Recruiting in China

BEIJING (XFN-ASIA) - China's proposed employment contract law has created growing feelings of uncertainty and pessimism among foreign-invested enterprises, according to a survey conducted by law firm Baker & McKenzie and HR consultants Hewitt Associates .

The draft legislation was submitted to the National People's Congress this week for its third and final reading but the survey found that the majority of respondents had a negative view of the new law.

'Almost no company expects an overall positive impact,' said Susan Derkach, senior consultant at Hewitt Associates, Beijing.

'Over one-half of participants believe that when implemented, the new labor contract law will have a negative or very negative impact on their daily business,' Derkach said.

After he first draft of the law was published last year it prompted 191,000 comments from the public to the government.

This prompted amendments to the second version including changes, such as an increased emphasis on open-term contracts, non-compete and confidentially agreements, training contracts and probationary periods, restrictions on fixed-term contracts, more specific definitions and limitations concerning mass-layoffs.

'Overall, there seems to be a great degree of uncertainty among the participants about the potential implications of the new law on their companies. Similarly, the majority of participants do not seem to be sure how they should prepare for passage of the law,' Derkach said.

'We believe that companies should aggressively pursue the following three actions: a comprehensive review and redrafting of the work force planning process and strategy; a comprehensive audit and redesign of all HR policies, manuals, collective agreements and employment contracts; strategic decisions on employee representation and collective bargaining,' she said.

The new law is expected to take effect from Jan 1, 2008, but implementing it will challenge most companies, other experts said.

'The law as it stands is very opaque and it is unclear as to how it will actually be implemented,' said Andreas Lauffs, head of the employment group at Baker & McKenzie, Hong Kong.

'So far there has been no mention of grandfathering or of any transition period,' Lauffs said.

Further concerns of respondents to the survey related to trade unions and employee representation.

'This could be an issue in the face of recent moves by China's trade federation to unionize some high-profile multinationals,' Lauffs said.

Both McDonald's and KFC recently came under pressure from the state-controlled All China Federation of Trade Unions to cooperate with the formation of unions in their outlets.

The survey showed that almost half of the 436 participants have no employee representation while 89 pct are not covered by a company or industry collective agreement.

'Only a small number of companies seem to have specific plans to address the potential new requirement to negotiate a collective agreement with their workforce,' Susan Derkach said.

Those surveyed included wholly owned foreign enterprises, join ventures, representative offices, non state-owned enterprises and state-owned enterprises.