China: New Labor Laws Seek to Pressure Chinese Employers

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By Mark Melnicoe

Employers that violate China's labor protections have been targeted by a pair of measures that took effect Jan. 1, one that calls for the worst offenders to be “named and shamed,” the other for compliance grades to be assigned to every company.

The idea is to shed public light on domestic and foreign firms across all industries that skirt the country's Labor Law on wages and hours, paying into the social welfare system and other provisions.

Both regulations—the Measures for Announcing Major Violations of Labor Security and the Measures for Credit Rating Evaluation of Enterprise Labor Security Compliance—were issued last summer and are being administered by the Ministry of Human Resources and Social Security (MHRSS).

“It signals the seriousness with which the government views employment law violations and it gives them a new power to enforce,” Grace Yang, an attorney specializing in China employment law at Harris Bricken in Seattle, told Bloomberg BNA in a Jan. 27 e-mail.

Labor Disputes on the Rise

The new regulations come during a period of increasing labor unrest in China as economic growth cools and worker expectations rise. According to the Supreme People's Court, new labor disputes accepted by the Chinese court system totaled 483,311 in 2015—a 25 percent increase over the previous year—and kept rising in the first half of 2016.

So-called labor-services disputes, which primarily occur when companies use labor agencies to hire workers, jumped 38 percent in 2015 from 2014, court statistics show.

“The employees are getting smarter and more proactive, and legal actions against employers have continued to rise over the years,” Yang told Bloomberg BNA.

The new regulations cover:

  •  work hours, rest, vacation time and holiday leave;
  •  payments on behalf of workers into the social insurance system;
  •  non-payment or late payment of wages, including minimum wage and overtime and
  •  protections for female and juvenile workers.

Shaming and Grading

The naming regulation will publicize offending employers with announcements on the MHRSS website and in mass media such as newspapers, magazines and TV channels in the employers' regional markets. The announcements will include the employer's name, address, registration code; the full name of the legal representative or key person in charge; the exact violation and the fines or other punishments imposed.

Companies considered in “serious violation” of the law—for example, those withholding “significant amounts” from employee wages—are subject to the naming publicity.

“The measures do not explain what constitutes ‘serious violations' or ‘significant amount,’ so local branches of the MHRSS will be expected to figure out their own rules and standards in accordance with local needs,” said an online brief from the Shimin Law Offices in Shanghai.

The credit-evaluation law will grade companies, giving them an A, B or C based on their level of compliance in areas that also include:

  •  formulation of internal labor security rules and regulations,
  •  signing of a lawful labor contract with employees,
  •  legal use of labor dispatch services,
  •  child labor law and
  •  other labor laws, rules and regulations.

“Companies that have a sound legal record are classed as tier A and will not be routinely audited,” Dezan Shira and Associates, a business consulting firm with offices in China, wrote in an online client brief. “Companies that have been taken to task for labor law violations are classed as tier B and will be routinely audited. Those who have committed violations more serious than tier B will be classed as tier C and will be subject to tight regulation and inspection of enforcing agencies.”

These employers' grades will be held by MOHRSS for three years and shared with other agencies, practitioners said.

“MHRSS will also establish a mechanism for the exchange and sharing of information with the State Administration of Industry and Commerce, the finance authorities, housing and infrastructure authorities, taxation authorities and trade unions,” the Clyde & Co. law firm, which has offices in Beijing and Shanghai, noted in a client alert.

Local Authorities Key to Enforcement

Practitioners working on both sides—advising employers and working on behalf of workers—said that success will depend largely on local labor authorities, who actually enforce the laws.

“The local labor authorities have been given the task and the discretion to come up with more specific measures because (as with almost all aspects of China's employment laws) the local situation varies from place to place,” said Yang.

Li Qiang, executive director of China Labor Watch, an NGO based in New York that looks out for Chinese workers, said corruption could be a problem.

“Companies are usually protected by local governments, for they are a big drive in local economic growth,” Li told Bloomberg BNA in a Jan. 26 e-mail. “Therefore, local officials play a critical role in this. For instance, if the ministry sends inspectors to companies, local officials might resort to bribery for better inspection results in support of the companies.”

“I think there certainly will be challenges ahead through the implementation of these laws, be it official corruption or other reasons,” Li said.

Asked if the government has the ability to carry out inspections and enforce the law, Yang said it depended on the locale.

“I would say at least the labor authorities in the major cities (Beijing, Shanghai and Shenzhen) have the resources to conduct inspections and also to follow up,” she said. “Those major cities are usually where the big employers are located and where, generally speaking, Chinese authorities like to hunt for and ‘target’ the ‘big fish.’”

Reputations at Stake for Multinationals

Foreign companies in particular are advised to take extra care.

“Publication for misconduct would undoubtedly be damaging for a foreign company's reputation and commercial success,” Dezan Shira wrote. “As such, foreign employers should be especially vigilant regarding labor law compliance, with multinational entities' noncompliance likely to be the first to be picked up on.”

“I think [the regulations] will be very effective in that the really good companies are generally already trying to avoid breaking the labor laws for monetary and for reputational reasons,” Yang told Bloomberg BNA. “I think this will cause the companies one level below ‘good’ to step up their games as well.”

“Also,” she said, “if companies keep violating the employment laws, they will be looking at accrued penalties for years of violations.”

To contact the reporter on this story: Mark Melnicoe in Shanghai at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

For More Information

The Measures for Announcing Major Violations of Labor Security can be found here, the Measures for Credit Rating Evaluation of Enterprise Labor Security Compliance here, both in Chinese.

For more information on Chinese HR law and regulation, see the China primer.

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