The Implementation of Labour Contracts

The lifetime employment system during the planned economy period was criticized for producing little or no incentive for workers to provide effort. This criticism led to a series o f employment system reforms, beginning in the mid-1980s, which have been an integral part of the whole reform programme. The guiding principle o f the employment system reform is to promote labour flexibility. The implementation of

labour contracts is a crucial step. China’s Labour Law, published in 1995, required that, ‘a labour contract shall be concluded where a labour relationship is to be established’. The Labour Law is regarded as a success in fulfilling the need o f enterprise managers, for example shortening and attenuating the employment relations rather than increasing the rights of the workers (Gallagher, 2004:26).

Accordingly, the labour contract system was implemented in ChinaCol. ‘It is the state law. All types of factories should implement the law, including our company’, the head of the HRM department explained.

The labour contract system tightened labour control and had a serious impact on the status of workers in ChinaCol. Firstly, it made it possible for the number of workers to be readily cut. In 1999, the general manager o f the company decided to cut 200 jobs. When the workers’ contracts expired, the company said it would not renew them.

This redundancy resulted in a labour dispute. The angry workers gathered at the gate of the company on National Day and stayed for three days. For the sake o f political stability, the local government agreed to pay more than 600,000 Yuan ($72,464) to the redundant workers in order to end the dispute (Zhu, 1999). However, the company still did what it wanted. This would not have been possible before 1995.

Secondly, the contract system is an important means whereby workers can be controlled. The company only rarely terminates a contract at the end of the period.

market situation or because of the worker’s behaviour. As the HRM manager put it:

“Workers who are not competent to do their job or do not behave well will be selected out. The basic way is not to extend the contract. Such control is very significant with the workers who want to conclude open-ended contracts.”

Article 20 o f the Chinese Labour Law specifies that in the case o f a labourer who has been working continually in the same employment for ten years or more and the parties involved agree to extend the terms o f the labour contract, a labour contract with flexible terms shall be concluded between them if the labourer so requires.

Gradually increasing numbers of workers are qualifying for this kind of contract. The foreign managers and the heads o f the Dept, o f HRM have become worried about this.

One of the heads of the Dept, of HRM gave the following detailed explanation:

At present, the average age o f the contract workers is 32 years old. Many production workers are older than 40. Actually, they are too old to work on the production lines. But most of them have signed open-ended contracts with the company. We have to hire them until they retire. Moreover, many workers have currently qualified to ask for open-ended contracts and more will do so in the near future. This is what we are worried about. If we agree to conclude such a contract with each worker, we would have a big problem to contemplate.

Having made some open-ended agreements, the German managers were soon looking for a way to take advantage of loopholes in the law. After researching the Chinese Labour Law in depth, a method to deal with the ‘problem’ was finally found. A new

standard was added for workers who qualify for open-ended contracts: not only ten years’ service, but also good individual performance is needed. Since 2004, the company has only signed open-ended contracts with ‘good workers’. The director o f the Dept, of HRM explains the ‘new policy’ as follows:

The Labour Law does not provide that the company MUST conclude the open- ended contract. The premise of signing the contract is the agreement o f both parties involved. Based on this article, as a party involved, the company has the right not to sign open-ended contracts with each worker.

Initially, we signed this kind of contract with each worker. At present, we assess the worker’s individual performance first. If he is good, I will agree to sign the contract. If not, I will not agree to his request immediately. Normally, I will sign a one or two-year contract with him first. After that, his performance would be evaluated again and then I would decide whether to sign an open-ended contract with him.

Honestly, I don’t think this clause o f the Law is necessary. I know many companies, including some state-owned enterprises, have never concluded this kind of contract.

As well as linking the contract with individual performance, many conditions that the workers cannot control are also included. The company has ruled that if the workshop might be outsourced, the workers in the workshop would not qualify to ask for open- ended contracts. In addition, if there were a possibility that the workers’ posts might be rearranged, open-ended contracts would not be concluded. Generally speaking, the workers have to bear more ‘flexible’ contracts. Even workers who have concluded open-ended contracts are still seriously worried about their job security. Some old

workers were required to change their posts from production lines to off-line jobs whilst their wage grades were reduced accordingly. If the worker did not comply with the order to move, the company would terminate his contract.

Furthermore, recently, the adjustment of the company’s structure has impacted on the workers’ jobs. In 2003, a workshop making small home electrical appliances went into operation and 30 workers were selected for it. One year later, the headquarters of the European company decided to expand its production and move the workshop to another city, two hours away. The workers were faced with a difficult choice: if they wanted to keep their jobs, they had to move with the jobs to another city. If not, they might lose the jobs.

Because o f the state of the local labour market and the relatively high income received by ChinaCol workers, most wanted to keep their jobs, especially those workers who came from the countryside. As well as their disadvantages concerning their age and education level, most were short of social capital. This made the labour contract an important source of leverage for managers, even more useful than the 60 per cent variable element in the calculation of their wages (which is discussed later).

The logic is clear enough: ‘We must work hard. Otherwise, the company may not extend our contracts’. Commons (1926: 285) stated the position starkly: the contract of employment ‘is not a contract, it is a continuing implied renewal o f contracts at every minute and hour. ... The labourer is thus continuously on the labour market—

even when he is working at his job he is both producing and bargaining, and the two

are in a largely passive situation.