New labor law aims to cap damages

By Zhu Zhe (China Daily)
Updated: 2007-04-25 07:10

Workers whose contracts have been broken by their employers will be paid no more than 12 months' salary as compensation, under a new draft law proposed Tuesday.

But the compensation cap will not apply if employees have been fired for serious workplace breaches or disciplinary action, or if the employer can prove they have serious economic problems.

Legislators yesterday started to read the third draft of the controversial labor contract law, which for the first time details the standard for compensation for contract termination.

The draft, discussed at the 27th meeting of the Standing Committee of the 10th National People's Congress (NPC), the top legislature, states that if employers want to end contracts, they should pay employees the equivalent of one month's salary for every year of service, capped at 12 months.

The calculations will be based on the employee's average monthly salary over a 12-month period, prior to the end of the contract.

However, high earners will be paid compensation no more than three times the local monthly average salary, according to the draft.

Li Yuan, director of the administrative law division of NPC Standing Committee's legislative affairs commission, said the average monthly salary in Beijing last year was about 3,000 yuan ($388).

Under the new draft law, if a person who has worked at a company in Beijing for 15 years and received 20,000 yuan ($2,590) a month was to receive compensation, he will be paid 108,000 yuan ($13,989) instead of 300,000 yuan.

Hu Guangbao, deputy director of the NPC Law Committee, said such stipulations are made in response to public suggestions.

The existing Labor Law spells out the need for economic compensation, but does not demonstrate how through uniform guidelines.

The previous draft of the labor contract law did not detail the issue either, leaving it to be set by State Council regulations.

Li said many overseas enterprises and organizations, including the American Chamber of Commerce in Shanghai (AmCham Shanghai) and the Hong Kong Chamber of Commerce, have also suggested setting the standard by law so that employers were able to calculate costs.

The AmCham Shanghai said in a letter to China Daily it applauds the Chinese government for its initiative.

"The stipulation on compensation is a major change in the latest draft, and it directly affects the interests of employers and employees," Li said.

"We would like to hear more comments from the public."

But Li said that because the labor contract issue is very complicated, the draft law needs further discussion.

Official figures show that the NPC received about 192,000 public responses in the month after the draft was published last March for consultation. Only the Constitution, in 1954, received more.

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