Earlier this year, China’s national legislature passed a highly controversial “Employment Contract Law” (ECL). The law is the first major piece of legislation governing labor standards in China since 1994 and significantly expands the rights of many Chinese workers. While drafts of the law were being debated, multi-national companies actively opposed many provisions that would benefit workers – and were criticized for this opposition. (See here, for instance). As the date on which the law is to take effect (January 1, 2008) rapidly approaches, Chinese and foreign-owned companies, including Wal-Mart, are reported to be taking steps to evade some of the worker-friendly provisions that made it into the legislation.

A November 5, 2007 report from a Chinese newspaper notes that the ECL provision which most concerns employers is that relating to “non-fixed term contracts.” The significance of these contracts, as labor law experts point out, is actually quite limited. For instance, such persons can be given preference when significant downsizing occurs. These employees may also be entitled to greater compensation when terminated for certain reasons than employees whose fixed-term contracts are simply not renewed. However, as the experts note, they are by no means “permanent” employees or impossible to fire. Nonetheless, companies are fearful of such contracts and taking actions to avoid signing them. Under the ECL, employers will be required to conclude non-fixed term contracts with workers that they have employed for over 10 years. Just after the law was passed, there were some initial reports that, in response to this provision, companies were laying-off individuals who had been employed for ten years or close to ten years. Today's news article confirms that this is not only occurring, but suggests that it is happening on a fairly large scale -- which is expected to only get larger.

At one company, Huawei, 7000 “older employees” are reported to have “voluntarily resigned” and accepted the company’s new restructuring plan. The four departments of Wal-Mart’s global purchasing center that are in China are reported to all have been laying people off as the ECL prepares to take effect.

Chinese labor experts suggest that this marks only the first wave of actions to evade the ECL’s requirements. Workers that have already completed two fixed-term employment contracts with the same employer are also supposed to conclude non-fixed term contract. It is predicted that companies will also take certain actions against these employees in order to get around this requirement.

Finally, although not mentioned in this news report, other labor experts have reported that companies are also planning to save money by reorganizing their workforce to use “part-time” workers to the largest extent possible. The ECL makes such workers exempt from several imporatnt provisions of the law – for instance, employers can have oral contracts with such workers and need not pay any severance when terminating them.

Hopefully, companies will not be able to get away with such actions that are designed specifically to evade the requirements of the ECL. Some experts have called on the local labor bureaus to ensure that these “voluntary restructuring” deals are not in fact coerced. Another hopeful observer states that the Chinese arbitration committees and courts – not always a great friend of workers – will not “sit idly by” as employers try to evade the law.

However, we should also think about what we can do here at home to influence the behavior of American or multi-national companies operating in China. Pressure from labor groups caused at least some companies to withdraw their active opposition to the ECL when it was being debated; we should strive to do the same in regards to companies’ efforts to evade the law that has now been passed.