Deciphering the Labor Contract Law(2)

According to the 19th article, for an employment contract lasting between three months and one year, the probation period may not exceed one month; for a contract between one and three years, the probation period caps at two months; whereas for a contract beyond three years (or open-ended), six months probation is the maximum. An employer may only impose probation period once on an employee.

The third inconvenience lies in the rules on staffing, says Liang.

The Law demands that employment agencies have a registered capital of 500,000 yuan and above. The employment contracts between them and workers shall be a fixed term of two years and above, with the agencies paying their contract labors on a monthly basis. When there is no job placement for a worker, the agency is still required to pay its labor a minimum wage prescribed by the local law.

Liang says these rules required such agencies to take on more responsibilities and burden.

The fourth rule that affects companies significantly is related to "severance payment", says Guo Jun, minister of Democratic Management Department of the All-China Federation of Labor, who has engaged in drafting the law.

The law states that in the event of contract termination, the worker shall be paid a compensation of one month salary for each year of service. As for high-salary employee, the compensation shall be three times the monthly average wage in the locality capped at 12 years of service.

Misinterpretations of the Law?

The above rules have elicited counter-measures from companies, including Huawei. But legal experts believe the companies' reactions arise mostly from misinterpretations of the law and a sense of collective panic.

The incidents of Huawei's "mass voluntary resignation" and Wal-Mart's recent large-scale termination were largely due to misinterpretations of the new ruling on open-ended employment contracts, Liang Zhi says.

Guo Jun, on the other hand, explains that, "an open-ended employment contract is not the same as a lifelong guaranteed job as adopted in the times of planned economy."

Back in the days of planned economy, employers offered lifelong job appointments. Even if a company went bankrupt, it was responsible in arranging new job placement for its unemployed staff.

The open-ended employment contract, however, is different. Several articles in the new Law prescribe the conditions for termination initiated either by the employer or the employee. 

The introduction of open-ended employment contracts is meant to encourage both sides to establish long-term working relations, says Li Yuan, director of the administrative law office of the Working Committee of Legislative Affairs.