China's New Labor Law

On January 1, 2008, the New Labor Law took effect. I have misgivings about the new law on a number of levels. Its intent is to strengthen worker protections which need strengthening. Frequently lower level employees aren't paid timely and often not at all. Few worker protections exist, and many Asian business owners take the position that life is cheap. You need only visit a construction site, read a Chinese paper to discover the latest mining disaster or inquire about chemical spills to be reminded.

Having said that . . . laws aren't enforced evenly here. The percentage of US or European companies that fail to timely pay workers or endanger their welfare is barely calculable. But these violations are almost entirely limited to Chinese companies. And yet, we will bear the full brunt of these laws. Firing someone for cause is virtually impossible. Given this, we are still stuck with a two month initial review period in which we can "test out" the employee, but still must be able to demonstrate cause to terminate the employment relationship, followed by a two year mandatory contract. After that is another two year contract followed by an open ended contract. Remember, there is no such thing as employment at will.

So in month three if the employee starts slacking off and not performing up to par, chances are pretty good that you'll have to pay off the remainder of his/her two year contract to get rid of him/her.

The result from my end will be a tightening on hiring policies. I won't hire anyone until I am absolutely certain I can keep them busy and the person is competent and trustworthy. That isn't easy to know in an interview.

At the expiration of the two year contract, I'm going to look very carefully at the employees and weed out those who aren't performing at peak. Why would I agree to take on a marginal performer for another two years with no ability to fire him/her if performance slips.

The government broke with tradition and permitted comments on the initial draft of the law. Western businesses raised concerns about certain more stifling changes and suggested alternatives based on their experiences. There is always an imbecile who doesn't get it in the crowd and Mr. Tim Costello wins that prize in this contest.

This has pro-labor groups in the United States crying foul. “[Western corporations] have shown themselves to be hypocrites,” says Tim Costello, co-director of Global Labor Strategies, a Boston-based think tank. “They’re opposing the very things that can raise the living standards of Chinese workers.”

Western corporations have raised and continue to raise the living standards of Chinese workers. They would have done so without the new law. If Mr. Costello had ever been to China, he might realize that.

I have not met a western company who sought to get around the labor laws (or any laws for that matter) of China. I'm sure there are some unscrupulous characters out there, but it is not the norm. To crack down on the western corporations for the sins of the Chinese, Taiwanese, Japanese and Koreans hardly makes sense.

If the government creates a level playing field by enforcing the new laws uniformly, then the law may force greater fiscal responsibility and efficiency in the work place. It will not lead to greater employment in the long run.