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China's Labor Laws. Worry Me Or Worry Me Not.

By Dan Harris and Steve Dickinson

About a month ago, we did a post entitled, "China's New Labor Contract Law. Harmonized Out Of Existence?" In that post, we (I say we here because some of what I was reporting was coming to me from co-blogger Steve Dickinson who is based in China) talked about how local and provincial authorities were giving out broad hints that they were not going to be all that keen about strictly enforcing China's labor laws other than those related to preventing layoffs:

We have talked so much about the labor law because it applies to every business in China with an employee. Complying with the law is relatively easy and the penalties for failing to comply can be so harsh. But last week, a long-time client of ours with a factory in Shandong Province (just outside Qingdao) told me of how a Chinese government employee had essentially told him not to worry so much about China's labor contract law. The gist of the government employee's statements to our client was that so long as this company did not lay off any of its approximately 250 Chinese employees, the government would look the other way regarding other labor law violations. My client and I agreed that it needed to remain in strict compliance with the labor laws because it had nothing in writing from this official, because this official does not control everything in the province or the country relating to labor laws, because violations of the labor laws can lead not only to problems with the government, but to employee lawsuits. I have since talked with a couple other of our Shandong Province clients and they report no such conversations, but they do say they have "heard" that China's labor laws surrounding everything but layoffs are being loosened

In a recent Danwei post, entitled "Trade unions and social unrest in 2009," (h/t to China Challenges), Peter Ford of the Christian Science Monitor (one of the best reporters in China) talked about hearing similar things:

I have heard, though not been able to confirm, that provincial governments have been quietly telling employers for several months that if they do not abide by the provisions of the Labor Contract Law they need not worry, and this seems perfectly plausible. A lot of employers have been complaining for a year or so that the labor law, along with the rising value of the RMB until last July, was a major factor in making them uncompetitive. That may be true of the low margin, low quality producers, and while the government clearly did not mind driving them out of business last year (so as to move China?s economy up the value chain) such firms do at least offer jobs while they are still in business, and jobs are going to be in short supply this year.

Actually, since I did the December post on this, I have heard the same thing from a couple more clients, one from Dalian and one from Tianjin. So what is a foreign company doing business in China to do in light of this? Should it all of a sudden start violating China's labor laws in the hope of sliding by? Our advice is to continue following the laws to the letter and we base this largely on two things. One, just because one government official says one particular government entity is going to be lax on enforcing the labor laws does not mean much. This one government official may believe in lax enforcement, but that does not mean all of his cohorts do. Also, it does not mean Beijing does either. Two, one of the biggest risks of not following China's labor contract law is a private lawsuit by a disgruntled present or former employee. A local government may be able to bring about a decline in private lawsuits and more favorable rulings from the administrative bodies or courts that rule on such lawsuits, but I do not believe such lawsuits will be extinguished completely and I also think foreign companies will continue to fare rather poorly in such lawsuits. Down economy or not, a Chinese worker suing a foreign company will always go in with an advantage.

Full post as published by China Law Blog on January 11, 2009 (boomark / email).