthen employees’ democratic management, in terms of content & procedures and to realize the principles of openness, fairness and justice.

The second draft, for the first time, clearly states that “regulations and policies made by employers and having a direct relations to the vital interests of employees, i.e. wages, working hours, rest days, occupational safety and health, insurance, training, disciplines and work quota shall be adopted after solicitation of the opinions of the workers’ congress or the whole workforce, and the equal negotiation and approval of trade union or workers’ representatives.” It shall then strengthen the employees’ democratic participation and share on decision making. Employees are not only able to participate when establishing policies directly affecting them, but also at times of amending and decision making. More detailed regulations have been put forward, especially on setting work quotas, as work quotas have been abused by some employers by forcing their employees to work overtime without payment. Employers take unpaid overtime as granted as the employees have not yet reached their “work quota”.

The second draft also identifies the workers’ congress as the basic form for enterprises’ democratic management.

In terms of legal liabilities, it provides a new regulation to fill a gap in Labour Law. For instance when employers sign labour contracts or employ staff with agreements which are not law abiding, such contract and agreements are considered legally invalid and employers have to compensate employees whose interests are violated. The current Labour Law says that employers can terminate their labour contracts with their employees when they violate the labour contract; however, it is difficult to prove if those labour contracts are actually legal in the first place. Employers often include arbitrary and illegal regulations in the labour contracts, for example, a 300 Yuan fine for being late for work, no more than five minutes for a toilet break or dismissal in the event of marriage. By adding these regulations in the labour contracts, the employers are in a position to dismiss workers.

At the moment, it is practical for workers’ congress to solve this problem. Workers’ congresses are a functioning platform for an enterprises’ democratic management but is different from supervision from the trade union or negotiation between employers and employees. A workers’ congress does not consider only the labour relations, but brings in all parties of an enterprise, such as investors, management, workers at different levels and positions together, to communicate, negotiate and facilitate. After all parties’ voices are communicated, it will try to reach a common agreement. When employers alone have the ultimate right to set up regulations which directly affect workers, especially in disciplining the workers, it raises doubts as to the legitimacy of such action. Enterprises are created by both labour and capital, and we should not solely allow capital to make decisions affecting labour.

The clauses in the second draft regarding democratic procedures may need further discussion.

The first draft says that “regulations and policies made by employers and having a direct relation to the vital interests of employees, shall either by discussed and approved by trade union, workers’ meeting or workers’ congress or via collective consultation. The method of discussion, which is either through trade union, workers’ congress or collective consultation, can be chosen in accordance with the actual situation. In the second draft, however, workers’ congress becomes the first place to discuss when issues are raised and the other two for negotiations in the later stage. Such a requirement is indeed impractical.

A Workers’ Congress as an enterprise’s democratic management mechanism is not able and does not need to be involved in all regulations and policies having a direct relation to the vital interests of employees. The trade union, instead, could solve most of those issues directly. The second draft weakens the decision making power on certain issues of workers’ congress to a “discussion” only [4] , while at the same time, allows the trade union to make decisions over the workers’ congress’s thoughts, which is improper as the trade union is merely one of the units of the workers’ congress,. A better suggestion is to clearly map out what are the issues requiring the approval of workers’ congress, for example; regulations on disciplinary measures on workers; and then what needs its discussion and what could be directly negotiated by the trade union or through collective contracts.

4) Emphasize the importance of the labour contact in its written form as a concrete requirement

The first draft said that if the employer does not offer a written contract to the employee, it will be automatically considered that a non-written labour contract has been agreed between them. The second draft revised this to “if no written contract is offered to the employee within one month of his employment, the employer is required to pay the employee his wages and another two months’ wages as compensation”. By using economic means to make the employers comply is more practical than regulating this with the concept of a non-written labour contract.

5) Probation clauses are now more practical

The first draft elaborated in detail how the probation period was calculated, based on the nature of jobs, however, it was rather difficult to formulate and would be difficult to put into practice. In the second draft, probation is linked with the length of the employment contract, which is more reasonable and practical. It also states that if a contract without a specified concrete period of employment, or where the probation period is the same as the employment period then the probation period stated would not be recognized. Additionally employers are required to provide evidence for dismissal when saying the workers are not fit for the jobs, which tries to stop employers using a probation period to exploit workers.

The second draft does not set a limit for probation period, which may allow ridiculous cases like an employment contract for 1 month and 1 day with a legal but unreasonable probation period of 1 month. It would be better to regulate it as “no probation allowed for employment of less than 3 months”. The second draft states that “during the probation period, the worker’s wages should not be lower than the lowest wages for the same post or less than 80% of the wages after the probation period”. Such a law is neither legal nor reasonable; it is suggested to revise it to “the wages during the probation period should not be lower than the wages stated in the labour contract”.

6) Encourage non-fixed periods [5] in labour contracts, rather than short term contracts in order to stabilize labour relations

The second draft does not insist on letting the market decide on the issue of short-term labour contracts, but gives three conditions for employers to offer employees a non-fixed period of employment contract.

1. According to the 1994 version of the labour law, which says that when a worker serves an enterprise continuously for 10 years s/he is considered as having a non-fixed term contract or permanent status. At the same time the new condition removes the perquisite that such a contract must be agreed by the enterprise. This should be seen as a step forward.
2. In 1996, there was a regulation issued stating that if a worker has served at an enterprise continuously for 10 years and if in 10 years time, he would reach the legal retirement age, then he is eligible for a non-fixed term contract. The second draft allows for either one of these scenarios to result in a non fixed term contract instead of both of them, which is more flexible.
3. In reference to other countries’ legislation, after two full terms of a fixed labour contract, the worker is eligible to require a non-fixed labour contract. If or when the contract is cancelled or terminated, the worker is entitled to two times the legal compensation.

However, the major disadvantages lie in the fact that the employer either has to be willing to comply or has to make a mistake in order to require a fixed term contract. If the employer does not want to sign a non-fixed term contract, he could easily achieve that by not signing any contracts longer than ten years or not keeping a worker for 10 full years. Or he can choose not to renew the contract, after two full term contracts (each term is kept less than 9 years and 11 months). In other words, the second draft does not solve the problem of short term contract. It would be more effective, if it kept the first draft’s measures, which is using economic measures, rather strict regulations to avoid short term contracts.

7) Enhance regulations for issues relating to services term and competition

In the first draft, employer could only require a stipulated length of service if he offered six months or longer paid off-duty training to his staff. The second draft shortens the six months requirement to one month and removes the previous restriction, which is that the staff subjected to this requirement are to be senior management staff, senior technical staff or staff involved in trade confidentiality issues. It also leaves the job titles, services terms and compensation related to off-duty training open, for both parties to negotiate. I would suggest to further remove the requirement of one month and leave the other items open for the employer and employee to negotiate, as long as breach penalty the employee has to pay should not be higher than the training fee (not including training related expenses, like transportation or accommodation). This would make the offer of training more welcomed by both.

8) A weakening of trade union’s role in monitoring and restricting dismissal on financial grounds

The first draft states that the employer has to negotiate and agree with the trade union or workers’ congress about dismissal. However, the second draft reduces the trade unions’ power, by saying that dismissals can be carried out after gathering comments from trade unions and workers and reporting such to the administrative bodies of the labour department. The ACFTU is sorry to see such a change.

9) Additional clauses on collective contracts, but with similar content as before

The second draft removes the clause which states that the “trade union or workers’ congress is eligible to negotiate with the employer in drawing the collective contract” as contained in the first draft. Instead, it adopts requirements from the 1994 Labour Law and the 2001 Trade Union Law and puts more details on collective contracts by industry. While it seems that the second draft focuses more on collective contracts, in fact it weakens the trade union’s role by inviting the employer to negotiate a collective contract. Indirectly, it gives the employers a chance to ignore their responsibility to fairly negotiate with the trade union. Back in 1950, the trade union law stated that trade union had the right to negotiate collective contracts with employers and it also implied that it is the responsibility of the employers to take the trade union as an equal player in the negotiation process. In some countries, employers have to bear legal responsibility if it fails to acknowledge the trade union’s role on this. Therefore, more progressive regulations on this matter should be recommended in this legislation.

10) Revision of and improvements to the labour dispatching system: a more reasonable division of responsibilities

The second draft removes the regulation about the controversial “deposit” and the strict requirements on setting a direct labour contract between the workers and the employing unit after the first year of using a labour dispatching system. The second draft strengthens the regulations on labour dispatching system. Eligibility for employing employ workers under a labour dispatching system is made more sophisticated than the requirements currently in the Company Law. The labour dispatching unit must first sign a contract of more than two years with the workers and have legal responsibility as an employer. Second, the labour dispatching unit is not allowed to deduct any wages, nor charge the workers fees in any form. The employing unit has to ensure the workers from the labour dispatching unit proper wages distribution, pay rises, the same payment for the same jobs, training and the right to join a union. The labour dispatching unit and the employing unit are jointly responsible. The second draft also states that labour dispatching is a method only suitable for “jobs with a temporary, provisional or replaceable nature”. These new regulations are helpful in regulating and improving the labour dispatching system.

However, the clause; “contracts should be renewed after the previous contracts end, under the non-illegal, normal conditions” remains problematic. It may raise the risk of workers being forced to renew their contracts and therefore it should include another requirement of “when the workers consent”.

The second draft also cancels the regulation on terminating labour contracts and increases the state’s involvement, to gradually ensure that a workers’ basic pension insurance could be accessed throughout the country. Though this area is more related to a Social Security Law it is highly dependant on the successful implementation of the Labour Contract Law. Therefore this issue must be addressed with great importance and urgency.

In many places, we can see that Labour Contract Law involves amendments to the existing Labour Law. In the annex section, a clear description on how to solve conflicts between the two laws or the amendments required to the labour law should be put forward.

IHLO Translation and footnotes

April 2007