China's Draft Employment Contract Law—Third Deliberation

An Employment Contract Law is scheduled for inclusion in the 2007 legislative agenda. As the administrative authority responsible for labor and social security related issues in China, the State Council appointed Ministry of Labor and Social Security drew up and studied the draft Employment Contract Law with the State Council in late 2006.From April 24 to April 27, the Standing Committee of National People's Congress ("NPC") completed the third deliberation of the draft Labor Contract Law.The New Employment Contract Law is expected to be published around June 2007.

The third deliberation of the Employment Contract Law Draft raised new issues. However, since the Employment Contract Law is still in the drafting stage, none of its provisions are confirmed by the law.As such, any discussion of the Employment Contract Law Draft ("the Draft") should be conducted with the understanding that the Draft has not been finalized.

1. Establishment Procedures for an Employer's Internal Rules

The Draft clarifies that the employer shall negotiate with employees or the employee representatives' congress and shall bring forward schemes and opinions to stipulate the internal rules on an equal basis involving the following issues: remuneration, working hours, leave and holidays, labor security and sanitation, insurance and benefits, vocational training, labor discipline, etc.

2. Conclusion of Labor Contract in Written Form

The Draft prescribes that where the employer has not signed the labor contract in written form with employees, the labor contract in written form shall be concluded within one month of establishing the labor relationship, or else the employer shall pay to the employee two times of the wages to which the employee is entitled.

3. Non-fixed-term Contract

The Draft requires the employer to enter into a non-fixed-term labor contract with the employee after the employer twice consecutively executes the fixed-term labor contract with such employee.

4. Retrenchment

The Draft stipulates that the employer may layoff redundant employees, subject to mandatory procedures, under the following circumstances: (1) where the employer is restructured in accordance with laws and regulation on the bankruptcy of enterprises; (2) where serious difficulties occur to the production and management of the employer; (3) where the employer is relocated for prevention of pollution; and (4) where the employer engages in change of products line, technical renovation, or change of business model, and the employer still needs to layoff redundant employees after the amendment to the original employment contract.

5. Compensation

The Draft clarifies the compensation shall equal the employee's monthly remuneration multiplied by the the length of service year and a service year of less than one year will be counted as one year.Further, it stipulates the maximum amount shall be three times the city average salary with a 12 month cap.It is required for compensation when the employer would not renew the labor contract with the employee at the expiration date.

6. Labor Dispatch

The Draft clarifies that the obligations for the labor dispatching enterprise are: (1) entering into labor dispatching agreement with the real employer; and (2) notifying the dispatched employee the content of the labor dispatching agreement.In addition, the dispatched employee shall have the right to organize or join in the trade union in the dispatching enterprise or the real employing enterprise.

7. Non-competition

The non-competition clause shall apply to senior management, senior technical staff and other staff familiar with the business secrets of the employer.The non-competition period shall be limited to the maximum of two years.

8. Trade Union

The current draft Labor Contract Law has reinforced the role of labor union in safeguarding the legitimate rights and interests on employees in the following areas: (1) formulating corporate rules and bylaws; (2) bargaining on the collective contract; (3) providing opinion on mass layoffs; and (4) providing opinion on the termination of a labor contract.

Conclusion

As embodied in this Draft, the forthcoming Labor Contract Law may cause extensive changes to labor relations.Consequently, corporate human resources management must adapt to the requirements of the new law.The current letters of appointment, labor contracts, internal labor rules, and various other documents shall be amended in order to satisfy the requirements of the Labor Contract Law.