Cablegate: Guangdong Labor Law Guidelines - Good News and Bad for U.S.

DE RUEHGZ #0489/01 2260814
R 130814Z AUG 08




E.O. 12958: N/A
SUBJECT: Guangdong Labor Law Guidelines - Good News and Bad for U.S.


(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.

1. (SBU) Summary: There's good news and bad news for U.S. firms in
Guangdong's new implementation guidelines for the Labor Contract Law
and Labor Mediation and Arbitration Law, according to HR
executives at U.S. companies with major operations in the province.
On the plus side, the guidelines confirmed that certain aspects of
the laws -- including those related to claims for social security
benefits and consultation with employees on employment practices --
would not be applied retroactively. On the down side, some firms
are frustrated that the burden of proof will fall on them in certain
overtime disputes. Still in need of clarification are regulations
for outsourced labor and conditions for flexible working schedules.
Nevertheless, U.S. firms emphasize that the impact of the new laws
on their labor practices is relatively small. Echoing comments
we've heard frequently, HR executives said the new laws would have a
much greater impact on smaller firms in the Pearl River Delta whose
practices did not meet international standards. End summary.

Good News: Social Security, Housing, Existing Policies
--------------------------------------------- ---------

2. (SBU) U.S. firms in south China got some good news as
long-awaited guidance on implementation of the new Labor Contract
Law and Labor Arbitration and Mediation Law began to emerge from the
Guangdong High Court and the Guangdong Labor Dispute Arbitration
Commission (reftel). Ivy Long, HR manager for AVON, told us that
further clarification provided by the Guangdong guidelines was a
positive step. Several of the guidelines will benefit AVON,
including stipulation that the courts will not recognize claims for
social security benefits required under the new law for any work
that preceded the law's implementation on January 1, 2008. In
addition, AVON was pleased the guidelines confirmed that disputes
over housing fund benefits would not be considered labor disputes.

3. (SBU) Clara Wang, Senior Human Resource (HR) Director for
Wal-Mart China, explained that the new guidelines confirmed the
company's 10-year-old employment policies at its Guangdong stores
were not invalidated by the new law. The law requires that a firm
must discuss new benefits policies or changes to existing policies
with workers and secure their approval. Because Wal-Mart had never
consulted with workers on its employment policies, it feared the new
law would make them invalid, according to Wang. The Guangdong
guidelines confirm that the law was not retroactive in this regard;
as long as the existing policies are not otherwise illegal and have
been disclosed to workers, they remain valid. However, Wang
expressed concern that the Guangdong guidelines could be superseded
by national implementation regulations expected soon.

Bad News: Overtime and Appeals

4. (SBU) Several U.S. firms were frustrated by confirmation that the
burden of proof would fall on the employer in certain overtime
disputes. If the employee claims overtime pay for work that the
employer says was not performed, the burden of proof is on the
employer to show that the overtime work did not take place. Daniel
Mo, HR director of Wrigley Confectionary (China), emphasized the
additional costs that employers would have to bear to more closely
monitor and track employee time and attendance. He complained that
if the national implementation regulations don't offer any relief,
Wrigley may have to overhaul its time-keeping system to require
employees to carefully document the hours they work each week.
However, Ivy Long, HR manager at AVON, explained that her firm
already had such a system in place and its employment contracts
specified that no overtime compensation would be paid unless the
work is documented on a signed time sheet.

5. (SBU) In addition, Wal-Mart's Wang complained about new
guidelines that labor dispute arbitration decisions made at the
local level would be final in certain cases. She claimed that
Wal-Mart frequently loses cases involving employee theft and fraud
at the local level because local-level judges often view the company
as "too harsh" towards its employees. The chances for Wal-mart to
obtain a fair hearing, she said, are better in higher level courts.

Still Unclear: Outsourcing, Disputes, Flex-time
--------------------------------------------- --

GUANGZHOU 00000489 002 OF 002

6. (SBU) HR managers at AVON and Wrigley both pointed out the need
for further clarification on rules for outsourcing labor. Both
firms rely heavily on temporary workers employed by HR outsourcing
companies. AVON's Long and Wrigley's Mo both argued that the
maximum duration allowed under the new law for employing outsourced
labor -- six months -- was too short. They hope that national
implementation regulations or additional guidance from local
officials will offer some relief and permit them to employ such
workers for longer periods under certain conditions. Otherwise,
they will have to expand their permanent workforce at considerable

7. (SBU) Long also pointed out that there is a need for more
guidance on resolving disputed benefits policies. The law requires
firms to obtain concurrence from workers before implementing new
employment policies, but does not offer enough guidance on how to
resolve disputes when management and the union can't agree. She
said that when she sought input from the Guangdong Labor Department
and the Guangdong High Court on this question, the two agencies gave
her different answers. The Labor Department said the company was
the final decision maker, while the High Court said all new policies
concerning employee benefits are illegal unless approved by the

8. (SBU) Wang commented that Wal-Mart hopes for further
clarification of overtime standards that will make it easier to
continue using flexible work schedules. She said this was
particularly important for their distribution centers, which are
much busier during peak shopping seasons. Tony Lowe, Labor
Standards Audit Manager for Disney, on the other hand, told us that
his firm had government approval to use flexible work schedules and
the new law's overtime standards were not a problem.

Small Impact on U.S. Firms

9. (SBU) Despite complaints about particular elements of the new
laws and guidelines, there was broad agreement among HR executives
that they will not have much negative impact on U.S. firms in south
China. Disney's Lowe described careful consultation with attorneys
and local labor officials to ensure that the firm was in compliance
in advance of the laws' implementation. Wang pointed out that
Wal-Mart's practices had already been consistent with the new laws
and in many cases offered benefits and protections that exceeded the
new requirements. Echoing comments we've heard frequently, AVON's
Long said the new laws would have a much greater impact on smaller
firms in the Pearl River Delta whose practices did not meet
international standards. Those firms will either have to bear
substantial costs to comply or run the risk of litigation and
sanctions by carrying on business as usual.


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