Labor Contract Law of the People's Republic of China
Encyclopedia
A new labor contract law
in the People's Republic of China
(中华人民共和国劳动合同法) went into effect on January 1, 2008, following a series of staff-sacking scandal
s in many companies. The Ministry of Human Resources and Social Security of the People's Republic of China
is the responsible government department for administrating this law.
China's new labor contract law targets, primarily domestic companies that do not have labor contracts and that generally fail to comply with China's old laws. Foreign companies have had a stronger track record of signing contracts with employees and bringing to China their global work rules and environmental, health and safety practices.
in 2008, 40 percent of private-sector employees lack labor contracts and there are many cases of wage default and forced labor. The new law is to strengthen China's overall economy and regulation.
The law prompts companies to improve their management, capital-labor relations and productivity
. A sound market economy system in return would benefit businesses—both domestic and foreign companies.
Compared to the old contract law issued in 1994, the new law is supposed to provide greater job security
.
Ever since the law was approved by China's top legislature
in June 2007, it had aroused heated discussion and concern among domestic and foreign companies.
China appealed to foreign investors with its cheap labor, its preferential investment policies and its immense market. Employers feared the new law would have meant bigger severance payments
and higher operational costs.
In the short term, it has been predicted that foreign companies investing in supermarket chains, restaurants, building industries and other low-end manufacturing, which abuse cheap labors and avoid paying social security
would suffer some losses. But in the long run, the new labor contract law would not negatively impact China's competitiveness
and appeal as a destination for foreign investment.
Small and medium enterprises in particular have already particularly felt the effects of the law.
For example, some Korean companies have already decided to move their business from China to Vietnam or other developing countries where labor is much cheaper. About 98 percent of Korean enterprises in China are independent small and medium firms.
Other companies reacted to the law by proactively firing employees who would have come under the new guidelines. In October, US-based retail giant Wal-Mart
fired about 100 employees at a sourcing center in China. The company said the layoff was part of its global restructuring. LG and Olympus have respectively announced plans to lay off employees. Carrefour
China has asked over 40,000 of its Chinese employees to re-sign a two-year labor contract before December 28, 2007 regardless of an employees' service length or the expiration of their current labor contract.
Labour law
Labour law is the body of laws, administrative rulings, and precedents which address the legal rights of, and restrictions on, working people and their organizations. As such, it mediates many aspects of the relationship between trade unions, employers and employees...
in the People's Republic of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
(中华人民共和国劳动合同法) went into effect on January 1, 2008, following a series of staff-sacking scandal
Scandal
A scandal is a widely publicized allegation or set of allegations that damages the reputation of an institution, individual or creed...
s in many companies. The Ministry of Human Resources and Social Security of the People's Republic of China
Ministry of Human Resources and Social Security of the People's Republic of China
Ministry of Human Resources and Social Security of the People's Republic of China is a ministry under the State Council which is responsible for national labor polices, standards, regulations and managing the national social security. This includes labor force management, labor relationship...
is the responsible government department for administrating this law.
Definition
According to the new 98-article-long "Labor Contract Law", employees of at least 10 years standing are entitled to contracts that protect them from being dismissed without cause. The new law also requires employers to contribute to employees' social security accounts and sets wage standards for employees on probation and working overtime.China's new labor contract law targets, primarily domestic companies that do not have labor contracts and that generally fail to comply with China's old laws. Foreign companies have had a stronger track record of signing contracts with employees and bringing to China their global work rules and environmental, health and safety practices.
History
According to statistics from the All-China Federation of Trade UnionsAll-China Federation of Trade Unions
The All-China Federation of Trade Unions , is the sole national trade union federation of the People's Republic of China. It is the largest trade union in the world with 134 million members in 1,713,000 primary trade union organizations...
in 2008, 40 percent of private-sector employees lack labor contracts and there are many cases of wage default and forced labor. The new law is to strengthen China's overall economy and regulation.
The law prompts companies to improve their management, capital-labor relations and productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
. A sound market economy system in return would benefit businesses—both domestic and foreign companies.
Compared to the old contract law issued in 1994, the new law is supposed to provide greater job security
Job security
Job security is the probability that an individual will keep his or her job; a job with a high level of job security is such that a person with the job would have a small chance of becoming unemployed.-Factors affecting job security:...
.
Ever since the law was approved by China's top legislature
National People's Congress
The National People's Congress , abbreviated NPC , is the highest state body and the only legislative house in the People's Republic of China. The National People's Congress is held in the Great Hall of the People, Beijing, capital of the People's Republic of China; with 2,987 members, it is the...
in June 2007, it had aroused heated discussion and concern among domestic and foreign companies.
China appealed to foreign investors with its cheap labor, its preferential investment policies and its immense market. Employers feared the new law would have meant bigger severance payments
Severance package
A severance package is pay and benefits an employee receives when they leave employment at a company. In addition to the employee's remaining regular pay, it may include some of the following:* An additional payment based on months of service...
and higher operational costs.
In the short term, it has been predicted that foreign companies investing in supermarket chains, restaurants, building industries and other low-end manufacturing, which abuse cheap labors and avoid paying social security
Social security
Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...
would suffer some losses. But in the long run, the new labor contract law would not negatively impact China's competitiveness
Competitiveness
Competitiveness is a comparative concept of the ability and performance of a firm, sub-sector or country to sell and supply goods and/or services in a given market...
and appeal as a destination for foreign investment.
Small and medium enterprises in particular have already particularly felt the effects of the law.
For example, some Korean companies have already decided to move their business from China to Vietnam or other developing countries where labor is much cheaper. About 98 percent of Korean enterprises in China are independent small and medium firms.
Other companies reacted to the law by proactively firing employees who would have come under the new guidelines. In October, US-based retail giant Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
fired about 100 employees at a sourcing center in China. The company said the layoff was part of its global restructuring. LG and Olympus have respectively announced plans to lay off employees. Carrefour
Carrefour
Carrefour S.A. is an international hypermarket chain headquartered in Levallois-Perret, France. It is one of the largest hypermarket chains in the world...
China has asked over 40,000 of its Chinese employees to re-sign a two-year labor contract before December 28, 2007 regardless of an employees' service length or the expiration of their current labor contract.
External links and further reading
- Text of the Labor Contract Law of the People's Republic of China includes supplementary materials
- Labor Contract Law - The People's Republic of China Labor Contract Law Study Site in Chinese