Guangdong Releases Labor Contract Law Implementation

1. (SBU) Summary: Since it went into effect on January 1, Guangdong
businesspeople, domestic and foreign, have struggled to be in
compliance in the absence of implementing guidelines. No more. Or
to be more precise, some, if not all of the ambiguity, was removed
on July 7 when the Guangdong High Court and the Guangdong Labor
Dispute Arbitration Commission jointly published implementation
regulations. Highlights of the new guidelines include stipulation
that it is illegal to force employees to resign and then rehire them
under new contracts, a practice that many firms were accused of
using in the weeks before the Labor Contract Law came into force.
In addition, the guidelines give employees the power to request that
their employers' assets be frozen under certain conditions during
labor disputes. Through June 30, nearly 40,000 labor dispute cases
have gone to trial in Guangdong, a 157% increase from a year ago.
This is the first in a series of cables that will look at the new
labor laws, with an eye in particular toward their impact on U.S.
business. End Summary.



2. (U) The Guangdong High Court and the Guangdong Labor Dispute
Arbitration Commission July 7 issued the first guidelines on how the
Labor Contract Law and Labor Arbitration Law would be implemented.
A dramatic rise in labor disputes had increased the urgency for
clearer guidelines. During the first half of the year, 40,000 labor
disputes in Guangdong have gone to trial in district, municipal and
province-level courts, a 157% increase in cases over the same period
last year. The sharp increase is largely due the elimination of the
arbitration fee for filing a labor dispute. In the past, parties
were required to pay a fee of several hundred RMB to the Guangdong
Labor Arbitration Commission before filing, a disincentive for
poorer applicants to go forward with a claim.



3. (SBU) In general, U.S. businesses operating in south China
believe they are already in compliance with the new labor
legislations. However, U.S. and other firms have repeatedly
expressed to us their concerns about the lack of clarity of the new
labor legislation. Many have consulted closely with local labor
authorities to ensure that their interpretation of the new laws
meets the government's expectations. They have stated that even
labor officials admit that implementation procedures have not been
clear. However, in the week since the guidelines were released,
human resources executives of U.S. firms have not yet had time to
thoroughly study them and do not yet know if they fully address
their concerns.



4. (U) The new implementation guidelines cover 31 different
articles. Of these, the local media has focused on 9 articles in
their reporting which stipulate the following:

--It is illegal for an employer to force workers to resign, and then
re-hire them and have them sign new labor contracts. (Media reports
indicated that this practice was used many by companies in the Pearl
River Delta in the weeks before the Labor Contract Law came into
force. The practice was widely criticized.)

-- It is also illegal for an employer to register two company names
and sign consecutive labor contracts with employees under different
names (two years using one name and two years using another name).


--During labor arbitration, if the employer attempts to transfer
company assets in order to avoid paying compensation, the worker can
apply to the court to freeze the assets of the employer.

--Foreigners and Hong Kong/Macau/Taiwan residents' labor contracts
with mainland employers shall be deemed invalid if they do not have
a Foreigners Employment Permit or a Hong Kong/Macau/Taiwan Residents
Employment Permit. However, the employer must still pay them in
accordance with their labor contracts for the time they have
worked.

--If an employee claims that he has worked overtime and the employer
denies it, it is the employer's responsibility to provide evidence

GUANGZHOU 00000414 002.2 OF 002


that the employee did not work overtime. The employee does not have
to provide evidence that he worked overtime, unless the work
occurred more than 2 years ago.

--An employer does not need to pay compensation to workers if the
employer terminates the employment relationship within one month.

--Disputes over housing funds shall not be regarded as labor
disputes; the Labor Arbitration Law is not applicable in this
instance.

--The term "days" in the Labor Arbitration Law means "working days."


--In construction projects where disputes arise between a
construction worker and a contractor who illegally hires the
construction worker, the company that hires the contractor can be
listed as a secondary defendant in a litigation case.

--In labor arbitration cases, arbitration commissions shall follow
the principles of equal protection of the legal interests and rights
of workers and employers.

GOLDBERG