I. Introduction

On June 29, 2007, the 28th Session of the Standing Committee of the 10th National People’s Congress adopted the Labor Contract Law of the People’s Republic of China (“Labor Contract Law”). The law took effect on January 1, 2008.

This Labor Contract Law is a milestone in China’s path to a comprehensive labor contract system, which began with the adoption of the Labor Law of People’s Republic of China (“Labor Law”) in 1994. The Chinese legislature enacted the new law to rectify perceived inadequacies of Labor Law and to address the increasing demand for workers’ protection. The Labor Contract Law supplements the general principles of the Labor Law by providing specific guidelines for labor contract management. Furthermore, it prescribes more detailed rules on workers’ rights and benefits.

The protective provisions in the Labor Contract Law were hotly debated throughout China as it worked its way through China’s legislature. Business owners and foreign investors expressed serious concerns and marshaled statistics to show that once enacted the Law would result in sudden and substantial rises in labor costs, as well as additional burdens. A number of Chinese economists also criticized the legislation. They argued that in promulgating the Labor Contract Law legislators had ignored China’s economic foundations and wrongfully presumed that Chinese businesses were capable of bearing the sudden and substantial increase in labor costs that would be caused by the new law. They also argued that by hurting the Chinese businesses, the law will ultimately adversely affect Chinese workers, the intended protected group. Meanwhile, there were concerns that the new law would decrease the bargaining power of both employees and employers by mandating substantive contractual terms and emphasizing administrative scrutiny.

Since the law has come into effect, one of its greatest shortcomings has been in its protection of migrant workers. Despite the Labor Contract Law’s intent to protect all workers, their situation has remained largely unchanged. First, a wave of factory closures in the year of 2008 resulted in even less predictability for workers’ future. Second, in response to the current global economic slowdown, the Chinese government has slowed the pace of implementing the Labor Contract Law in order to alleviate its impact on both domestic business and foreign investors. The lack of strict enforcement of the new law may render its protections merely aspirational.

This Comment examines the Labor Contract Law’s historical background, its general structure and the law’s impact on foreign and domestic private businesses. The author-conducted survey of two companies reveals that the new law has raised the labor costs and threatens to worsen the power imbalance between state-owned businesses and private business. With the ongoing global recession, the new law’s negative impact on businesses has been magnified. In order to prevent excessive labor cost increases, businesses have had to reduce their workforces or institute hiring freezes. Such practices could ultimately hurt the overall welfare of Chinese workers.

Section I of this comment explores the legislative background of the Labor Contract Law. Section II explains the Labor Contract Law’s new protections for employees. Section III discusses the criticisms of the new law. Section IV looks at the law’s impact on newly growing small- and medium-sized private businesses based on author-conducted surveys of two privately-owned companies. Section V argues that the legislation is partly based on the NPC’s assumption that the economy will continue to grow rapidly. This assumption may undermine the effective implementation of the new law.