Workers

The New Draft Contract law of China:
Resistance versus reform but no freedom

Update: On 29 June it was announced that a new clause has been entered into the final draft of the law which is expected to be passed on 29 June 2007 at the end of the latest committee reading. The clause relates to the punishment of officials who allow, condone, or are complicit in abuses – “officials abusing their authority or neglecting their responsibilities, resulting in harm to the interests of workers, will face administrative penalties or criminal prosecution if the actions are serious enough, according to the revised draft.” [1] It is not known if these clauses go beyond current penalties for such offences already found in China’s existing legislation on labour law and the criminal law. It is believed that the additional clauses have been in response to the uncovering of some 50,000 illegal migrants found working in brick kilns and the freeing of several hundred men and children working there as virtual slaves.[2] While some have been punished there has been a massive unofficial outcry over the lack of criminal sanctions against officials and the classification of the scandal as one involving “labour law irregularities” and “illegal employment”” as opposed to slavery, kidnapping, trafficking and torture. [3]

The New Draft Contract law of China:
Resistance versus reform but no freedom

Article 1:This Law is formulated in accordance with the provisions of the Labour Law of the People’s Republic of China in order to regulate the conclusion and performance of labor contracts between employers and laborers, protect their legitimate rights and interests and promote the harmonization and stability of labor relations.

Introduction and background

The Draft Labour Contract law (hereinafter the “draft”) was first discussed at the 19th meeting of the Standing Committee of the NPC in March 2006.  The first draft of the law was then published online between 20 March and 19th April after the National People's Congress (NPC) session ended. The draft was then circulated to various state departments and committees and a further revised draft was issued in December 2006. On 24 April 2007 a third reading of the bill, among other proposed laws, began in a four day legislative session of the Standing Committee of the NPC.

Currently the NPC are again discussing the revised draft during their June meeting. It is expected that it will be passed on the 29 June 2007.

The draft has triggered a national and global debate.  When it is enacted, it will be the China’s first specific law governing labour contracts and labour relations.

The draft is significant for several reasons. Firstly because of the unprecedented public consultation undertaken by the NPC – it was one of the first times such a major piece of legislation was opened up to internet comment and debate. According to most reports the website received almost 200,000 comments.

Secondly the new law addresses some of the most crucial failings of the current labour legislation and attempts to improve the working conditions of a wider number of workers, including part time workers and contract labour. While many of the drafts articles provide for specific penalties and remedies for items already found in the Chinese labour law of 1995 the proposed new law seeks – or rather sought – to clarify the nature of a “labour relationship” for workers without a formal contract. Another major innovation is the inclusion of labour service agents (or recruiters) into the legislation – increasingly many workers are employed via agents and if the company fails to pay wages or other problems arise they often have little ability to claim for money from the employer itself. Fourthly the draft explicitly states that the burden of proof rests on the employer to counter claims by employees regarding disputes and that the law shall take the interests of the employee as priority.

Fifthly the draft is significant in that it appears to bolster the practical role of the All China Federation of Trade Unions (AFTU) in the workplace and increase the extent and practice of collective consultation or bargaining.

Finally the comments made on the draft by various Cambers of Commerce in China and the resulting furor are revealing of the double sided nature of major corporations who espouse the virtue of globalization in allowing them to provide for worker empowerment and rising living standards for their Chinese workers and at the same time wish to shoot down attempts from the Chinese government to improve protection for workers.

This brief overview looks at some of the most relevant issues of concern to trade unionists. It does not go into issues around training rights, non-compete clauses and only touches upon the issue of the regularization of dispatch labour which will be covered at a later stage once the Bill has been passed and more details are known of the exact nature of the law concerning dispatch labour management.

New Legislation but no freedom?

While the new law is indeed a step forward in terms of concrete proposals for worker protection there is a noticeable lack of debate and mention of the right to freedom of association and collective bargaining.

Most readers will know that the Chinese government has not ratified either of the two fundamental ILO Conventions on freedom of association; the right to organise and to bargain collectively (ILO Conventions No. 87 and No. 98). In February 2001, it ratified the International Covenant on Economic, Social and Cultural Rights (ICESCR), but announced at the same time that provisions guaranteed under Article 8,1 (a), namely the right to establish and join workers' organisations of one's own choosing, would be dealt with in accordance with Chinese law. In doing so, the government effectively entered a reservation concerning a fundamental element of the Covenant, thereby putting itself in breach of internationally recognised principles on the law of treaties. [4]

While progress appears to be being made towards the revision, refinement and improvement of many other aspects to the legislation governing workers lives and their livelihood, without progress towards freedom of association there can ultimately be no real progress. The Chinese government has recently ratified ILO Conventions 111 on Discrimination and Convention 153 on occupational health and safety but should make progress towards the ratification of Conventions 87 and 98 a priority.

The law: Main reforms and arguments

What is a labour relationship?

The current Labour law states that “Labour contracts shall be concluded if labour relationships are to be established” and that they are “agreements reached between labourers and the employer to establish labour relationships and specify the rights, interests and obligations of each party.”

The law then sets out the contents, validity and types of contracts (Chapter III). It does not however go into detail about issues arising from the lack of such written contracts now the root causes of the problem. Currently many millions of workers in China – especially migrant workers – do not have written contracts or collective contracts. This is partly because many are employed illegally without the necessary paperwork (work permit, temporary residence permit etc), partly because many employers re operating illegally or in such a way as to avoid paying social security and other benefits and generally a combination of both factors. The situation of workers working with no written contracts only verbal agreements or promises is especially common – as in many countries – in the construction industry - but also in the manufacturing sectors and generally in smaller private enterprises.

Migrants, the type of worker most likely not to have a written contract are especially vulnerable because of their dependence on their employer for the provision of a temporary residence permit, without which they cannot legally travel, work and reside in the cities. Most workers come from the poorer rural parts of China and are in effect institutionalized as a separate type of social class. They do not receive the same benefits or access to education, housing, social security, medical care and pensions as urban residents do and for the most part – despite working long hours their pay is dramatically below the average urban wage. Until the residence system issue is resolved and workers are free to travel to find work they will remain vulnerable to informal and illegal employment. [5]

The initial draft published in the spring of 2006 appeared to address the problem of widespread employment without contracts by emphasizing for the first time that the lack of a formal contract does not mean there is a corresponding lack of labor relationship – Article 3: the term “Labor Relation” as referred to herein shall mean the relationship causing any rights and obligations subject to which an Employer employs any laborers as its employees who shall provide paid labor service under the administration of such Employer. A “Labor Contract” as referred to herein shall mean the agreement by which an employment relationship between an Employer and its employees is established, with their rights and obligations clarified thereunder.

This is an important step forward for many workers who seek to claim unpaid wages or benefits from employers who often use the lack of formal agreements to circumvent legal claims. It has been almost impossible for workers without any form of contract to argue their case in the courts in order to prove they have a formal labour relationship and are thus entitled to the missing wages or other compensation.  The new law makes it clear that any form of working relationship entered into between an employee and an employer shall be taken as proof of a labour relationship and that treatment of that worker shall be equal to those with a contract.

In particular the first draft stated that where an actual labor relation has been formed between an Employer and any employee without a written Labor Contract, “they shall then be deemed to have concluded a non-fixed term Labor Contract, unless the employee suggests otherwise, and a supplementary Labor Contract must be provided thereafter promptly”. (Article 9). [6]

This caused a particular outcry among foreign companies and domestic employers. The American Chamber of Commerce wrote that company recruitment and the nature of labour relationships is too complex to be revised as proposed and that the proposal would mean that employees would deliberately avoid signing contracts in order to wrangle out of the employer a fixed term job for life….they summed up their sentiments by saying; “To sum up, employees recruitment are the basis of enterprise human resources management. If the enterprises have a lot of passively recruited dishonest employees whom they have to hire till their retirement, the business and operation of such enterprises must be brought into chaos.”

The second draft published in late December has been revised and watered down in the process:

“Some members of the Standing Committee hold that it is not practicable to implement the provision (i.e. any failure to conclude the written labor contract shall be deemed as a conclusion of the non-fixed term labor contract), which is either not always helpful to the employee in practice. … The Law Committee proposes to revise the Draft as follows:

(1) Any employer shall establish a labor relationship with any of its employees from the date of employment. To establish a labor relationship, the employment formalities shall be completed, and the written labor contract shall be concluded. (See Paragraph 1 of Article 7 and Article 8 of the 2nd deliberated version of the Draft) (2) If there exists a labor relationship between an employer and any of its employees, but the employer does not sign the written labor contract with the employee, the written labor contract shall be signed within one month from the date of employment. (See Paragraph 2 of Article 7 of the 2nd deliberated version of the Draft) (3)

More importantly in terms of implementation the revised version goes onto state that
“If an employer does not sign any written labor contract with any of its employees at the same time of following the employment formalities, the newly employed employee shall be treated under the standards provided in the collective contract of the employer or in its industry; if there is no collective contract, the employer shall give the employee the same compensation for the same position. (See Article 9 of the 2nd deliberated version of the Draft) (4)

The penalty of not concluding a contract has been reduced from effectively requiring the employer to hire the worker involved a permanent basis to a financial penalty of twice the salary paid to the worker.

 If an employer fails to conclude the written labor contract with any of its employees up to one month from the date of following the employment formalities, it shall pay the employee the salary which is two times the compensation corresponding to the labour service rendered by the employee.

While this is a watering down of the penalties in fact it is much more practical and enforceable than expecting employers to hire workers, with whom they have deliberately avoided giving contracts to on a permanent basis and will we believe help workers trying to gain compensation for working without a contract a more viable chance of succeeding.

In the third version it is believed that in terms of labour contracts the draft states that employers must sign a labour contract on the day when the workers start working. The employer has to keep records of employment for future monitoring. If no labour contract has been signed on the starting day of work a written labour contract must be prepared within one month of the employment. If the employer and employee sign a labour contract before the starting day of work, the formal labour relation will be first established on the first day of work.

Role of Trade Unions

Negotiation

The first draft states in Article 5 (second part) that “Regulations and policies made by Employers and having a direct relation to the vital interests of employees shall be adopted through trade union, workers’ congress or workers’ representative assembly or by equal negotiation….Regulations and policies of Employers shall be announced for internal reference”.

The second draft has now revised this and added more details as to what is of “vital interest” and it now reads; “In formulating, revising or deciding on the rules and policies and major matters bearing on the vital interests of its employees such as labor compensation, work hours, rest and leave, labor safety and health, insurance and benefit, staffs’ training, labor discipline and quota management, any Employer shall refer the same to the staffs’ representatives’ congress or all staffs, which shall raise the proposals and comments in relation thereto after discussion, and then consult with its trade union or staff’s representatives on and determine the same.

In the course of implementation of the rules and policies of an Employer, if its
trade union or staffs believes there is any improper provision in the rules and policies, they shall have the right to raise the same to it, who shall revise and improve the same through consultation.

The rules and policies of any Employer bearing directly on the vital interests of its employees shall be published within it, or distributed to its employees.

This is an interesting change as it effectively removes the trade union from the initial stages of the consultation while at the same time it also removes reference to joint “adoption” and “equal negotiation” and replaces this with the more   opaque notion of “refer[ing” and “raise[ing] comments”. This does not bode well for the actual implementation of any meaningful consultation or negotiation as references have long been made to “consultation” with workers and as most know this can take many forms. However many agree that the first draft gave too much weight to the need for agreement with the worker representative mechanisms (including the ACFTU) and would be hard to put into practice.

The ACFTU itself also raises the crucial point that a Workers Congress is generally a body which meets infrequently and as it is made up of al workers is a rather large and unwieldy instrument to be the first focal point for discussions on company policies which may be relatively frequent. The ACFTU has suggested that the trade union should be the first point of call or at east the flexibility in the first draft which allows discussion with the congresses, the unions, the worker representatives or negotiation be kept. They also make the salient point that a workers Congress is supposed to be the most representative form of worker participation and the union should go to it as opposed to the union being the second point of call. Despite this obviously practical suggestion it is very clear from the reading of the ACFTU comments on the second draft that they are angry at being excluded from the initial discussions on policies. [7]

These revisions may be a concession by the government to business critics – domestic and international – who were vehemently opposed to the involvement of the unions. Comments to the first draft by the US-China Business Council - calling the arrangement overly “burdensome” and “may prevent important company policies from being implemented in a timely manner”. “Second, employers bear final and legal responsibility for environmental, health and safety questions. As written, the draft law could limit the employer’s ability to fulfil its legal responsibilities and could result in policies that might be less beneficial to workers. …Finally the draft law includes no incentives for the trade union to negotiate with the employer.

In their suggestions they suggest the following:

Regulations and policies of the employer, which shall not be in conflict with existing laws and regulations, shall be announced to all employees internally from time to time, and as such regulations and policies shall be part of the employment contract and shall be equally effective as the employment contract terms.

Their second submission concerning the second draft adds the following underline passages but still remains hardly committed to true consultation with its instance on announcements” being made “from time to time”.

Regulations and policies of the employer, which shall not be in conflict with existing laws and regulations, and have a direct bearing on the immediate interest of its workers, e.g. labor compensation, work hours, rest, leave, work safety and hygiene, insurance, benefits, employee training, work discipline or work quota management, shall be discussed on an equal basis with the labor union or employee representatives  and shall be announced to all employees internally from time to time, and as such regulations and policies shall be part of the employment contract and shall be equally effective as the employment contract terms.

They have however removed their request for the term “employee representative” to be more clearly defined.

Both drafts contain references to unilateral decisions of the employer being null and void if they have been undertaken in breach of the new law.

Both drafts of the law give similar clauses regarding the need for employers to notify the trade union in advance of any termination of a labour contract and that the trade union “The trade union shall have the right to give opinion if it considers the Employer’s decision is improper” and that “The Employer shall consider the trade union’s opinion and notify the trade union in writing of any solutions in regard thereto”. (Articles 35 and 43 in the first and second draft respectively)

Collective Contracts

According to official statistics, collective contracts cover some 100 million workers with around 80,000 sectoral/industrial contracts for 33 million workers while 61.7 million workers are parties to contracts with their individual employers. However the majority of contracts appear to be formulaic repetitions of articles from the Chinese labour law and many elaborate upon too few areas of concern to be of much use.

The report of the Law Committee of the NPC in their preface to the second draft makes it clear that they want to firm up the provisions on collective contracts. This ties in with recent initiatives on collective contracts such asthe Provisions on Collective Contracts issued by the Ministry of Labour and Social Security of May 2004 which build upon the previous regulations issued in 2000 and 2001. They call for more detail in the collective contracts signed. The regulations also outline the procedures involved in the consultation and the theoretical equality of both parties. The amended Trade Union law of 2001 again strengthened the union's mandate in collective wage negotiations and Article 33 of the Labour Law states that workers have the right to conclude a collective contract "in an enterprise where the trade union has not yet been set up".

However despite greater opportunities for collective bargaining and the obvious need for protection for workers - including migrants - there has been little progress towards any form of genuine collective bargaining. Instead the ACFTU continues to "represent" the workers to management and government structures, without seeing the need to discuss, inform, listen to or be guided by the workers who still have little say in policy. In the private sector, where branches of the ACFTU are largely inexistent, workers denied the ability to organise independently face almost insurmountable obstacles to collective bargaining and representation.

The second draft states in Article 5  a guiding principle that:The labor administrative authorities of the people’s government at and above the county level shall, in conjunction with trade unions and Employers’ representatives, establish and improve the three parties’ system coordinating labor relationships, study and resolve jointly major questions in relation to labor relationships, and urge employers and trade unions’ organizations or staffs’ representatives to establish the collective consultation system.

Trade Union Duties

The first draft appears much stronger in assessing the duties of the ACFTU. For example Article 7 states that the “trade unions shall guide and assist employees” in the signing of Labor Contracts and “protect their legitimate rights and interests in accordance with law.” Further more the trade union “shall have right to coordinate labor relations and protect the legitimate rights and interests of employees through equal negotiation and based on the collective contract system.”

More concretely the first draft also states in the second part of Article 35 concerning the need to inform the union of termination of contracts that “The trade union shall support and assist employees in their applications for labor arbitration or claims of litigation”. This clause and reference to what a union should do is noticeably missing fro the second draft. Possibly this is because the clause really needs to be elsewhere – the Trade union law (2001) of China for example states that trade unions must give support and assistance to any worker taking a claim to court or to arbitration and in cases where disputes arising from the performance of the collective contract fail to be settled through consultations, the trade union may submit them to the labor dispute arbitration bodies or to the courts (among various other duties) but possibly the removal is because it was simply too blatant a threat.

Article 77 of the second draft however states that “trade unions shall protect the lawful rights and inertest of employees according to law...Where the employers violate any laws or regulations on labour protection and the provisions of any labour contracts or collective contracts, the trade union shall be entitled to raise their opinion or request for reviewing and adjudication and shall provide support and assistance in accordance with law to employees who apply for arbitration or file lawsuits.”

The third draft is believed to state that in a factory without a trade union, the upper level trade union can advise workers’ representatives from the factory to negotiate for a collective contract. A regional collective contract is also possible under the county level and an industry specific regional collective contract is also valid for the locally relevant industries. Workers can also negotiate a specific collective contract for women workers.

Burden of Proof rests on the employer

The first draft also contains a clause which clearly acknowledges the difficulties faced by workers in attempting to negotiate broken contracts or argue over differing interpretations of a work contract. Article 9 states that “ If an Employer and any employee have different understanding of the existence of the labor relation between them, the employee’s understanding shall prevail, unless any evidence on the contrary is otherwise provided. “ Such a clause allowing the burden of proof to be placed on the employer is noticeably absent from the second draft.

The submission by the American Chamber of Commerce in Shanghai in 2006 on the first draft of the law highlighted this issue and stated that “the present draft excessively emphasizes the burden of proof of the employer but ignores the burden of proof of employee. It extremely emphasizes the responsibility-shoulder [sic] for employer incapable of providing evidence but neglects the distribution of liabilities when neither the enterprise nor the individual can assume the burden of proof. According to the provision, anybody may allege him /herself to be an employee of a certain enterprise and will not be required to provide evidence, and the enterprise will be required to hire all individuals alleging to be employees of such enterprise of its inability to provide evidence [sic].” They go on to ask that the sentence be deleted which it appears to have been.

Probation

The new law also addresses the issue of probation periods. Many employers hand out extensive probation periods on much lower pay scales and on terms which deny them social security, medical and other benefits. In many cases in the smaller private enterprises workers are dismissed after their “probation” and new workers are hired at probationary wage scales. The law sets out to crack down on this practice by setting clear probation terms and wage scales.

There has been an extensive debate on these clauses but for the most part agreement seems to have been reached on the need to further revise the first drafts reading of probation periods.

The first draft gave details of the lengths of probation required or maximum terms of probation for various types of employees and used a division of employees to set probation periods – for example The probation period shall be no more than one (1) month for non-technical personnel, no more than two (2) months for technical personnel and no more than six (6) months for senior technical personnel. (Article 13).

This is a rather cumbersome rule which does not take into account the length of term of any fixed time contract.  In the second draft the length of probation is clearly linked to the length of contract which is more appropriate and fair. It also sets out instances where probation periods are deemed to be illegal. In addition in both drafts employers are not to rescind a labour contract during the probation period except in circumstances where there is proof the employee does not meet the employment conditions.

However, the law does not set a limit of a probation period in relation to specific contracts (for example a percentage) so as the ACFTU rightly notes in its Workers Daily article this may allow for “ridiculous cases like an employment contract for 1 month and 1 day with a legal but unreasonable probation period of 1 month”

The ACFTU suggests that it would be better to allow for no probation for employment of less than 3 months.

In addition the second draft sets the wages o the probation period at no less than 80% of wages after the end of probation or no lower than the lowest way for the same post. The ACFTU again suggest setting the wages at no “lower than the wages stated in the labour contract”.

Despite these reservations the clauses governing probation are highly welcomed.

Layoffs, rehires and consultation

One of the most controversial clauses in the first draft concerned the need for consultation with the trade union over mass layoffs. Companies – domestic and foreign along with the various chambers’ of commerce all expressed their strong opposition to the article.

Article 33: In the event of any major change in the objective circumstances under which the Labor Contract was made has rendered such Contract incapable of being carried out, causing a need of laying off over fifty (50) employees by the Employer, the Employer shall be responsible for explaining the situation to the trade union or all its staffs in order to reach an agreement with the trade union or the workers’ representatives through negotiation. 

In the report of the law committee of the NPC concerning revisions to the draft the committee notes that as “some members’ of the Standing committee hold that layoffs are of the utmost importance to workers more detail should be added. In addition comments from the US Chamber of Commerce also objected to the 50 workers or more requirement as being too rigid and at the same time not differentiating enough between large enterprises with several thousand employees and smaller enterprises.

The Chambers responses do not however mention the issue of the need for “explaining” the situation to the trade union. Most probably because there is no express need for union approval of the layoff. However it is important to note that this is not a new requirement in terms of trade union or worker consultation. The existing labour law states:

Article 27 During the period of statutory consolidation when the employing unit comes to the brink of bankruptcy or runs deep into difficulties in production and management, and if reduction of its personnel becomes really necessary, the unit may make such reduction after it has explained the situation to the trade union or all of its staff and workers 30 days in advance, solicited opinions from them and reported to the labour administrative department. Where the employing unit is to recruit personnel six months after the personnel reduction effected according to the stipulations of this Article, the reduced personnel shall have the priority to be re-employed.

The revised draft now states that that in: “circumstances set forth below causing failure of performance of a labour contract under which conditions a laying off of at least 20 employees or over 10% of the total employees will be needed, the Employer shall be responsible for explaining the situation to the trade union or all of its staff 30 days prior to the layoff. The Employer can lay off employees after communications with the trade union or all of its staffs for their opinion and report to the local labour administrative authority.”

The circumstances are; consolidation under the provisions of the bankruptcy law, difficulties in production and management, relocation in order to prevent pollution and “where any other objective conditions taken as the basis for conclusion of the labour contract have greatly changed so that the labour contract can no longer be carried out”.

Last in – First Out and the re-hiring of former workers

Article 33 of the first draft also sets out the principle of last in first out and requires employers to preferentially re-hire the former laid off workers; “When laying off employees, the Employer shall offer on a preferential basis to keep employees who have being maintaining a relatively longer term of service with the Employer under Labor Contracts which shall remain valid for a comparatively long fixed term or non-fixed term”.

The third part of the article also states that “If an Employer recruits new workers within six (6) months after a labor layoff, it shall recruit the former laid-off employees on a preferential basis”.

The comments of the American Chamber of Commerce in Shanghai is a good example of the twisted logic of such groups in their opposition to the basic principle of first in –last out. Its states that “firing those with new knowledge and technology leads to the loss in market competition of the enterprise” and continues by claiming that it is “a discriminative policy against the new staff to fire them while they work for the enterprise as the old staff”.

The revised draft however keeps the principle of retaining those with longer periods of service in preference to those more recently hired but it also adds some flexibility and other terms into the equation, such as keeping those with comparatively long fixed term contracts, those who have non fixed term contracts, and those whose families do not have any other employed persons but have aged persons or minors.

Again this aspect of the law is in the fundamental interest of Chinese workers. There are many many examples of enterprises, many of them State Owned Enterprises (SOEs) who, in the process of restructuring for alleged or real bankruptcy  start up again with new and cheaper labour often employed on short term contracts with terms and benefits far inferior to those of the original workers. However the six month period after which an Employer is allowed to re-hire new workers may be easily avoided in practice.

Dismissal and compensation

There has also been considerable debate over the terms set out in the first draft concerning economic compensation for employees in the event of termination. The first draft levels of compensation were set out in the event of dismissal. (Article 39) The second draft however removed these provisions, leaving the exact details to be set by the State Council. According to a Xinhua report of 24 April 2007 the third reading currently being debated at the NPC meeting contains more details.

The draft states that if employers want to end contracts, they must pay employees the equivalent of one month's salary for every year of service, capped at 12 months. The calculations will be based on the employee's average monthly salary over a 12-month period, prior to the end of the contract. However, high earners will be paid compensation no more than three times the local monthly average salary. One official quoted, Hu Guangbao, deputy director of the NPC Law Committee, said this was in response to public suggestions as the existing Labour law does not set out the details and “many overseas enterprises and organizations, including the American Chamber of Commerce in Shanghai (AmCham Shanghai) and the Hong Kong Chamber of Commerce, have also suggested setting the standard by law so that employers were able to calculate costs. “

This aspect of the law is important in that it provides economic penalties for non-renewal and breaking of contracts in an attempt to encourage the adoption of longer term contracts as opposed to the existing situation where many thousands of workers are employed on very short term contracts of 12 months or less. Ideally this will help to reduce the insecurity for migrants especially and will encourage the raising of skills of the workforce and a discontinuation of the practice of short term contracts and the hiring of new and often cheaper workers.

There are also several clauses regulating illegal contract breaking including the protection of certain types of workers, including pregnant women (many of which protections are already contained in the existing labour law).  As of now according to the All China Women’s Federation over half of female migrant workers have no labour contracts compared to 40 percent of male migrants. Many migrants are fired when pregnant and most do not receive any of the benefits they are allegedly due to receive. Despite the news that there have been some proposals to further detail protection for women workers in the new draft as discussed in the third reading in April 2007 no details have been as of now set into the draft to elaborate on specific penalties for employees who unfairly treat female workers.

As stated both drafts contain a list of categories of workers who are not to be terminated and these include pregnant or nursing women, those suffering from occupational disease, and those on sick leave. Additionally the second draft also includes workers who have been working at the company for more than five years and has less than five years before statutory retirement and “other circumstances stipulated by laws”. Most importantly the first draft however contained the clause that “Where an employee is representing workers to go through equal negotiation with the employer” he/she may not be fired. (Article 34.) The second draft has deleted this potentially important clause.

The third draft is believed to state that; “If after restructuring, technology reform, management reforms and labour contract revisions the enterprise still needs to make staff redundant, then it can.” -  in other words, it allows the company to sack people when the business is not good. The second draft previously stated that dismissal is allowed if one of the following happens, 1) bankruptcy proceedings and regulations, 2) extreme difficulties in running the business and 3) factory relocation  due to environmental pollution  and 4) when actual conditions have changed when compared with the time of signing the contract and therefore the contracts can not be upheld.

The third draft also states that in terms of compensation when terminating labour contracts the calculation method is one month wages for each year’s service, for a period of not more than 12 years. (“wages” here is taken to mean “the average wage of the last 12 months). If the employee’s wages are three times or more the city’s previous year’s average wages, it should be calculated at the cities average wage level.　　

Occupational Health and Safety

At the laws third reading in April 2007 it was suggested by some legislators that additional clauses be added to strengthen the laws regarding the need for employers to inform workers of the potential dangers in eh workplace and preventative measures.

The 2002 Law on Prevention and Cure of Occupational Diseases specifies that information on potential occupational diseases and preventive measures must be included in labour contracts.  During the contract if the employer wants to transfer the employee to another post with a risk or higher risk of an occupational-disease or injury then contract should be modified and if it is not, the worker may refuse to take the post but this refusal is not to be a cause of termination. According to this cannot be used as an excuse to terminate the contract, the law says.

According to the People’s Daily, one NPC Standing Committee member Wang Yongyan said that he had carried out recent investigations in Hebei Province which had shown that almost all labor contracts that should have stipulated possible occupational diseases had failed to do so. The People’s Daily went on to note that official statistics from the Ministry of Health show that by the end of 2005, China had 606,891 cases of pneumoconiosis with some 10,000 new cases each year; Another NPC member was quoted as saying; “We agree that the latest draft is better written, but it lacks regulations about occupational, or work-related, diseases, which are serious in the country.” [8]

Conclusions

A cynical reader may wonder if the first draft of the law was allowed to pass through to appease critics of the growing disenfranchisement of the working class ad to show that the government is indeed serious about improving the condition of workers and restoring “social harmony”. As expected the second draft would then tone down many of the more pro worker clauses and the final and third reading would be as planned – a compromise between the two.

One can also wonder at the influence of the foreign corporations. The lobbying and blatant condemnation of many of the positive aspects of the draft law is abhorrent and in contradiction to the claims of most CSR managers at these companies. However China is now becoming ever more selective in its choice of investment partners and companies wishing to set up in China. China is also increasingly beginning to show moves away from its reliance on low-end cheap labour and try to gain more high-end investment. It is increasingly testing the patience of foreign companies by allowing the media to give full rein to reports outlining poor working conditions in foreign companies and has begun to name and shame companies who refuse to allow the ACFTU into the factory. It is unlikely to be wholly swayed therefore by the postulating of business chambers.

According to most observers inside China there have been quite a few parties who have been active in lobbying the government to influence the final outcome of the law. This includes various Government departments and units inside the Ministry of Labour and Social Security (MOLSS), the AFTU, academics and Chinese domestic employer associations such as the Association of Industry & Commerce and the Entrepreneurs Association as well as the foreign associations like the European Chamber of Commerce and AmCham

For those working inside China and those in solidarity with Chinese workers and activists perhaps one of the most important changes to the second draft has been the removal of the article which forbids the termination of an employee who is “representing the workers” in negotiations with the employer. Currently regulations exist which forbid the dismissal of ACFTU representatives who are engaged in negotiations but other worker repetitive, such as OSH committee representatives, worker congress representatives or others have no similar protection. The clause in the first draft could have meant that the worker committees that some see as an important tool for genuine worker representation in the workplace – as opposed to the state controlled ACFTU – could have been awarded legal protection against dismissal and harassment. It is unlikely that the final draft will re-instate these protections.

Implementation

The issue of implementation of the new law remains in a sense the most important part of the debate. Currently there is little uniform implementation and monitoring of existing labour laws. Although some penalties are beginning to be increased for employers who break the law, there remains a widespread culture of impunity for employers who abuse the existing regulations. Local corruption, a desire to win investment (and hence the rise of local competition over creating “favourable” investment opportunities) and an absence of the rule of law at the local level have all contributed to an almost universal disregard for compliance with domestic legislation.

While the third draft is believed to contain additional clauses (not found in the first two drafts) on how to bridge this new law and the previous legislation 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.

Having said this there are clauses in the new bill which look at the issue of labour inspection (namely Chapter VI on supervision and inspection). However most articles merely state that the relevant labour administrative authorities shall “conduct supervision and inspection...in accordance with the law”. Such inspections have the right to view contracts and other materials as well as inspect workplaces. Again there is little new here and there has been no announcement yet of additional resources being given to fund the much needed shake up of inspections. The draft (second) does however state (article 78) that in the event of a violation, “Labour administrative authorities under the People’s Government at county level shall verify and handle the case, in a timely manner, and give rewards to those who make contributions by reporting the violations”.  It remains to be seen however if such whistle blowers will be rewarded or has been the case up to now punished for their uncovering of official corruption and labour rights abuses.

Selected Reading

ETUC condemns "outrageous" threats by European companies in China

Proposed new Draft Contract Law Fails to Guarantee Fundamental Rights: Letter from ITUC to President Hu Jintao

China: Proposed new Draft Contract Law Fails to Guarantee Fundamental Rights

Response to the public consultation Multinationals Accused of Hypocrisy over China Labour Law Reform (ITGLWF)

The US-China Business Council's Position on proposed Labor Contract Law

China's Draft Labour Contract Law: Without Freedom of Association, will Chinese Workers Be any Better Off? China labour Bulletin

Business & Human Rights Resource Centre invited several US & European companies to respond to concerns about the positions taken by industry associations regarding China's proposed labour law reform: this contains the responses of several companies as regards to the comments by the Chamber of Commerce and is an extremely interesting read.

Behind the Great Wall of China: U.S. Corporations Opposing New Rights for Chinese Workers - Opposition may harm workers in the US and other countries

Corporations Gain Ground in Battle over China’s New Labor Law

China's Draft Labor Contract Law - Major Changes for Employers on the Horizon (China Practice Group Baker and McKenzie)

Statement on the Draft Labour Contract Law – European Chamber of Commerce in China

The American Chamber of Commerce comments to the first draft (as hosted at the Chinese law Prof Blog)

American Chamber of Commerce in Shanghai: Position paper on the China draft labor contract law

There are also numerous analyses of the drafts from various HR, PR and business consultancies as well as some Embassies. Some of which are very good while others are more rudimentary.