Emerging employment rules will create inconsistency

But gaps in those national rules, often left deliberately, mean that provinces have plenty of scope to set their own boundaries. The ECL, or its regulations, do not mention whether a company can include overtime work pay in a worker's basic monthly salary, for example. The rules in Guangdong province say a company can do this, if it can prove how it does its pay calculations.

Recently, Shandong and Hubei provinces revised their employment rules, making it compulsory for companies to get approval for lay-offs of more than 40 employees. The ECL has no approval requirement, only requiring a report of lay-offs of more than 20 workers to be made to local authorities. The provincial changes led to similar rule amendments in Beijing and Shanghai.

One lawyer, commenting at the time of those changes, said they were “part of a bigger development that is very worrisome”.

There can also be different local standards on matters such as social insurance contribution ratios. And finally, there may be a different understanding or interpretation of the national law from region to region.

Ligorner gives one example. “The ECL says employers must give an employee an open-ended contract after the second renewal of a fixed-term contract,” she says. “There are two interpretations of this: the employer can choose not to renew the contract but if it does renew, it must give the employee an open ended contract; or, the employer no longer has the discretion not to renew the contract without a separate justified reason under the ECL.”

It is the second of these interpretations that employers should fear. According to Ligorner, government officials in the north have suggested that they will follow this route, and businesses should presume that this interpretation will prevail.

Provincial authorities are also likely to delay the issuance of regulations and allow individual cities to issue their own rules for a limited period. City governments are closer to local businesses and should be able to issue tailor-made rules quickly. In December, Guangdong allowed exactly this kind of stop-gap measure, when it decided to postpone application of the Implementing Regulations for the ECL and delegated rule-setting to cities such as Shenzhen and Dongguang.

2009 will be a challenging time for companies in China. They will need to review their internal rules to bring them in line with the new Implementing Regulations and the diverse local rules. The advice of employment specialists is to develop standard contracts and internal policies for national use, and localise or slightly amend them to comply with local law. For those with operations in many locations across China, this could be a difficult process.

(This article is part of the New directions for China in 2009 special feature)