In an effort to address unrest among the labour force and to create a more “harmonious” society, China has proposed new labour and union legislation.

In light of recent signs of labour unrest and in furtherance of a bigger goal to create a “harmonious society,” the government of the People’s Republic of China (PRC) has taken various steps, including drafting a new Employment Contract Law and unionising foreign-invested enterprises, to reach this goal.

In the last week of April 2007, the Standing Committee of the National People’s Congress (NPC) conducted the third reading of the proposed Employment Contract Law but did not pass it into law. It is likely that the earliest effective date of the new law will be January 1, 2008, but a prolonged legislative process is entirely possible.

On balance, the draft law represents a significant increase for the protection of employees compared to the current law. The law also remains a piece of legislation generally applicable to all employees, from the shop floor through general managers. Drafters rejected a proposal that was seriously considered last summer to exempt senior managers from the law.

Despite the extensive redrafting, the draft law still suffers from numerous instances of vague language. As a result, many provisions are subject to multiple interpretations, thereby reducing their effectiveness in providing reliable guideposts for employers to follow in managing their workforces.

Fixed-term Contracts Remain Discouraged

Because there are strict restrictions on termination of employees under current PRC law, most employers use fixed-term contracts because such contracts can be allowed to expire without having to pay severance.

The draft allows only two fixed-term contracts. If an employer wants to continue employing an employee after the expiration of the second term, an open-term contract must be signed at the request of the employee.

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