Workers

Sackings at Wal-Mart: Global restructuring or avoiding the new Contract Law?

The following is an IHLO translation of a piece which appeared in the mainland papers, China Business News. It looks at the recent news of Wal-Mart lay offs in China (and the parallel hires) from the viewpoint of one worker, Hou, a Quality Control Officer in Shanghai.

While the news of the lay offs in Wal-Mart is not new, the article is one of many  from the mainland media which focuses on Wal-Mart as opposed to the much larger layoffs at Huawei . The layoffs at Huawei attracted more interest overseas while internally the layoffs at the “foreign” enterprise, Wal-Mart, while much smaller was the latest subject of the heated debate around the activities of foreign MNCs. Indeed it was reported that after the mass layoffs at Huawei emerged the Publicity Department issued an order to cease all coverage of the Huawei employment issue and to make no attempt to question Huawei staff about it. Foreign MNCs may well be interpreting the enlarged discussion over their activities as another sign of a campaign of bad publicity and “unequal treatment” against them.  However this extra scrutiny may well also be why Wal-mart’s recent dismissals are “not as obvious as Huawei’s” according to a lawyer interviewed below.

[See IHLO: New Contract law: Opportunities and Threats]

The story is probably most interesting in its discussion of the difficulties in interpreting some of the new Labour Contract law’s clauses. Most notably the issue of when a worker is entitled to permanent employment rights. Other clauses are also problematic - for example the definitions of consultation over redundancies and other changes and these will emerge as the law is implemented from 1 January 2008.
The new law is being touted by many as the most significant labour related reform for decades. Many officials in China appear to be using the introduction of the new law as a cure for almost all the ills of the current condition of the working classes – from lack of contracts, to easing social unrest to resolving the issues of overtime. Certainly the law will have significant impacts but a lot is riding on both the interpretation of the law and its implementation.

For this reason companies and business law experts are investing a great deal of effort into analyzing the law and working out its possible interpretations and what this will mean or them. At the same time, activists in the mainland and in Hong Kong are also looking at ways to both influence the outcome of discussions around interpretation and looking for the best tools of the new law in order to campaign and lobby for expanded worker rights.

The new law contains some clauses on how to bridge this new law and the previous legislation but there has been little discussion on how to implement the new law. Currently the labour law sets out specifically those written contracts must be signed between the employer and the employee and yet according to official figures less than 20% of workers have signed contracts in small and medium sized enterprises. According to officials at the Ministry of Labor and Social Security (MOLSS), the MOLSS will issue implementing rules before the end of this year. The implementing rules may address key issues such as the required procedures for implementing company rules as well as when an open-term contract must be provided to an employee who has completed two fixed terms of employment. On July 12, 2007, the MOLSS also issued a notice requiring local labor bureaus to revise employment-related laws and regulations for compliance with the new law. Among the areas of concern were probation periods, economic layoffs, severance payments, agency workers, and part-time employees. [NOTE 1]

At the start of December, after a spate of high profile dismissals of long term employees by domestic and foreign companies, Outlook Weekly, a magazine under the official Xinhua News Agency, reported on 3 December that an implementation regulation of the Labor Contract Law was expected by the end of the year. It also reported that a judiciary interpretation, drafted by the Supreme People's Court, would also be adopted soon to regulate loophole jumping. It is rather late in the day to be issuing implementation guidelines – with only three weeks or so until the new law takes affect but we certainly hope that the guidelines are clear, concise and uphold both the spirit and the letter of the new law with all its promises for workers,
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Translated from China Business News, 8 November 2007 http://finance.sina.com.cn/chanjing/b/20071108/00194149223.shtml

For Hou (not his real name), the time from being employed at Wal-Mart to his dismissal has been a roller coaster experience.
In August 2006, Hou joined the quality control department of Wal-mart’s Shanghai branch. On 22 October 2007, he received a sudden notice of dismissal even as he saw new workers joining.

Wal-mart and other related managerial departments have been silent on the lay-offs [They later responded to media queries: see below IHLO] and Hou is worried about Wal-marts actions becoming a trend and if so, he and his friends working in foreign-invested companies, would become typical “short-term” employees.

The pattern of “Short term” employees

At 9am on 22 October 2007, the merchandizing department in Shanghai held an urgent meeting. It was announced there that the growth rate for 2007 was low while costs had increased and therefore 22 workers were verbally informed that they were dismissed. “No principal reason, terms of services, performance or individual capacity are the reason of dismissal”, Hou quoted the factory’s explanation.

Though the company emphasized that it did have any prime criteria for dismissal, Hou did find some hints, after gathering information from other affected workers.

The dismissed workers included 10 people who were recruited between August & September 2006, one from October 2006 and 4 who were transferred from the Shenzhen office in June 2007. Most of them are workers who have worked for a little over a year and have signed one fixed-term contract with Wal-mart; a few have signed two contracts. Nobody had served longer than three years. “Those who worked for four, five years or longer were not sacked. Except for one guy, those who joined after October 2006 were also not on the dismissal list. Only those who served between one to three years were dismissed outright” Hou described.

The theory of “re-prioritizing of the global merchandizing”

Wal-mart explained the dismissals as a means of “improving Wal-mart’s global mechanizing office”, Tung Yuguo, the public relations director of Wal-mart China said, “two weeks ago, we started to communicate with our workers, the main problem is low efficiency and repeated jobs.”

Tung revealed that after the dismissals on 22 October in Shanghai, the re-prioritizing work was done and dismissal was over.

Tung said Wal-mart had made the cuts which included more than 200 people - some 110 from China and some 100 from other countries, for its global re-prioritizing. Merchandising offices in four countries’ merchandizing offices, including in Singapore, would be shut down.

Wal-mart, as a big buyer around the world has been under immense scrutiny. Its global merchandizing reportedly reaches to around USD100 billion, 50 billion of which is spent in China. It has 5,000 suppliers in China and in some cases, buys more than 50 percent in some supplying factories. 

1,000 of its global 1,600 merchandizing workers are employed in China. To cut one sixth of the workforce and shut down offices in four countries does not seem to be a minor move.  However, at the time of writing, no English news of this move has been found, not even in the English website of Wal-mart China. “We didn’t consider it a major move that is why we didn’t issue a press release.” Mr. Tung explained.

So, when and why does this global re-prioritizing start? Tung commented, “We don’t know when exactly, maybe when a department feels something is not running right, then it would start it gradually.”

Hou said he and his colleagues had never heard about this “re-prioritizing” before the day they were sacked. He only learned that as well as China, workers in Singapore, Turkey, Sri Lanka and the Philippines were also in the “re-prioritizing” plan.

Hou also later remembered that “a month before our dismissal, 10 quality examiners were sacked in Dongguan. I didn’t pay much attention at that time, as we just heard that some of those workers didn’t perform so well and some were even disciplined internally. But in the Shanghai case, this is not the case. We aren’t the workers who used to receive punishments, some have never been punished.”

The new contract law & its relation with “short-term employees”

“The massive dismissal case in Huawei Technology Co. Ltd (IHLO:  A large company producing telecommunication products which tried to sack 7,000 workers but later “suspended” its plan after serious pressure – including from the ACFTU) is obviously an example of a company trying reduce the number of non-fixed term labour contracts.” A lawyer Qi Bin from Beijing commented. However, in this case in Wal-mart, most of the workers have only signed one contract and the earliest expiry date is August 2008. “It seems it could be that the company is trying to remove some of its less qualified workers to avoid the complicated new law and to wages expenses. What Wal-mart did is not as obvious as Huawei.” The lawyer further explained.

Tung Yuguo explained to a reporter from the [mainland] First Financial Daily that all workers in Wal-mart are outstanding and therefore, the dismissal had nothing to do with the performance, but the positions. However he declined to comment if those positions would remain closed after the workers were sacked.

In August 2006, Wal-mart’s quality control section of its global merchandizing department suddenly increased its recruitment, and continued to recruit via different channels. On 5 November, recruitment advertisements were posted at a recruitment website, looking for quality control staff (IHLO added:  the post Hou lost), with similar requirements as in the past. Indeed Mr. Tung said that Wal-mart created some 100 posts at the time of dismissal but would not go into details to explain the reason behind.

“No matter what, the timing of the dismissal makes Wal-mart suspicious.” Lawyer Qi said.

The “Labour Contract Law” passed on 29 June 2007 will be implemented on 1 January 2008. Item 3, clause 2 of article 14, states that

“The labour contract is to be renewed after two fixed-term labour contracts have been concluded consecutively, and the employee is not under any of the circumstances as mentioned in Article 39 and Paragraphs (1) and (2) of Article 40 of this Law.

If the employer fails to sign a written labour contract with an employee after the lapse of one full year from the date of start to use him, it shall be deemed that the employer and the employee have concluded a labour contract without a fixed term.”

This particular aspect of the new law has become the main focus of companies concerns and could have the biggest impact on them. It also involves different parties’ power play.  

[IHLO added with emphasis added: Article 14 the term “employment contract without a fixed term” refers to the employment contract in which the employer and the employee stipulate no certain time of termination of the contract. An employer and an employee may, through negotiations, conclude an employment contract without a fixed term. Under any of the following circumstances, if the employee proposes or agrees to renew or conclude an employment contract, an employment contract without a fixed term shall be concluded unless the employee proposes to conclude a fixed-term employment contract]

“Two fixed-term labour contracts” can be read as “after two successive contracts, the employer and employee could discuss and the employer can decide if s/he offers a labour contract without a fixed term ” or “at the time of signing the second  contract, the employee has already got the right to a labour contract without a fixed term”.  [IHLO added: The article is stating that two distinct possibilities for interpretation exist here – the second is that at the time when an employee signs a second contract, s/he could assume that after the contract term, s/he is certainly entitled to a non-fixed term contract.]

Lawyer Qi believes that after the implementation of the labour contract law, companies are likely to change their employees often.

The omission of trade union

On 5 November 2007, Tung Yuguo told the reporter that, “we offer a very good compensation package to the staff we dismissed. None of them have had any objections.” It is reported that Wal-mart offered a “N (number of years one works in Wal-mart) +1” package  - for example, a worker who worked for two years  would get three months of wages as compensation.

According to lawyer Qi, such a compensation package is as good as the new labour contract law could offer.

Hou stated; “We feel fine about the compensation. But still, we demand to know the reason for dismissal. We can’t accept our dismissal without knowing why.” He and a dozen colleagues from the quality control department are collecting more information, in order to ask for an explanation.

According to the [current] labour law, Wal-mart should provide a written notification to workers 30 days in advance [of dismissals for reasons other than performance and related issues] and could only dissolve the labour relation after consultation between both parties. (Labour Law articles 24, 27 & 28)

Hou said he and the dozen of colleagues, only received the dismissal notification on 22 October. The following day they sent a petition letter to the Shanghai Headquarters, but as of the time of writing, they have not received any reply. “Wal-mart kept silent. We think other workers have been requested to say nothing about our dismissal.” Hou said. Hou also tried another channel - making a compliant to the Shenzhen headquarters. “Wal-mart has a completely independent monitoring system. Its Asia office is in Shenzhen, but it didn’t give us any feedback.”  

Hou and his colleagues are in fact not directly employed by Wal-mart, but are staff employed by the Shanghai Foreign Services Co. Ltd., and placed to work for Wal-mart. According to their labour contract, Wal-mart has to first consult the Shanghai Foreign Services Co. Ltd., when it wants to dismiss workers. However the Shanghai Foreign Services Co. Ltd. declined to answer the questions posed by this reporter on 5 November 2007. It gave no reply to the question as to whether or not Wal-mart had consulted it.

On 5 November 2007, Tung Yuguo once again told this reporter that the dismissal had nothing to do with the new labour contract law. He said he couldn’t explain in detail about the decision to dismiss, but he did say that what Wal-mart did was lawful, “We have got agreement from the government (on legally dismissing the workers).” He added.

In the afternoon of 6 November, the Labour & Social Security Department of Guangdong Province cancelled its press conference on the Huawei Case at the last minute. The reason given was that “the provincial department has investigated Huawei and Wal-mart and sent the results to the labour department at the national level. However it does not wish to publicize the result yet.”

Some analysts commented that if there would be a union, then a large-scale dismissal like this would have to go through the union.

Wal-mart runs two systems in China, the global merchandizing system and the supermarket system, the so-called Wal-mart China. In 2006, trade unions were set up in the supermarket system, under the pressure from ACFTU. However in the mechanizing system, there is no union.

“The two systems in China are operating independently.” Tung Yuguo of Wal-mart explained, “The merchandizing system is setting up a union.” However Hou stated that he had never heard about a union being set up in the merchandizing system. According to Tung, “We (Wal-mart China) don’t know when it is going to start and we have no idea about the preparation work.” He added that he - from Wal-mart China [the supermarket system] had spoken on the dismissal case at the merchandizing arm of Wal-mart only because “there is no public relations department in the merchandizing system”.

第一經濟日報 8-11-2007
http://finance.sina.com.cn/chanjing/b/20071108/00194149223.shtml

Tranlsated by IHLO, Decemebr 2007