The new law aims to stop employers from abusing their workers.

A new labor law went into effect on January 1 this year. Law firm Harris and Moure's Steve Dickinson has done extensive blogging about the new law. In this episode, Mr. Dickinson gives us the low-down on the law and its effects on business.

Listen to our discussion on the Labor Law

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Executive summary

The law was a government response to increasing public concern that employers were mistreating employees, especially in failure to pay proper wages. The Shanxi slavery scandal was a example of the sorry state of employee rights in China that brought the issue to the forefront of the public's mind.

The law has several components, but the main effects are the requirement that employees have formal term contracts, and that employees can only be terminated with cause. This is the polar opposite of termination at will in the United States.

After two term contracts, the employee must be given an open-ended contract. Combined with termination only with cause, it is comparable to the tenure system in American universities. Critics are calling it a return to the iron rice bowl, when companies were responsible for employees their whole lives.

There has been a tremendous amount of publicity about the law, resulting in widespread general awareness, though the public's understanding is not always accurate. The media coverage seems to be driven by the inherent attractiveness of a story that affects everyone, rather than a government propaganda initiative.

Companies need to beware, as ambitious lawyers are actively looking to make money and a career testing the new law.