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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0489/01 2260814
ZNR UUUUU ZZH
R 130814Z AUG 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7502
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
RUEHC/DEPT OF LABOR WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 000489 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE PASS USTR CHINA OFFICE 
 
E.O. 12958: N/A 
TAGS: ELAB ECON PGOV CH
SUBJECT: Guangdong Labor Law Guidelines - Good News and Bad for U.S. 
Firms 
 
REF: GUANGZHOU 414 
 
(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 
cost. 
 
¶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 
union. 
 
¶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. 
 
GOLDBERG