New labour laws take shape in China

The Chinese government is planning to introduce new employment legislation – the Labour Contract Law – that will significantly affect the way employers there operate.

Currently, workers in China have few employment rights. Their employer can dismiss them without notice, withhold their pay and refuse to renew their contracts.

Under the new proposals, however, employers will be forced to issue written contracts of employment, consult about proposals to dismiss more than 50 workers and pay severance monies to workers whose fixed-term contracts expire and are not renewed.

The changes to fixed-term contracts will have a significant impact, as many employers currently deliberately recruit staff on a short-term basis to avoid the payment of compensation when they terminate the contract.

The new proposals will also curb employers’ ability to restrict employee activity post- employment, with new limitations on the scope and duration of restrictive covenants.

The Chinese government is currently consulting about its proposals and it is anticipated that the draft Labour Contract Law will undergo several changes before being implemented next year.

Predictably, feedback from employers has not been favourable, with strong opposition from many cross-border companies. Concerns have been raised that the impact of the Labour Contract Law will increase production costs in China, and hamper inward foreign investment. Employers operating in China need to keep abreast of developments in this area to ensure their practices remain compliant.

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