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On 29 June 2007, the Standing Committee of the National People's Congress passed the new Labour Contract Law ("LCL"), which is effective on 1 January 2008.
The LCL emphasises the legal protection of the employees' rights and combat potential exploitation amid China's whirlwind economic development. It has also been enacted at a time when employees in China are becoming ever more aware of their employment rights and how to uphold them.
Albeit introducing more stringent regulations, the LCL offers better and more comprehensive guidance on the employment relationship which, at present, tends to be quite ambiguous and subjective to local jurisdiction. The LCL encompasses articles on probationary period, redundancy, liquidated damages, severance pay, non-compete and labour dispatching, etc.
Multinational companies operating in or planning to enter the Chinese market will need to assess the potential impact of the LCL on their human resources management practices and, to a certain extent, wider business strategies.
We outline the key elements of the legislation and how companies can evaluate and deal with the implications, along with how the LCL could provide multinational companies an opportunity to develop a more systematic and proactive approach to human resources management within their Chinese operations:
- Strengthening trade union involvement in labour issues;
- Commanding formal and documented contractual procedures and tightening the controls on short-term contracts;
- Setting more stringent rules on the employment of part-time and dispatched employees;
- Clarifying the conditions of contract termination/expiration and the terms of severance pay;
- Stating the relevant terms of training agreement and competition restriction;
- Calling for higher requirements on human resource administration; and
- Assessing the human capital issues associated with merger and acquisition is fundamental to deal success.
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