By staff reporter Wang Zhen

China’s biggest communications supplier stirred a huge controversy in November -- just weeks before a new labor law took effect -- by spending 1 billion yuan to “sever” contracts with longtime employees and “inviting” them to re-apply for their jobs, in competition with other applicants.

Now, mum’s the word at Huawei Technologies Co. Ltd. “Sorry,” a company spokeswoman told Caijing. “We cannot make any comments about the Labor Contract Law.”

Many see Huawei’s latest labor practice, which affects workers with at least eight years seniority, as a way around a provision on open-term contracts that’s included in China’s new Labor Contract Law. A few other companies have followed suit.

But lawyers argue that Huawei can hardly sidestep its employer responsibilities. “The fact that an employee has worked for the company cannot be changed with any compensation,” labor law specialist Shi Xianguang told Caijing.

The labor measure that took effect in January is the first Chinese law to govern employer contractual relationships and is likely to affect at least 400 million people -- one-third of the country’s non-farm population.

With the law in place, Beijing is trying to tell citizens and the world that China is paying attention to labor rights, countering conventional wisdom in the West that China’s economy has grown in the last decade on the backs of cheap labor and long hours.

Millions of laborers in the construction, beauty salon and restaurant industries are already affected by widespread violations of provisions in the 1984 labor law, which is still in effect. Few violators have been punished. Now that another, more rigid law is in place, many worry that the bad guys will continue to flaunt the rules.

But most Chinese employers have adjusted their human resource practices by revising contracts and updating employee manuals. They know that overall operating costs for businesses will almost inevitably rise, but penalties for violations will be even more severe.

Extending Contract Periods

One adjustment that many businesses made was to lengthen employee contracts to three years from one. This move is in response to a new provision which says that, after the law takes effect, companies must sign open-term contracts with employers who have worked at one company for 10 years or more, and with workers who have had two, continuous fixed-term contracts. Employees may opt out.

Andrew Polins, vice president of an American company with 70 workers in Shanghai, told Caijing that it was a big change for his firm to replace all relevant one-year contracts with three-year agreements. “We decided to do so because, with the new law, we only have one chance,” he said. “After the first contract is signed, if we decide to move on to resume it, it just leads to the third contract, which almost means a permanent job offer.”

Shi said “a majority of businesses fear the non-fixed (open) term contract because the law sets a very high bar for an employer to fire a worker.” According to the law, an employer has to prove that an employee is not suitable for a particular job, even after training is provided.

Yet officials at some state-owned enterprises, where employment is relatively stable and long-term, said they were not affected significantly by the new law because their firms had already adopted some provisions. An HR manager surnamed Xia at China Petroleum and Chemical Corp. (Sinopec) said, “Many of our staffers have worked for Sinopec since the ’90s, and they have had a non-fixed term contract.”

According to Xia, Sinopec has now started using three- and five-year contracts for most, high-skill positions. “For other technical jobs, we use staffing agencies,” he said. “And in our selection of staffing agencies, we ensure that they practice lawfully.”

Also, for multinational companies in China such as Germany’s Siemens, a three-year-long contract system is already in place. An employer from Siemens told Caijing that the workers do not feel a difference in their life prior to and after the new labor law.

Business Costs to Rise

Human resources costs will almost certainly increase for Chinese businesses, mainly due to higher administrative costs and very likely because of rising salaries and compensation costs. But costs for those who violate the law is even higher, provided the law is fully and equally enforced for all businesses in China.

“Many provisions in the law indicate that an employer will have to spend twice as much money and above if he breaks the law” in areas ranging from overtime work to the use of temporary workers, said Shi. Yet enforcement will determine whether the law changes a popular notion that violation costs are lower than compliance costs. Meanwhile, demands for effective and efficient human resource practices have increased.

HR professionals have complained about the law, but they’ve also shown a willingness to promote lawful employment practices with a clear intent to protect the interests of workers. “I think, in the long term, a full execution of the law is going to raise efficiency and bring down costs for the company,” Yu Dan, an HR manager at an engineering company in Sichuan Province, western China, told Caijing.

A practical implementation guide is expected to be released by the State Council in March. It is expected to clarify and add details to some provisions.

That should be good news for Robert Poole, president of the U.S.-China Business Council (China), who said uncertainty about legal terms and possible differences in implementing regulations have created some difficulties for companies.

The law was first proposed in Beijing in 1998, at a time when deflation prevailed, GDP growth was a critical issue, and foreign investors were highly welcomed. Today, China is a global powerhouse with US＄ 1.4 trillion in foreign exchange reserves. Is the country ready for labor reform? Time will tell.

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