Executive Summary of the China Labour Contract Law Implementation Survey, 2009

(click for full report with summary in Chinese: 2009年《劳动合同法》实施情况研究报告

The first survey on the implementation of China’s Labour Contract Law (LCL) in the Pearl River Delta region (PRD) was conducted by Dagongzhe Centre (DGZ) in April 2008. The DGZ conducted a follow up survey from 17 April to 20 May 2009. The survey this time extended the geographical coverage to Yangtze River Delta region (YRD) to explore the issues faced by workers of PRD and YRD respectively and in the hope that survey findings could contribute to effectively reviewing the provisions and execution of the LCL. This research aims to raise public and government concern for labour issues to strengthen review and monitoring of the LCL.
The survey covers six industrial zones in cities along China’s coastal region: Shenzhen, Dongguan, Huizhou, Suzhou, Hangzhou and Shanghai. 600 questionnaires were completed on the streets of the industrial zones by low level workers who were selected by the methods of convenience sampling. Among them, 537 valid questionnaires were completed. Of the cases observed during the survey, three typical labour disputes were selected for in-depth interviews. Only responses from workers employed at the time of the survey were counted in the analysis in order to reflect the views of actively employed workers. 80% of the respondents were low level workers. Among them, 57% are unskillful workers and 23% skilled; 327 male and 189 female. More than half of respondents are aged between 17-25 years old. The majority of respondents received only a junior high school or vocational school education. 75% of respondents have signed labour contracts while 25% have no written contract with their employers.
A significant finding is that the LCL is insufficiently implemented to comply with the law even though the superficial situation is improved compared to the similar survey by DGZ in 2008. In 2009, the superficial finding is that more workers have signed labour contracts than in 2008. But if we look deeper into the process of signing contracts and their content, both surveys reflect the imbalance of power in industrial relations and this needs to be addressed properly. Employer misconduct and efforts to escape the requirements of the LCL are increasing and contribute to ineffective enforcement of the law. Publicity and execution of the law by the government is insufficient. The result is that very few employers are penalized for violations of the law. It is no surprise then that survey respondents’ perception of the LCL’s effectiveness is low. This situation hinders workers’ efforts to know and claim their rights. The LCL is not fulfilling its intent to reverse the current imbalance in Chinese industrial relations.
Nonetheless, generally speaking, respondents are positive that the LCL improves their situation. Since economic development, the impact of the global financial meltdown and the development of civil society are different in the YRD and PRD, workers from the two regions face different situations. Working conditions in YRD were found to be better than those in the PRD, and this suggests the government of the former region is more able to implement the LCL. If local governments of the two regions were to share experiences and resources to effectively implement the LCL, Chinese labour rights could come closer to international standards of labour rights.

1. Employers avoid the LCL, disabling worker rights
1.1.    Increase of employer misconduct, soft tactics to force workers to resign and renounce layoff compensation
The survey reveals that there is a change of renewal contract with  the long working year workers since the LCL took effect. 42.07% of more senior workers in PRD and 66.67% in YRD were denied contract renewal. This is a serious violation of the law, since LCL requires employers to sign non-fixed term contracts (or “open-ended employment contracts” in LCL) with workers who’ve worked consecutively for 10 years with one employer. Among the forms of misconduct, 60% of respondents mention common tactics like employers moving to a new factory, not “re-hiring” existing employees but hiring workers from human resource firms with employment contracts set to expire upon completion of a specific job or developing new punitive rules to justify job termination.  All of these tactics contribute to shorter term labor relations.
1.2.    The percent of respondents having a written labour contract in the PRD is 67.30% and 83% in the YRD.  Few respondents have a permanent contract
On the whole, about 75% of respondents report having written labour contracts with their employer in the YRD and PRD. The common contract period is one to three years. 8% of respondents have permanent contracts. Enterprises with or below 100 employees were found unlikely to sign labour contracts at all.
1.3.    Employers manipulate the content and signing process of labour contracts while workers have no bargaining power at all.
In processing labour contracts, 65% of respondents are not informed and do not discuss the contents of the contract with their employer (This figure is 50% and 79% for YRD and PRD respondents respectively). Respondents reported that employers in PRD more frequently do not comply with basic elements of the LCL. Employers from the PRD required 30% of respondents to sign two different versions of their contracts and 56% of respondents from that region were not given a copy of the contract.
1.4.    Substandard contract: labour rights and occupational hazards are not stipulated in contracts
The LCL requires all employers to stipulate basic coverage in every labour contract. However, the survey reveals the content of contract is often vague and ambiguous. 50% of respondents who have written contracts in PRD said that there is no statement about the hazards of their work in the contracts. And 25% of PRD respondents were unaware of the occupational hazards and required personal protection equipment for their work. This poses a serious risk to occupational safety in the PRD. Some contracts list the items required by the LCL, but these items are left empty. The employer’s information very often only refers to the employer via abbreviations or a nickname; the employer’s address might not include a detailed address and only mention a district such as Shenzhen. Job descriptions are sometimes stated simply as, “according to the production arrangements of the factory”. Employees’ names are spelled vaguely. All these ambiguities have adverse effects for workers in the event of labour disputes over occupational injuries, layoffs, relocation of factories and so forth. Legal processing will be difficult even if there is written contract at hand.
1.5.    Real working conditions do not meet the conditions stipulated in written contracts, a tactic that most respondents tolerate
20-30% of the PRD respondents suggest their working conditions deviate from the conditions specified in their written contracts. 10% in YRD respondents reported similar arrangements.
Among 371 respondents, 20% respondents express tolerance for these differences; 5% of respondents opt to resign when situation gets intolerable. 35% will continue the job while seeking other alternatives: hunting for a new job and resign with a new employer (15%), complaint to upper officials (9%), complaint to the related government departments (6%), or contacting affected workers to lodge a collective complaint with the employer (5%). Most respondents’ tendency to tolerate violations of the law is reinforces employers’ willingness to violate the law.
1.6.    Using soft tactics to force termination of employment without layoff compensation
60-70% of respondents opted to resign when terminating their previous employment. 50% of the respondents in the two regions suggest their employers added new factory regulations since 2008. This left workers more vulnerable to termination on the basis of violating factory regulations, which permits the employer not to pay layoff compensation. This termination strategy is prevalent in the PRD, with 70% of respondents referring to such soft tactics were appeared in their working place. In the YRD, 85% of respondents did not get the statutory layoff compensation of one month of wages per year of service, while 12% got the payment. Many workers do not know they’re entitled to layoff compensation when a contract expires. Also, respondents do not know how to define “illegal dismissal”, and employers frequently use soft tactics to force workers to resign.
Below is one account from respondent, Mr. Lee:
“In April 2009, the factory closed for the holiday. The shop floor was locked and some 80 workers left at once. Wages were paid but not the layoff compensation! The factory in charge was found and we asked for the layoff compensation. He, on the contrary, scolded the workers. Workers took photos of the evidence and lodged a complaint with the Labour Department. The Labour Department asked workers to submit written evidence to process the case. It is impossible for workers to present written evidence, so they dispersed helplessly.”

2. Basic wages only represent half of the monthly income. Basic wages are insufficient to support family basic living
Basic wages in YRD are found higher than PDR. The average basic wage of former is 958 Yuan; 830 Yuan for the latter. The survey shows that the basic wages are close to the statutory minimum wages of the different districts.
The average income of respondents in the YRD is 1606 Yuan while it is 1417 Yuan in the PRD. The ratio of the basic wage to monthly income is 58% in the YRD and 55% in PRD. It can be inferred that half of respondents’ income is from overtime and/or other living allowances or benefits. Most respondents stated that their basic wages are insufficient to support basic living and family expenses, and their income largely depends overtime.

3. Workers have some but limited knowledge of the LCL
The majority of respondents know they are entitled to a copy of a labour contract. But many do not know that employers who refuse to sign written contracts are liable to pay damages of double the wage amount. In the YRD, only 39% of respondents know of this punitive clause, 25% do not believe it and 36% do not know about it. Workers’ knowledge of the LCL is stronger in the PRD with 61% of respondents knowing of the punishment for employers who refuse written contracts. 70% of PRD respondents know of the clause that requires employers to pay damages equivalent to twice a standard layoff compensation for illegal dismissal (twice the one month of wages for every year of employment). 65% of respondents in the two regions know that the LCL requires new factory regulations to be discussed thoroughly in the employee congress. 30% of respondents were not familiar or did not understand this clause. Almost half of respondents in PRD and YRD are not aware of the law’s requirement that “employees in employee congresses have the right to recommend the trade union to negotiate a collective contract with the enterprise”. Many respondents showed limited knowledge of their rights stipulated in the LCL.

4. Open lies to challenge the legal justice system, circumvent the LCL
The survey reveals some workers’ legitimate rights are rejected in the course of litigation. One presiding judge said, “Our superiors’ instructions are that the internal “new three rules” are applicable to all current labour dispute cases”.
“Liu has worked many years in a Shenzhen factory that never signed a labour contract with him. In January 2009, Liu finally learnt of his rights and sued the factory for double wages as stipulated in the LCL. In April 2009, the arbitration committee dismissed his claim. It stated the factory offered Liu a labour contract in August 2008 but Liu refused to sign it, and he should therefore bear the responsibility of having no written contract with the factory.”
In Liu’s case, we have to refer to the Articles 82 of the LCL and Articles 5 and 6 of the Regulation on the Implementation of the Employment Contract Law of the People’s Republic of China. If Liu refused to sign a labour contract, according to the LCL, the employer should terminate labour relations with Liu not later than the end of January 2008, rather than continually  employ Liu until January 2009. According to the LCL, responsibility for not signing a labour contract belongs to the employer, and not Liu. Liu is therefore entitled to economic compensation.
After the “three new rules” applied, according to the Article 21 of the “the Guangdong Supreme People’s Court [2008] No. 13 document”: “From the date of employment, for labour relations of more than one month but less than a year, if the employer has sufficient evidence to prove the failure to sign a written contract is exclusively the workers’ responsibility, and the employer is without fault, the employer need not pay double wages.” It is difficult for workers like Liu to fight for their rights in this unfavorable situation. The local courts only accept evidence from employers Furthermore, survey respondents report that employers seek out lawyers to help them “imitate workers’ signatures on fake labour contracts” to win lawsuits and avoid paying worker double wages for not having written contracts. DGZ has noticed from labour disputes in Shenzhen in the second half of 2007 that lawyers were employed to give false testimony to win lawsuits concerning overtime payments. Such illegal behavior is spreading as employers seek to circumvent their legal obligations. This is a serious challenge to China’s system of social and legal justice.

5. Conclusions and recommendations
Geographically, implementation of LCL in the PRD and YRD differs. The survey suggests that PDR working conditions are worse and the LCL is less effectively implemented than in the YRD. Likewise, PRD respondents show a higher rate of dissatisfaction to current working conditions than respondents in the YRD. Survey results do suggest that some workers have experienced improved working conditions including the ratio of workers having written contracts. However, employment conditions are worsening on a number of issues including the labour contract signing process (employers give no explanation of the content of the contract), contract contents (employers develop unreasonable additions to labour contracts, factory regulations, new punishments; and decreasing the basic wage which is explicit in the contract while increased less visible and less dependable allowances), incongruities between actual working conditions and contract conditions, terminating workers to circumvent statutory compensation, etc. Employers are deploying all kinds of methods to circumvent corporate social responsibility and labour laws. In response, workers tolerate the unfair situation on one hand, and seek alternatives to claim back the rights on the other by using other methods like sending complaints to upper officials (9%), complaints to relevant government departments (6%) etc. A minority of workers contact other affected workers to lodge collective complaints against their employer.
This survey reveals a number of problems in connection with the LCL. A number of factors affect the enforcement of the LCL and the defense of workers’ rights including economic development of the region, corporate social responsibility, the commitment of local government and NGO participation in labour law publicity and education. Tackling the problems mentioned here to fulfill the intent of the law will require all stakeholders’ attention and actions. Below, DGZ wishes to present the following recommendations and hopes to see a positive response on these issues in the future.
5.1    Strengthen education for factories and workers on the LCL and workers’ democratic participation; encourage civil society’s active participation in LCL monitoring.
The survey suggests that most LCL publicity and education is carried out by trade unions and NGOs. The government should encourage the organizations such as trade unions and NGOs to:
a) Regularly launch LCL publicity and educational activities in industrial areas to support official publicity. In turn, these organizations can inform the government and society of workers’ opinions;
b) Regularly launch union education in industrial areas to encourage workers’ democratic participation in unions and active monitoring employer misconduct.
A premise of the above recommendation is official recognition of NGOs’ legitimate role. The government should provide a reasonable registration procedure to encourage NGOs’ social function to complement the role of government bodies. NGOs are rooted in communities and have a good view of workers’ issues from the front line. Strengthening NGOs’ capacity in labour law counseling, labour education, occupational safety and health education will raise labour rights consciousness, enhance workers’ mutual help networks and build a more harmonious community.
5.2     Intensify LCL enforcement, heavy penalties against violations
The survey finds that respondents in the PRD show a low degree of satisfaction towards government’s enforcement of the LCL. On a scale of 0 to 8 (the lowest being 0; the highest, 8) 26.19% of PRD respondents give government departments a satisfaction score of 0; 74.21% give a score 4 or below. The low satisfaction rating is most definitely linked to poor execution of the law. Reforming the existing system to improve accountability is recommended.  Officials will become more directly accountable if they are delegated to a specific industrial area to carry out regular factory investigations and the officials and their departments bear full responsibility for any problems with  LCL enforcement that are unknown to them.
The PRD and YRD are densely populated with factories and workers. To implement the LCL effectively, governments in two regions are recommended to share experiences and resources to support one other’s efforts.
5.3 Drive social actors to promote collective contract and collective bargaining on wage
In Nov 2009, a seminar on “Collective bargaining: theory and practice” was hosted by Shanghai Federation of Trade Unions and Shanghai Federation of Enterprises. Wang Xiansen, the speaker from Labour Relations Department of Shanghai Federation of Trade Unions Management and Vocational Institute (Gong Hui Guan Li Zhi Ye Xue Yuan) said, “The most effective measure to balance the capital sided industrial relations and unregulated working relationships is the collective contract.” He further suggested, “A collective contract not only serves to protect workers, but also creates a reasonable system for workers amid tense and conflicting industrial relations.”
Government departments, trade unions and NGOs should intensify publicity and education on the subject of collective contracts and collective bargaining of wages among employers and workers. A system of collective contracts and collective bargaining of wages should be established with democratic elections of worker representatives and open factory/enterprise policies.