Labor Law Guy

Employees in China Gain Unheard-of Protections

Posted in Random Musings by laborlawguy on December 30, 2008

With tens of thousands of us Americans losing our jobs every week, I found it interesting to discover that China just in the past year implemented what’s called the Labor Contract Law, which basically gives every employee a nearly unbreakable contract with their employer. Plus, many of these contracts are open-ended, meaning they go on forever.

What this dictates is that a company has to go through almost-impossible-to-conquer hoops to lay off or fire workers before their contracts are up. Even if the company plans to reorganize and/or eliminate a factory or division, it still has to agree to rehire the affected employees, or if that proves impossible, to give them 30 days’ notice and ample severance pay.

Of course, if the company just shuts down and the owners disappear, these policies can’t be enforced very easily, and that appears to be the route that many toy manufacturers have taken this year as demand for their products dried up in the West.

So, these days employees in China have the upper hand when it comes to job security, which is a sharp break from just a year ago before the LCL (Labor Contract Law) was passed. (However, if you read the story linked below about “shedding workers,” you’ll find an interesting quote from a Chinese official who tells an employer that, so long as he doesn’t lay anyone off, the official will overlook other labor law violations.)

On the organized labor front, things might favor the employers a bit more. While most employees are organized into unions, it is illegal for them to strike, but work slowdowns and stoppages have proven to be ready substitutes.

Overall, however, I wouldn’t be surprised if the LCL hasn’t actually contributed to some–or many–of the factory closings, as owners found it easier just to cease operations than navigate the shoals of the LCL and reduce their workforces to stay in business.

For more information, read “The Impact of China’s Labor Contract Law” and “Employers in China Have Issues Shedding Workers.”

So, if you’ve been eyeing China for a low-cost start-up, be forewarned that the country is not the cheap source of labor that it’s been perceived to be.

(China is also moving, Obama-like, toward a national health care and “social insurance” system, which is recounted here.)

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