China's National People's Congress, or legislature, approved on Friday a labour contract law, laying out broad principles regulating corporations and employees.
The government had gathered opinions from corporations and labour groups over several months on the contentious legislation, which both domestic and foreign firms feared would raise costs by making it more expensive to hire workers and more difficult to fire them.
"If you are a law-abiding firm this law will not raise your labour costs," Xin Chunying, a legal director at the Standing Commission of the National People's Congress, told reporters. "But if you break the law, your costs will rise significantly," she said. The law will become effective on January 1, 2008.
The law comes after China said last week it would launch a nation-wide inspection of labour conditions following a scandal, involving hundreds of poor farmers, teenagers and children who were abducted or lured into forced labour in kilns, mines and foundries in Shanxi and Henan provinces.
"The black kiln cases indicate that certain departments were not doing their jobs," said Xin. Even without the labour contract law, criminal statutes already in place were sufficient to deal with the matter, she said.
Like most new legislation in China, the labour contract law merely lays out broad principles. How those principles are implemented in practice often differ widely in the various jurisdictions across China. In the event of layoffs, the new law requires employers to notify workers and the local labour union 30 days in advance to explain why the layoffs necessary.
The law also encourages management and employees to sign long-term contracts instead of temporary agreements that often lead to reduced benefits and less protection for workers. However, the law was not a return to the guaranteed lifetime employment that existed in China before it began economic reforms over 20 years ago.