Labour Contract Law of the People's Republic of China
The Labour Contract Law of the People's Republic of China (中华人民共和国劳动合同法) is the primary source of labour law in China and went into effect on January 1, 2008, following a series of staff-sacking scandals in many companies. The Ministry of Human Resources and Social Security of the People's Republic of China is the responsible government department for administrating this law.
According to the new 98-article-long "Labor Contract Law", employees of at least 10 years standing are entitled to contracts that protect them from being dismissed without cause. The new law also requires employers to contribute to employees' social security accounts and sets wage standards for employees on probation and working overtime.
China's new labor contract law targets primarily domestic companies that do not have labor contracts and that generally fail to comply with China's old laws. Foreign companies have had a stronger track record of signing contracts with employees and bringing to China their global work rules and environmental, health and safety practices.
According to statistics from the All-China Federation of Trade Unions in 2008, 40 percent of private-sector employees lack labor contracts and there are many cases of wage default and forced labor. The new law is to China's overall economy and regulation.
The law prompts companies to improve their management, capital-labor relations and productivity. A sound market economy system in return would benefit businesses—both domestic and foreign companies.[according to whom?]
China appealed to foreign investors with its cheap labor, its preferential investment policies and its immense market. Employers feared the new law would have meant bigger severance payments and higher operational costs.[who?]
In the short term, it has been predicted that companies investing in supermarket chains, restaurants, building industries and other low-end manufacturing, which abuse cheap labors and avoid paying social security would suffer some losses. But in the long run, the new labor contract law would not negatively impact China's competitiveness and appeal as a destination for foreign investment.[according to whom?]
Small and medium enterprises in particular have already particularly felt the effects of the law. For example, some Korean companies have already decided to move their business from China to Vietnam or other developing countries where labor is much cheaper. About 98 percent of Korean enterprises in China are independent small and medium firms.
Other companies reacted to the law by proactively firing employees who would have come under the new guidelines.[who?] In October, US-based retail giant Wal-Mart fired about 100 employees at a sourcing center in China. The company said the layoff was part of its global restructuring. LG and Olympus have respectively announced plans to lay off employees. Carrefour China has asked over 40,000 of its Chinese employees to re-sign a two-year labor contract before December 28, 2007 regardless of an employees' service length or the expiration of their current labor contract.
The Standing Committee of the National People's Congress adopted the decision on the Revision of the Labor Contract Law of the People's Republic of China ('Amendment'). The Amendment will take effect July 1, 2013, intended to provide better protection to workers employed by labor dispatching agencies.
Highlighted requirements include: a. Labor dispatch agency must have a minimum registered capital of no less than RMB 2,000,000; b. Operate from a permanent business premise with facilities that are suitable to conduct its business; c. have internal dispatch rules that are compliant with the relevant laws and administrative regulations; d. Satisfy other conditions as prescribed by laws and administrative regulations; and e. Apply for an administrative license and obtain approval from the relevant labor authorities.
All labor dispatch agencies established after July 1, 2013, will need to meet these new local labor law requirements before they can start the company registration process. Existing agencies that are already licensed have until July 1, 2014, to meet all local labor law requirements before renewing their business registration.