University number 2007076931

Labour Law research Paper

University of Hong Kong Faculty of Law Labour Law (Second Semester, 2010-11)

Research Paper Topic: Labour Contract Law in the PRC

Word Count: 6728 (including footnotes)

Lecturer: Professor Rick Glofcheski

Submitted on April 20, 2011 Student number: 2007076931

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Labour Law research Paper

Introduction The Labour Contract Law (hereinafter the Law) which was officially implemented on 1 January 2008, marked the start of a more comprehensive labour protecting employment contract system. Auret van Heerden, Geneva-based head of Fair Labor Association, which monitors work conditions in 60 countries even remarked in 2008 that "[t]he Government that is making the most concerted effort to protect worker rights is China".1 However, Zhang argues accurately that even with a pro-labour legal framework on paper, the real problem is the gap between the legal standards spelled out in the Law and the actual enforcement.2 In view of the incompetent enforcement regime of the Law in China, her analysis even suggested the need for an alternative enforcement mechanism independent of the Chinese Government class action lawsuit.3 Miao explained that the discrepancy was due to the global recessions impact to economy when the Law was first implemented; the Government had to hold back strict implementation of the Law in order to maintain GDP growth and employment rate. 4 Although the explanation is somehow persuasive, it is not complete in a sense that it cannot explain why the enforcement is still unsatisfactory when China is almost if not completely recovered from the global recession.5 The purpose of this research paper is not to evaluate the text or
1

Labor contract law enhances workers' rights, China Daily, 1 January 2008, available at http://www.chinadaily.com.cn/china/2008-01/01/content_6362308.htm (visited 14 April 2011) 2 Yin L. Zhang, Its not what is on Paper, But what is in Practice: Chinas New Labour Contract Law and the Enforcement Problem, (2009) 8 Washington University Global Studies Law review 595, 596. 3 Ibid. p.617. 4 Qingqing Miao, An Urge to Protect is not enough: Chinas Labour Contract Law, (2009) 2 Tsinghua China Law Review 162, 197. 5 According to the Bureau of Statistics of China, the GDP growth rate of 2010 is 10.3% over the previous years, latest GDP statistics available at http://www.stats.gov.cn/was40/gjtjj_en_detail.jsp?searchword=GDP&presearchword=GDP&channelid =9528&record=3 (visited 14 April 2011). According to the World Bank, the unemployment rate before global recession in 2008 was 4.0% and rose to 4.3% in 2009; then falls back to 4.1% at the end of 2010, available at http://data.worldbank.org/indicator/SL.UEM.TOTL.ZS/countries/CN?display=graph (visited at 14 April 2011) 2

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the enforcement of the law per se (which has been done by numerous academics) but to predict future policy enforcement directions by analyzing previous acts of the Government relevant to the Law; and interactions between the central and local authorities with regard to political, social and economic situations. Then, by extracting the rationales and intentions of the Government from all these acts and interactions, a conclusion will be drawn in hopes of answering the question of on what basis the Government will determine future policy direction. This paper argues on the premise that the primary goal of the Government is to sustain the legitimacy of the authoritarian one-party rule of the Chinese Communist Party (hereinafter the state-party). Other government goals such as containment of social unrest; protection of labour right and welfare; maintaining economic growth and so on are only means to an end.6 Therefore, it could be safely assumed that the Government does not have a prevailing inclination to either of the business or labour side when it adopts enforcement measures. As argued in this paper, the central government leaves the legal and enforcement frameworks deliberately vague so that local authorities could have leeway to maneuver according to the social and economic circumstances specific to each locality. Part I of this paper describes Chinas current labour protection policy in general and introduces some major provisions of the Law in order to provide a basis for later discussion. Part II examines the political, social and economic background considerations when the Law was drafted and promulgated. This extensive coverage of extra-legal considerations is essential because the Law or labour protection legislation in general is politically and economically sensitive subjects in most

See Guoxin Xing, Hu Jintao's Political Thinking and Legitimacy Building: A Post-Marxist Perspective, (2009) 26 Issue 4 Asian Affairs: An American Review 216; and Bruce Gilley et al, The Debate on Party Legitimacy in China: a mixed quantitative/qualitative analysis,(2009) 18 Issue 59 Journal of Contemporary China 339. 3

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jurisdictions. Furthermore, China rules with the mentality of pragmatism which emphasizes the social stability instead of legal certainty emphasized in common law. Part III explores the enforcement regime and the Governments responses to the social incidents mentioned in Part II; then attempt to draw a conclusion in Part IV about the way of thinking of the Government when it sets enforcement policies of the Law on the basis of the observations in previous parts.

Part I: Major Legislation and Provisions Labour Law The first national employment legislation is the Labour Law which came into effect on 1 January 1995. It applies to the employer-employee relationships in all companies, including foreign invested entities (FIE). It is the most comprehensive labour protection text in the sense that it addresses every important aspect of the employment contracts, wages, rates, gender discrimination and social insurance scheme. It also introduced the employment contract system which mandates the conclusion of agreements between workers and employers which set out various rights and obligations of the parties. However, the Labour Law is also incomprehensive in the sense that it emphasizes policy rather than any detail about the formation of labour contracts. 7 As a result the Labour Law suffered from inadequate enforcement because its undue emphasis on policy principles instead of enforcement details makes it susceptible to exploitation and difficult to implement in practice.8 The combined effect of inadequate labour protection and Chinas rapid economic development leads to a 13 fold increase in the number of labour disputes

Sean Cooney et al., Chinas New Labour Contract Law: Responding to the Growing Complexity of Labour Relations in the PRC, (2007) 30 University of New South Wales Law Journal 786, 789. 8 See Miao, An Urge to Protect (n 4 above), p 159. 4

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between 1995 and 2006.9 The Law was promulgated to amend the Labour Law to provide specific and practical guidelines for the formation, execution and termination of labour contracts.

Labour Contract Law In view of the insufficiency of the Labour Law, the Law was enacted to perfect the employment contract system, specify the rights and obligations of parties to the employment contracts, protect the lawful rights and interests of employees and to establish and develop stable and harmonious employment relationships. 10 It governs the establishment of labour relationships between employers and employees and the conclusion, performance, amendment, dissolution and termination of the employment contracts by employers and employees. Employees could also bring a civil action against employers under the new law which was not possible when the Labour Law was the sole labour law in place.11 The Law provides that labour contracts must be in writing and must be signed within one month after employees start working.12 To deter non-compliance, article 82 of the law prescribes that employers must pay double wages for up to 11 months if they fail to sign a written contract. However, there is one exception to the written contract rule which states that temporary employment contracts need not be in writing.13 (The problems of interpretation of this article will be discussed later in Part III.) The Law also remedied the legal loophole inherent in the probation system.

Ibid., p.169. Labour Contract Law (promulgated by the Standing Committee National People Congress on 27 June 2007 and implemented on 1 January 2008), art 1. 11 Only administrative penalty imposed by government authorities is available as remedy. 12 Labour Contract Law, art 10. 13 Ibid., art 69.
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Employers could no longer exploit employees by imposing unreasonably long probationary periods in which employer can terminate employee without cause and pay less than the amount after the probation period.14 Article 14 provides that employers must enter into a non-fixed-duration contract after an employee has continuously worked for the employer for 10 years, or if he has previously renewed a fixed-duration contract with the same employer twice, unless the employee opts out. In principle, all these provisions better protect job security and welfare of employees in China; yet some of them are criticized as over-protecting to labourers (at least on paper) and their effectiveness is subject to the enforcement regime adopted by the Government.

Trade Union Law Another important legislation about labour protection is the Trade Union Law which was first promulgated in 1992 and amended by the Standing Committee of the NPC in 2001. The Trade Union Law prescribes that the All China Federation of Trade Union (ACFTU) which has a close policy relationship with the state-party is the exclusive trade union in China and has to ensure that any labour activity be constructive to economy.15 Such control is important to the Government since it is crucial to prevent labour organizations from being too politically powerful. However, according to the International Labour Organization Convention (ILO), trade unions should be independent from government and employers. 16 It guarantees all employees right to join trade unions and to participate in their activities without

14 15

Ibid., art 19. Ronald C. Brown, Chinas Collective Contract Provisions: Can Collective Negotiations Embody Collective Bargaining? (2006) 16 Duke Journal of Comparative &International Law 35, 35. 16 ILO Convention 87 Freedom of Association and Protection of the Right to Organise Convention, 1984, art 2 and 3; and ILO Convention 98 Right to Organise and Collective Bargaining Convention, 1949, art 2. 6

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interference or restrictions imposed by their employers. The Trade Union Law also prescribed that employers are obliged to provide for establishment of trade unions and fund union activities upon ACFTU approval. Subsequent to the Trade Union Law, the Law grants labour unions more power in representing employees. For instance, the union must be consulted before any mass lay-offs; 17 and are entitled to represent the employers in negotiation, arbitration or in litigation for disputes involving collective labour contracts. However, even though trade unions have gained more powers in China, the establishment of trade unions in private enterprises is not mandatory and their lack of independence is still a problem. After all, workers could only rely on a trade union if there is one established in the first place. Therefore the next logical step of the Government would be legislating to mandate establishment of trade unions in private entities. However, instead of mandating establishment of trade unions, the Government has launched a promotional campaign which will be discussed in detail in Part III. To assess the effectiveness and future enforcement directions, all these provisions must be examined against all political, social and economic considerations.

Part II: Political, Social and Economic Considerations The Importance of extra-legal considerations To understand the rationale of enforcement mechanism of the Law in China, it is very important to examine all underlying extra-legal political, social and economic considerations. The PRC political regime has no democratic underpinning, therefore to sustain its authoritarian one-party rule, the Chinese Communist Party places national economic performance at the center of political endeavors, as a

17

Labour Contract Law, art 41. 7

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means through which to establish legitimacy in the political sphere. China, being an authoritarian regime, has adopted developmentalism. Developmentalist argues that apart from sustaining economic growth, the Government should also spread out the risks associated with capitalist development and promote the welfare of citizens; otherwise citizens would not have incentive to support the regime and may result in social unrest. Due to this development trend and the adoption of the unique social market economy by the government, the Law, which is a fabrication by the intertwined political, social and economical parameters, could not be examined under a lens through which only legal perspectives could be seen.

Capitalization of the government Capitalism had long been a taboo in Chinese politics and private entrepreneurs were deemed enemies by the state-party in the early years of the establishment of the PRC. Yet, subsequent to series of economic reforms since 1978, the state-party has determined to embrace market elements and acknowledging the contribution and status of capitalists in China as evident from the States declarations of government goals and integration of capitalists into the political system. Among all articles and the preamble in the State Constitution, article 11 and its amendments best describe the dynamics between the state and capitalists. In the 1999 amendments, the State recognized the status of capitalists by providing that the state will develop a socialist market economy. In the 2004 amendment, it further stated that the State encourages, supports and guides the development of the non-public sectors of the economy (my emphasis). Apart from formally declaring promotion of economic development as a governing goal, the integration of capitalists into the political system also demonstrates the prevalence of economic development in the Governments agenda.
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According to the Hurun China Rich List in 201018, among the 500 richest men in China, one third of the List are estimated to be state-party members; 83 individuals are delegates to the NPC; 80 individuals are delegates to the China Peoples Political Consultative Congress, four of whom are on its Standing Committee; 12 individuals are deputy chairmen of the All-China Federation of Industry & Commerce (ACFIC), a business association representing the private sector; and 173 individuals have been appointed to significant government advisory posts. The state-capitalists relationship was reasonably perceived as a symbiotic one and one would reasonably expect that any law legislated or policy adopted would be pro-capitalists. However, such assumption is no longer accurate when the widespread social unrest intervened. Social unrest -- domination of political discourse Subsequent to massive restructuring of state-owned enterprises (SOE) in the late 1990s, tens of millions of workers were marginalized and labour was in a state of extreme over-supply, as a result employers established unshakable control over the labour market, selecting the candidates they wanted and unilaterally determining pay, conditions, benefits and terms of employment.19 As early as in 2004, waves of urban protests erupted in China against maltreatments of workers by enterprises, social inequality, and destruction of jobs pointed to sharp social tensions which the Government could no longer downplay.20 Since then, conflicts between the two camps advocating economic growth and social stability overwhelmingly dominate all

18

Hurun Report, Zong Qinghou of Wahaha Tops Hurun Rich List 2010, available at http://old.hurun.net/listreleaseen512.aspx (visited 20 March 2011). 19 China Labour Bulletin, Swimming against the Tide: A Short History of Labour Conflict in China and the Governments Attempts to Control It (2010), available at http://www.clb.org.hk/en/files/File/research_reports/Labour%20Conflict%20Report%20final.pdf (visited 19 April 2011). 20 John Chan, Mass Protests in China point to sharp social tensions, World Socialist Web Site, available at http://www.wsws.org/articles/2004/nov2004/chin-n01.shtml (visited 19 April 2011). 9

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political discourse; and social stability seemed to get the upper hand. In 2006, the state-party formally endorsed a political doctrine laid out by President Hu Jintao that calls for a "harmonious society" which signaled a shift in the state-party's focus from promoting all-out economic growth to solving worsening social tensions.21 The first draft of the Law released in the same year was perceived as one of the Governments responses towards the upheavals. This tautness not only exists in society, it is also reflected within the Government, the legislature in particular.

Competition between the two camps The tension between the two camps is evident from the drafting of article 1 in a very early stage.22 In article 1 of the first draft, protection of the lawful rights and interests of workers was the second of three legislative goals which became the third and last position in the second draft and then became the third of four legislative goals in the final version. Although the Labour Law promulgated in 1994 stated promote economic development and social progress as one of the goals, it had the goal of labour protection as its first stated objective.23 During the NPC Standing Committee meeting for reviewing the second draft of the Law, there was an open debate in which some delegates stressed that the law should state an explicit bias or preference in favour of the working class, so that any ambiguity in
21

Chinas Party Leadership Declares New Priority, Washington Post, 12 October 2006, available at http://www.washingtonpost.com/wp-dyn/content/article/2006/10/11/AR2006101101610.html (visited 19 April 2011). 22 Article 1 of the Labour Contract Law: The Law is enacted and formulated in order to improve the labour contract system, specify the rights and obligations of both parties to the labour contracts, protect the legitimate rights and interests of the workers and construct and develop a harmonious and steady employment relationship. 23 Article 1 of the Labour Law: This Law is hereby formulated in accordance with the Constitution in order to protect the legitimate rights and interests of workers, readjust labour relationship, establish and safeguard the labour system suiting the socialist market economy, and promote economic development and social progress. 10

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(contractual) terms should be construed in favour of the employee by the court unless evidence to the contrary be presented by the employer. While other delegates succeed in counter-arguing that it should adopt an impartial approach (that is a pro-capitalist approach) in fear of damage to business efficiency and decrease of foreign investments.24 Subsequently, one of the most glaring scandals in 2007 since the economic reform -- the widespread use of slave labour in as many as 8,000 brick kilns and small coal mines in Shanxi and Henan Provinces accelerated the promulgation of the Law.25 In view of the fact that GDP growth of China was unprecedentedly high and was assumed to remain in such a high level, the shift in policy focus in 2006 and the promulgation of the Law in 2007 were indeed not surprising because such optimistic assumption assured that the new policy and the Law, though increase operation costs, were still affordable to private enterprises. 26 However after a series of dramatic political moves, all that followed was anticlimax -- the financial tsunami in 2008 which caught the Government off guard. The Government was put in an awkward position in a sense that any rigid enforcement of the newly enacted Law would be crushing to economic recovery.

Workers in shortage more powerful on bargaining table Another baffling factor contributing to this awkwardness was the severe shortage of migrant workers in economic engines such as the Pearl River Delta after the Lunar New Year holiday this year.27 One of the basic assumptions of the Law or
24

Hilary K. Josephs, Measuring Progress under Chinas Labour Law: Goals, Processes, Outcomes, (2009) 30 Comparative Labour Law & Policy Journal 373, 377. 25 As Unrest Rises, China Broadens Workers Rights, The New York Times, available at http://www.nytimes.com/2007/06/30/world/asia/30china.html (visited 19 April 2011). 26 See Miao, An Urge to Protect (n 4 above), p 197. 27 The Mystery of Chinas Labor Shortage, The Wall Street Journal, 22 February, 2010, available at http://blogs.wsj.com/chinarealtime/2010/02/22/the-mystery-of-chinas-labor-shortage/ (visited 19 11

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any labour protection legislation is that the bargaining power of workers are generally weaker than employers, however, due to the tremendous decrease of labour supply, worker becomes strongest ever on the bargaining table which makes the business conditions even more difficult for enterprises.28 Of course, they did not sit still and waiting for death, many foreign corporations strongly lobbied against the Law or labour protection measures through their Chambers of Commerce or local trade associations.29 Some even threatened to move their businesses to Vietnam.30 Even so, threats posted by corporations were not able to stir up public sentiment as the industrial actions launched by workers. In 2010, 14 young workers at electronics giant Foxconn jumped to their deaths from the roof of their dormitories in Shenzhen. At the same time, strikes at Honda in Guangdong triggered another wave of worker protests across China. It was clear that the major purpose of the labour law reform is to cool down the long-simmering discontent felt by many workers.

Purpose of the Law other than labour protection Apart from improving work conditions directly by regulation, the Law also serves another purpose of moving up mode of production in China along the value chain, though the effect might not have been expected by the Government when the Law was formulated (or at least it is not officially stated as a legal purpose).31 Due to increase in general production costs (including and not limited to labour costs), more
April 2011). 28 The reasons for the shortage of workers were suggested to be that 1) segments of Chinas export industry crawl up the value chain; and 2) the fact that affluent coastal regions such as Yangtze and Pearl River Deltas and economically booming second-tier inland cities such as Chongqing, Wuhan and Nanchang were both competing for workers. 29 Monique Garcia, Chinas Labour Law Evolution: Towards a New Frontier, (2009) 16 ILSA Journal of International & Comparative Law 235, 240. 30 Ibid. 31 Jovita T. Wang, Article 14 of Chinas New Labor Contract Law: Using Open-Term Contracts to Appropriately Balance Worker Protection and Employer Flexibility (2009) 18 No2 Pacific Rim Law & Policy Journal 433, 458. 12

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developed localities such as Guangdong are moving away from its emphasis on the export-processing industry. While the industry made Guangdong one of Chinas wealthiest cities, workers rights were constantly violated and local authorities often turned a blind eye. When the production cost increases, mode of production within the region is forced to shift to high-value ended ones which will bring more expertise, technology, and better jobs instead of industries in the low-end sector. Furthermore, less developed regions will be benefited because when the low-end industries are replaced in more developed region like Guangdong, they will move to these less developed regions, making these regions old Guangdong in terms of mode of production. 32 Due to the fact that different regions having different paces of economic development, the Law has to be readjusted and adapts to different economic situation. All these purposes and considerations do play a role in enforcement policy formulation.

Part III: Enforcement Regime In view of all the points made in previous sections, a conclusion could be drawn upon the Governments rationales and hidden agenda in enforcing the Law. So far, it could be safely assumed that the strength of enforcement depends on the need to maintain social stability and economic growth. Before the global recession, policy focus of the Government has shifted gradually from all-out economic growth to social stability since the formal adoption of harmonious society doctrine in 2006. During the global recession, economic development resumed the central position again. Afterwards, since the impact of global recession fades, the Government is even keener to enforce the Law strictly despite the fact that many small and medium

32

See Wang, Article 14 (n 29 above), p 458. 13

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size enterprises close down and large businesses move to other manufacturing hub such as Vietnam and Jakarta due to increasing adverse business conditions in China. For instance, the Standing Committee of the National Peoples Congress released in February 2011 that employers will face up to three year imprisonment if they fail to pay their employees. 33 In this part, a more detailed discussion about the Governments attitude and directions of enforcement will be given. Evidence to be presented in this part will show that the Government attempts to strengthen the enforcement of the Law by a very selective and flexible instead of a blanket approach. Also, the Government inclined to leave the Law deliberately vague and ambiguous and allow local authorities having leeway to maneuver according to local economic and social situations. In some occasion, some provisions were widely criticized as unclear; the central government did not clarify even though she had a chance to do so. Each of the Governments approach will be discussed in details.

Selective Enforcement The best illustration of the adoption of selective enforcement by the Government is the promotional Unionization Campaign in 2008. It is the right of each individual to organize or join a trade union. This right is clearly enshrined in the Trade Unions Law. The issue is not about the employees right to organize and join a union but whether there is an obligation on an employer to put a trade union in place at its own instigation. As discussed in Part I, after the empowerment of trade unions by the Law, the next logical step would be to mandate establishment of trade unions in private enterprises which is the best way to ensure social stability. Workers
33

Prison threat for bosses who fail to pay mainland workers, South China Morning Post, 24 February 2011. 14

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participating in Industrial actions are largely migrant workers since they are faced with particular anxiety emerged from the political system. They are on one hand prone to becoming the losers in both the processes of industrialization and urbanization. On the other hand, they are stripped of means to organize themselves, whether through workers unions, NGOs or others. 34 The provision in the Constitution permitting strikes has been repealed in 2004. The Government generally prefers that employees not resort to strikes for the purpose of resolving disputes, thus the ACFTU will not support strikes by employees.35 Professor Wang Xiangqian, from the China Institute of Industrial Relations, said the Foxconn incident exposed the urgent need for stronger and more independent workers unions.36 He also said that Chinese economic development has reached a point where there must be an effective bargaining mechanism between the labourers and the employers, and that means a strong and independent workers' union as legal weapon without which the workers could only turn to other ways to express themselves, which could then bring instability to society.37 In 2008, instead of formally legislating the right to strike or join trade unions, the Government allowed the ACFTU to promote and encourage enterprises to establish trade unions. The more intriguing point is that instead of adopting a blanket approach, the programme only targeted large foreign companies such as the Chinese subsidiaries of Fortune 500 companies.38 And what promotional means in this campaign is not really promotional in the real sense. Companies that do not comply risk being publicly vilified or blacklisted by the ACFTU, and perhaps penalized by the

34 35 36 37 38

Suicides expose workers anguish, South China Morning Post, 28 May 2010. How should I deal with a PRC labour union?, China Law and Practice Oct 2009. Ibid. Ibid. Employment: Union increase the pressure, China Law and Practice Dec 2009/ January 2010 15

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government, since businesses are required by law to allow unions to form.39 The ACFTU publically criticized foreign enterprises for refusing to allow their workers to join unions.40 Then, the campaign was suspended and delayed for two years due to economic crisis. Indeed in 2010, the Government may have taken advantage of the recent turmoil stirred up by the Foxconn incident to garner public support for such legal reform. While the Government has generally been quick to silence media reports on labour disputes fearing workers elsewhere will mobilize, which may then affect social stability the government allowed the media to freely cover this strike for two days.41 However, in June 2010 the Government resumed efforts to increase unionization not with formal legislation but with the issuance of a national measure -- Urgent Notice on Further Enhancing the Establishment of Trade Unions in Enterprises and Fully Exploring the Use of Trade Unions in Enterprises ( ) by the ACFTU.42 The notice requires all regional trade union authorities to vigorously promote the unionization of foreign-invested companies and companies invested with Hong Kong, Macao, or Taiwan capital. Such moves are in line with the Governments overall objectives of sustainable economic development and social stability and are clever ones for various reasons. First of all, it selectively imposes the requirement on all large corporations which are relatively insusceptible to labour cost increase and leave the SMEs undisturbed. Secondly, different from other promotional campaigns which are always be described as toothless tiger, large corporations that do not

39

China tells businesses to unionize, New York Times, 11 September 2008, available at http://www.nytimes.com/2008/09/12/business/worldbusiness/12yuan.html?_r=2&pagewanted=1 (visited 19 April 2011). 40 Ibid. 41 No longer straining to be heard, China Law and Practice, Nov 2010 42 Ibid. 16

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submit to this scheme voluntarily, would face adverse consequences imposed by the ACFTU. Although the downside is so obvious that workers in small enterprises are not protected, it is better than doing nothing and more importantly, such approach, at the very least, mandates trade union establishment in large corporations which are the sources of most prominent industrial actions and social unrest. The success of this move is even more apparent when it is compare to the scheme of promoting collective bargaining which is supposed to work hand-in-hand with the Unionization Campaign. In addition to unionization, the government has increased pressure on private enterprises to allow collective contract negotiations with the issuance of the Notice on the Pushing Forward of Collective Bargaining and the Implementation of the Rainbow Plan () on May 5 2010 by the Ministry of Human Resources and Social Security (MOHRSS).43 The Rainbow Plan requires all enterprises with labour unions to enact a collective contract scheme by 2012. The Rainbow Plan places considerable focus on increasing the ability of workers to negotiate for wage increases through collective bargaining. Then, local authorities including Fujian, Beijing, Shenzhen and Guangdong then attempted to localize this national measure by enacting regulations about collective bargaining. The Guangdong Peoples Congress, for instance, revived the draft of the Guangdong Enterprise Democratic Management Regulations ( ) in January 2010, which was originally drafted in 2008 but promulgation was put on hold due to the pressures of the global financial crisis. The latest draft rules introduced mandatory wage negotiations if 20% of the employees requested them,

43

Wage collective bargaining in China: current practice and future trends, Hong Kong Legal Community, 11 Nov 2010, available at http://law.lexisnexis.com/webcenters/hk/Hong-Kong-Lawyer-/Wage-collective-bargaining-in-China-cu rrent-practice-and-future-trends (visited 19 April 2011). 17

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as well as mandatory mediation with ACFTU officials if negotiations reached an impasse. Additionally, these regulations would give protection to employees that went on strike or conducted a slow-down in response to a managements refusal to negotiate. They also stipulate that one in every three board members should be a worker representative and they were to have access to corporate information except anything deemed to be technologically sensitive or a state secret or impinging on personal privacy. 44 Therefore, workers will potentially be entitled to sensitive information such as the books and accounts of a factory. Federation of Hong Kong Industries chairman Cliff Sun Kai-lit argued that the draft rules are

counter-productive and defies the existing practice - the harder they work, the more they earn.45 The outcome was reasonably predictable that the draft regulation was not submitted during the meeting and the Guangdong provincial government had to put on hold the proposal indefinitely. There have been a number of speculations about the suspension; some speculates that the suspension was due to factory owners' outcries in Guangdong.46 Business lobby, led by representatives from Hong Kong employer groups, successfully convinced provincial leaders that the regulations would cause a catastrophe for the Pearl River Delta and a mass-exodus of factories from the region.47 Hong Kong's top four trade bodies and almost 60 smaller business associations unanimously lobby to oppose to it strongly.48 And other possible reason is that some industries are so closely tied to the local government's economic performance that their interests become aligned.49 As a result, the local government

44 45 46 47 48 49

Workers seek voice in collective bargaining, South China Morning Post, 18 Oct 2010. Ibid. Ibid. No longer straining to be heard, China Law and Practice, Nov 2010. Workers seek voice in collective bargaining, South China Morning Post, 18 Oct 2010. Wage regulation would give workers new clout, South China Morning Post, 4 Sep 2010. 18

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was reluctant to put the scheme in place. Yet, Su, head of the Wage Research Institute under the MOHRSS, dismissed suggestions that such alignment of interests was hindering the legislation and explained that [t]he financial crises has created problems we never thought of before. How do we make this law applicable in terms of financial downturns?50 Unlike the Unionization Campaign, the Rainbow Plan led to a deadlock among workers, employers and the local authority. Such discrepancy of outcomes between the two schemes seemed to connotate that promotional campaign though not wholly voluntary in nature is more acceptable to businesses; and when blanket enforcement is not politically and practically viable, selective enforcement seems to achieve better results. However, it is uncertain as to whether promotional measures such as the Unionization Campaign would still be in force when the economy turns bad again. This kind of flexibility in enforcement is not only observed in promotional campaigns but also the drafting of the Law and its subsequent interpretations by the Government and local authorities.

Refraining from perfecting the Law Common to many other legislation in China, some provisions of the Law are drafted in vague or ambiguous language thus interpretations and clarifications by means of judicial interpretation and enactment of implementing regulations by the Government subsequent to the promulgation of the Law were expected. Also, some legal loopholes and problems of implementation would not come into light before promulgation. However, they are not really helpful as they were expected to be. For instance, one of the major provisions, article 14 stipulates that if an employer has concluded two consecutive fixed-term employment contracts with an employee; the employer
50

See n 29 above. 19

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should conclude a non-fixed term employment contract with the employee. A non-fixed term employment contract is a contract without a termination time and may only be terminated for good cause and with severance pay. The rationale of this provision is to ensure job security of the working class. The workers, migrant workers of the lower working class in particular, rely heavily on the provision of living by employers since the common practice in China is that the employer, apart from the basic wage, will also provide with their workers accommodations and meals. Therefore it is apprehensible that job security is very important to these workers. For a provision with such a clear purpose and was worded in simple language nevertheless could be interpreted in two different ways. The first interpretation is that if the employer and employee both agreed to renew a contract at the end of the second fixed-term contract, the third contract must be non-fixed term contract. Another interpretation is that after the expiry of the second contract, the employer must offer a non-fixed term contract. The issue is whether employers have a right not to renew a contract at the end of the second fixed-term contract. Apart from mandating conclusion of non-fixed term contract upon the end of two successive fixed term contracts, article 14 also stipulates that if a worker has worked for an uninterrupted term of 10 years for an employer, and the worker proposes to renew a labour contract without a fixed term, such non-fixed term contract shall be concluded. Obviously, many employers wanted to circumvent the provisions by tricks which were indeed demonstrated in the Huawei incident right after the promulgation of the Law in November 2007. Huawei Limited, a Chinese telecom equipment supplier, initiated a voluntary resignation programme of 7,000 long-term workers with a plan to rehire them on new fixed-term contracts so that the uninterrupted term of 10 years required in the provision has to be counted afresh. In view of such ambiguity and potential for exploitation in a major provision,
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one would have expected the Government to give further guidance as to how the provision should be construed and expressly prohibit foul plays.51 Although the Government launched a consultation concerning the drafting of the Implementing Regulations for the PRC Labour Contract Law after the promulgation of the Law which seemed to be a promising step, the Implementation Regulations subsequently enacted could only partially clear many of the ambiguities inherent in the earlier law. The ambiguity inherent in many major provisions including article 14 were not clarified. What is more intriguing was that the foul play in Huawei incident was not mentioned at all. Some practitioners even commented that the Implementation Regulations were merely a rewriting of the provisions in a slightly different order.52 The natural consequence would be that local authorities are faced with interpreting the Implementing Regulations according to their own local requirements which would definitely compromise the consistency in enforcing the Law throughout China. For example, in July 2008 (before the promulgation of the Implementation Regulations), the Guangdong High People's Court and the Labor Dispute Arbitration Commission of Guangdong Province issued the Guiding Opinions on Several Issues Applicable to the 'Law on Labor Dispute Intermediation and Arbitration' and 'Labor Contract Law' in which the kind of voluntary resignation programme invented by Huawei was expressly prohibited.53 Then one may wonder what the Government or the Supreme Peoples Court has clarified so far by issuing binding interpretations. In the latest interpretation of the law by the Peoples Supreme Court released on 14 September 2010 is the Interpretation on Several Issues Concerning the Application of the Law to Trials of Employment Disputes (3) ( (Interpretation III) in which the scope of eligible )
51 52 53

China consults in Labour laws to avoid Huawei Resignation Scandal, Cellular News, 9 May 2008. Employment regulations may prove a burden for employers, China Law and Practice, Oct 2008. Art 22 of Interpretation III. 21

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labour cases was expanded; 54 party bearing the burden of proof of the new overtime pay rule was ascertained;55 distinction between labour and employment relationship was determined.56 However, once again, loopholes and ambiguities mentioned above are not dealt with. Since the Government must have been aware of such problem, the failures in clarifying some major ambiguities are by no means mistakes but deliberate omissions. Therefore, there are reasons to believe that the Government deliberately left those ambiguities untouched in order to leave room for different local authorities to maneuver according to their own stage of economic development. Part IV: Conclusion In the initial stage of enforcement after the promulgation, the Government could still explain away the defective enforcement when the economy was still under the influence of the global recession. However, when the economy almost recovers from the downturn, society would have a greater expectation upon the Governments performance. Indeed it is understandable that a government would prefer putting a labour protection law into effect when she could assure that the economy could absorb the adverse effect (that is increase in production costs) without much abruption, otherwise it would only lead to mass lay-offs or closure of enterprises. However, the Government must also understand that usually a labour protection law is most in need when there is economic downturn, therefore effectiveness of a labour protection law and its enforcement could only be concluded as satisfactory if it is able to protect workers during economic downturn, a time when the workers possess weakest bargaining power ever.

54 55 56

Labour Contract law, art 85. Art 9 of Interpretation III Art 7 of Interpretation III 22

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So far, some effective measures such as the Unionization Campaign and the prohibition of foul play by the Government and local authorities respectively. However, since many measures are merely promotional in nature and many of the measures and interpretations are issued by local authorities which means all of these enforcement measures could be revoked by the Government during economic downturn or suspended by local authorities when they are pressured. If it is the case, the Law could by no means pass the test of being effective when the workers need protection most. Currently, the continuing effort in enforcement and clarifying the text of the Law is still far from sufficient. By analyzing the trends of enforcement and interpretations by the Government, it is observed that the Government would only be willing to clarify or amend the Law in two occasions. The first one is that the clarification would not significantly and adversely affect the businesses such as the interpretations included in Interpretation III issued by the Supreme Peoples Court. And secondly, the clarification or amendment, without which would lead to social instability or a total defeat of the Laws purpose, such as the imposition of three year imprisonment upon employers who fail to pay their employees. Any other amendments or interpretations which fall out of these two categories will be left to local authorities. The local authorities will interpret according to individual economic and social conditions of different localities.

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