LESS ALARMING
China’s labor law.
By Don Durfee

When China issued a draft of its new labor law two years ago, the country’s big employers – especially foreign multinationals – protested: the regulations would make business more expensive and might prompt them to move operations elsewhere. That alarm has been replaced by cautious optimism.

The law, passed on June 29, makes written contracts mandatory, requires severance when contracts aren’t renewed, and compels employers to turn their short-term employees into full timers after their contracts have been renewed twice. The rule also grants bargaining power to employee groups and entitles workers hired through staffing agencies to the same wages as a company’s ordinary employees.

It could have been far more stringent, says Lesli Ligorner, a partner with Paul, Hastings in Shanghai. Unusually for a piece of Chinese legislation, there was a 30-day comment period (one that brought a veritable flood of comments: nearly 200,000). In response, the government made changes. Severance, which is set at a month’s pay for every year of employment (half a month’s pay if employment is under six months), has been capped for white collar workers at three times the average local wage. There’s now a grandfather provision, so that companies won’t have to tear up existing contracts. And the final draft gives employers more leeway to recoup training expenses from employees who quit before the end of their contract period.

Best of all, says Ligorner, the law doesn’t take effect until January 1, 2008. “Often in China the effective date is the same as the promulgation date,” she says. “This is a positive sign.”