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China: Implementation Regulations of Labor Contract Law Published

(Oct. 28, 2008) On September 18, 2008, the State Council of the People's Republic of China (PRC) passed the Implementation Regulations of the PRC Labor Contract Law. (Text of the Implementation Regulations [in Chinese], Central People's Government of the PRC official website, Sept. 19, 2008, available at The Regulations aim to clarify unclear provisions of the Labor Contract Law (LCL), which was promulgated by the Standing Committee of the National People's Congress and took effect on January 1, 2008. (See 7 W.L.B. 2007.)

Since the LCL was enacted, it has aroused heated discussion and concern among domestic and foreign-invested companies in China. It is believed to have greatly impacted employee treatment in China and increased employer costs. The LCL has been said to be the cause of some companies going out of business and some foreign-invested companies leaving China for other countries less protective of their workers, such as Vietnam, Bangladesh, and Cambodia. (Dan Harris & Brad Luo, The Impact of China's Labor Contract Law, CHINA LAW BLOG, Sept. 15, 2008, available at Under these circumstances, labor activists have been concerned that the Implementation Regulations would narrow the application of the LCL to the benefit of employers, through either the stipulation of new contractual conditions or a new emphasis.

Non-Fixed-Term Contract

One of the most debated features of the LCL is the “non-fixed-term contract” (also called the “open-ended contract”) under which employees with ten years' continuous service are entitled to employment contracts without a set term (LCL, art. 14). Employers responded to the LCL with a string of staff-sacking scandals, the best known of which is the “voluntary resignation” scheme of one of the largest private-owned telecom enterprises; shortly before the LCL took effect, the company tried to push thousands of employees to resign and then would rehire them with new contracts in order to circumvent the LCL requirements. By means of the Implementation Regulations, “we hope to make it clear that labor contracts with no fixed termination dates did not amount to lifetime contracts,” said a State Council legislative affairs official to the Xinhua News Agency. (China Issues Regulation to Clear Labor Contract Law Misunderstanding, XINHUA NET, Sept. 18, 2008, available at

The Implementation Regulations list 14 conditions under which an employer may terminate a labor contract, including a non-fixed-term contract. Conditions include an employee's incompetence and serious breaches of the employer's policies and rules (art. 19). By integrating these conditions scattered in the LCL, they have been made clearer and easier to understand; in addition, their very inclusion in the Implementation Regulations appears to be a re-emphasis on the employers' rights to terminate contracts. The Implementation Regulations at the same time list 13 conditions under which an employee may terminate the employment contract (art. 18).

The Implementation Regulations further stipulate that the ten years of continuous service by an employee is to be calculated as of the hiring date, not the date on which a formal contract was signed (art. 9). By stating that the number of years worked at the original place of employment carries over to any new facility, including years worked before the LCL went into effect, the Implementation Regulations appear to take aim at another company ploy, of moving workers to another plant in order to reset the years-worked starting date (art. 10). The Implementation Regulations specify five circumstances under which an employee must compensate the employer when a contract with an agreed service term is terminated (art. 26).

Other Clarifications

The Implementation Regulations also clarify a few other ill-defined areas of the LCL. Article 3 provides a definition of employers that includes partnerships such as accounting firms and law firms. Article 6 offers guidance on the precise calculation of the compensation due a worker who has illegally not been given a formal contract: double pay for each month of labor put in afterthe first month of employment and up until a contract is signed (employers have to sign contracts with employees within the first month of their employment, according to the LCL).

Still, the Implementation Regulations are considered not to have resolved many of the more ambiguous provisions in the LCL, such as whether employers have a right not to renew a contract at the end of a second fixed-term under article 14 of the LCL and the definition of a temporary worker. (Joanna Law, Employment Regulations May Prove a Burden for Employers, CHINA LAW & PRACTICE (Oct. 2008), available at (by subscription); XINHUA NET, supra; Manfred Elfstrom, Implementing Guidelines for China's Labor Contract Law Released, LABOR IS NOT A COMMODITY BLOG,
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