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The newly approved Labor Contract Law will not undermine the investment environment although it will better protect workers' interests and rights, China's top trade union body said yesterday.

Liu Jichen, director of the law department at the All-China Federation of Trade Unions, denied that the law - which goes into force from January 1 next year - is biased toward employees.

"It not only protects workers' interests and rights, but also equally protects employers'," he told a press conference.

The law, passed on Friday by the Standing Committee of the National People's Congress, the top legislature, had raised concerns that stricter contract requirements could raise business costs and give companies less flexibility to hire and fire employees.

Liu, however, said that the law takes into account employers' interests.

For example, he said, employers can sign non-competition contracts with workers, with a non-competition period of not more than two years to encourage innovation and ensure fair competition.

So an employer can rest assured that an employee does not walk out at the end of the contract period and join a direct competitor.

It also softens the terms under which employers can cut staff - if an enterprise switches to other production, adopts a major technological innovation or changes its mode of business.

Liu stressed that the law will help create a harmonious labor relationship.

"Labor protection is a worldwide trend," he said. "With working conditions improved and rights protected, employees will feel more secure, which leads to a higher productivity."

Liu pointed out most labor disputes result from violations of workers' rights.

Because of the huge supply of labor force, workers are in a disadvantaged position, he said.

Liu said the federation has succeeded in keeping most of the items on protecting workers' rights and interests in the law.

For example, the law makes mandatory the use of written contracts and strongly discourages fixed- or short-term contracts.

It also stipulates severance be paid if a fixed-term contract expires but is not renewed without an appropriate reason.

The law requires all employers to submit proposed workplace rules or changes for discussion to the workers' congress - concerning pay, work allotment, hours, insurance, safety, holidays and training.

Employers and trade unions will then jointly decide on workplace agreements.

It stipulates trade unions have the right to sign collective contracts with employers on behalf of workers.

In a position paper released yesterday, the European Chamber of Commerce in China said it welcomes the law and its aim of improving labor conditions and creating workplace harmony.

"A more mature legal environment should be considered as an advantage in attracting foreign investment," the statement said.

However, the chamber said the key challenge remains compliance by employers and the enforcement by authorities of the existing laws.

(China Daily July 3, 2007)