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China's foundational law regulating the labor market.

1. Introduction

I am specifically interested in how previous research investigated the Chinese response to labor hire as reflected in the labor contract law, the absence of contractual norms in Chinese labor law, and the reasons for the enactment of the labor contract law.

2. The Governance of Contractual Relations in China

Zhang maintains that the modern Chinese Law has a civil law origin and many of legal principles contained in the Chinese legislation are rooted in Roman law. The modern Chinese legal system is marked with the civil law tradition. The legal authority of precedent is a difference between Chinese legal system and the legal system in common law countries (courts decisions are the major legal sources). Case law is not an authoritative legal source in China because of its civil law tradition. Zhang emphasizes that the people's courts are granted an independent judicial power under the Chinese Constitution and laws, and must abide by law or statute, and the higher court decisions have no binding effect on lower courts (the issue whether the people's court may question the validity of local law and regulations is debatable under the Chinese Constitution). The general provisions may be used in the courts as the legal authority to render their decisions. Courts are granted no law-making power. Zhang writes that the parties may agree on the conditions upon which the effectiveness of contract is contingent. The law in China has a marked tradition of civil law, where statutes play a dominant role, the contract performance involves many rules that are typically civil-law-based, and the contract performance is prescribed in the Special Provisions of the contract law with respect to specific contracts.

What is important here is that a contract, once it becomes effective, must be properly and completely performed. Zhang says that in China the concept of the rule of law normally refers to as "governing the country by law." Under the umbrella of the principles, every provision in the law is integrated with all other provisions in the law. In China the obligation to return money paid mistakenly to a person to whom it is not owed is the obligation arising under the doctrine of unjust enrichment. In China, the law usually takes a formality of general provisions (containing the purpose and scope of the law, the principles under which the law is to be applied, and the rules of general application) (1) and specific provisions (dealing with individual matters that the law is intended to cover). (2) Thomas claims that the passing of the 1999 Uniform Contract Law (UCL) unified the legislation on contracts under one umbrella statute, adopted key contractual concepts from other jurisdictions as a consequence of drafting by legal professionals, and eliminated previous inconsistencies between foreign and domestic contracts and between economic and non-economic contracts. The UCL replaced the existing patchwork of legislation and regulations governing contract law. As Thomas puts it, the 1999 Contract Law blended elements of civil and common law to create a unified piece of legislation acceptable to both domestic parties and foreign investors. According to Thomas, judicial interpretations play an outstanding role in the Chinese legal system, Chinese legislation is frequently based on imported models and foreign concepts, and the 2009 judicial interpretation reinforces the importance of judicial interpretations in the Chinese legal system, despite the lack of firm constitutional justification. (3) Yuanjian argues that China's previous contract laws had many contradictions and failed to meet the needs of China's developing market economy. Although some problems still need to be dealt with, the unified contract law is more advanced, systematic and plays an important role in fostering and encouraging transactions. (4)

3. China's Current Labor Conditions

Shiyuan holds that the method of enforcing a judgment for performance depends on the nature of the obligation upon which the judgment is based: the court may issue a notice for assistance in execution to the relevant units, for whom it is a duty to comply with the notice for assistance, there is no requirement for the plaintiff to prove the existence of loss while applying a penalty clause, and where the purpose of the contract cannot be attained because of force majeure, the parties may terminate the contract. (5) Daubler and Wang state that the new Employment Contract Act of the People's Republic of China applies to employment contracts, and pertains to sets of regulations that are established by the employer after negotiations with employees, and to collective contracts whose potential scope of application may be extended. Part-time employment can be terminated at any time without reason and without notice, nor is any compensation owed for termination. (6) Jing writes that migrant workers in China encounter various difficulties and labor abuses, and have become a major labor force in China's industrial development: labor regulations often provide insufficient remedies for violations of labor rights, there are laws and regulations that extend a fair amount of protection to rural workers, and the Labor Contract Law does not provide for any penalty for employers who do not pay social security premiums, and fails to provide an adequate measure to enhance social security coverage for migrant workers. Jing contends that the Labor Contract Law requires the labor administrative authority to pay damages if its action or inaction causes harm, the effects of the Labor Contract Law on Chinese labor protection depend on implementation and enforcement, whereas regional governments play a critical role in the implementation and enforcement of labor standards. Local government officials should be provided with strong incentives to enhance labor practice within their region by linking the promotion of regional officials to the improvement of regional labor conditions. "China's Labor Contract Law draws upon China's relatively new experience with employment contracts, aims at supplementing and improving upon China's Labor Law, and sets out to address various forms of labor right violations against workers, mostly migrant workers. Given the problem of noncompliance and lack of legal enforcement in China, one cannot expect China's Labor Contract Law to effect immediate and significant changes. Besides enhancing labor supervision and legal enforcement, China needs to utilize economic incentives to induce compliance from employers." (7)

4. The Reasons for the Enactment of the Labor Contract Law

Cooney et al. insist that China's new labor contract law is the most significant reform to the law of employment relations: it is a distinct improvement on the legal framework regulating employment relations, is a necessary and beneficial contribution to the regulation of work in China, permits employees to obtain remedies for non-payment of contractually agreed compensation, makes a contribution to addressing some of the egregious abuses that occur in China, and mandates a procedural requirement. Labor hire firms have proliferated in China and have been the target of special legislation, there are significant inconsistencies between labor law in different parts of China, employment contracts may be amended only by consultations leading to agreement, whereas most employment contracts in China tend to reflect state specified standards.
  Chinese labor law has proved to be a matter of the keenest interest
  not only for domestic regulators and stakeholders, but also for
  powerful interest groups based in developed nations. The final
  draft of the Labor Contract Law plainly represents an attempt to
  reconcile the demands of these competing voices. It attests to the
  increased openness of the Chinese legislative process to a wide
  variety of external influences. The end product of the debates,
  while bearing the hallmark of uneasy compromises, is a clear
  improvement on the legal position that prevailed prior to its
  enactment. (8)

Chen and Funke stress that China is facing employment challenges while moving toward a knowledge-and service-based economy: China's new Labor Contract Law has affected labor demand and employment, may encourage workers to demand higher wages, and might raise costs in a tightened labor market. Stringent employment protection legislation is associated with lower employment levels, employment protection reduces turnover in and out of unemployment, whereas employment protection legislation may strengthen the hand of insiders in wage bargaining. Chen and Funke argue that the momentum for employment growth in China may not be reduced by the new labor contract law (9) (it is not "wreaking havoc" and will not reduce employment in law-abiding firms). China is a relatively difficult labor market in terms of firing costs and non-wage labor costs, (10) and has a moderate overall employment regulation intensity on the global scale (firing costs in mainland China are unusually high by international standards). Chinese exports mainly face competitive markets with elastic demand, (11) and Chinese companies should try to move up in the value chain. (12) Zheng argues that the Chinese government has signaled to the world its determination to improve the country's labor record: the new Labor Contract Law reiterates the government's determination to formulate and regulate labor relations on the basis of a contract system, appeases discontent and anger among migrant workers who experienced substandard labor conditions in cities, and reads an implied contract into every employment relationship. "The Chinese government seems interested in channeling the discontent and anger brewing in the workforce through legal mechanisms and addressing them in a peaceful way." (13) Zheng points out that labor relations are critical to the stability of Chinese society, the lack of effective and meaningful law enforcement is a chronic problem in China, and a majority of disputes in China end up being resolved through quasi-formal channels. China relies on private contracts to regulate domestic labor relations. A labor class action lawsuit faces the institutional barrier that arbitration must precede litigation. The Chinese labor market has reset the global norm for wages and work standards. Class action lawsuits in China may lead to better enforcement of labor law than under the current system, and solve the cost problem of individual lawsuits. "The insufficiency of the existing labor law enforcement mechanism requires a search for alternatives. An alternative mechanism needs to create enough deterrence to stop employers from violating the law and new incentives for government enforcement authorities to take vigorous actions. It must also take into consideration the reality that workers generally lack financial resources to pursue legal actions individually." (14)

5. Conclusions

The implications of the developments outlined in the preceding sections of this paper suggest a growing need for a research agenda on structural reforms on Chinese product markets, the main elements of the new Chinese labor contract law, and a nexus between labor market regulation and employment.


(1.) Gabriele, Alberto (2009), "The Enhanced Role of the State in China's Industrial Development," Economics, Management, and Financial Markets 4(3): 44-80.

(2.) Zhang, Mo (2006), Chinese Contract Law: Theory and Practice. Leiden-Boston: Martinus Nijhoff Publishers.

(3.) Thomas, Kristie (2009), "The Impact of the Recently Issued Judicial Interpretation of China's Contract Law 1999: Creating Certainty for All?" at 2nd Annual Conference of the International Forum for Contemporary Chinese Studies (IFCCS), University of Nottingham, September 7th-9th. See also Thomas, Kristie (2010), "China's Legal Response to the Global Financial Crisis: Increasing Certainty in Contractual Disputes to Boost Market Confidence," Journal of Corporate Legal Studies 10(2): 485-500.

(4.) Yuanjian, Zhai (2009), "Chinese Contract Law and the Economic Reform," Transition Studies Review 16(2): 429-437.

(5.) Shiyuan, Han (2006), "Liabilities in Contract Law of China: Their Mechanism and Points in Dispute," Frontiers of Law in China 1: 121-152.

(6.) D?ubler, Wolfgang, and Qian Wang (2009), "The New Chinese Employment Law," Comparative Labor Law & Policy Journal 30: 395-408.

(7.) Jing, Li (2009), "China's New Labor Contract Law and Protection of Workers," Fordham International Law Journal 32: 1131.

(8.) Cooney, Sean, Sarah Biddulph, Li Kungang, and Ying Zhu (2007), "China's New Labor Contract Law: Responding to the Growing Complexity of Labor Relations in the PRC," University of New South Wales Law Journal 30: 802.

(9.) Killion, M. Ulric (2009), "Post-Subprime Crisis: China Banking and GATS Liberalization," Economics, Management, and Financial Markets 4(2): 79-90.

(10.) Seelanatha, Senarath Lalithananda (2010), "Determinants of Capital Structure: Further Evidence from China," Economics, Management, and Financial Markets 5(4): 106-126.

(11.) Pieke, Frank N., and Xiang Biao (2009), "Legality and Labor: Chinese Migration, Neoliberalism and the State in the UK and China," Geopolitics, History, and International Relations 1(1): 11-43.

(12.) Chen, Yu-Fu, and Michael Funke (2009), "China's New Labor Contract Law: No Harm to Employment?" China Economic Review 20: 558-572.

(13.) Zheng, Yin Lily (2009), "It's Not What Is on Paper, but What Is in Practice: China's New Labor Contract Law and the Enforcement Problem," Washington University Global Studies Law Review 8: 596.

(14.) Ibid., 612.

Elena Paraschiv


Spiru Haret University
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Author:Paraschiv, Elena
Publication:Economics, Management, and Financial Markets
Geographic Code:9CHIN
Date:Mar 1, 2012
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