China´s National People´s Congress (NPC) issued a draft of a new Labor Contract Law on March 20, 2006.  After the draft was announced, several foreign companies expressed concern because the new regulation will give more power to state-run trade unions.  Many foreign executives see this as a major step back in China´s development because the new regulation will put control back in the hands of the Chinese state government.

According to the new proposal, companies will be required to consult with labor unions before they can implement mass hiring and layoffs.  The regulation also states that companies must pay a full year´s salary to employees who leave under a non-compete agreement.  In addition, companies will be required to issue severance payments to any employee who decides not to renew his/her employment contract. 

As of yet, the law has not become official and the NPC is accepting comments from companies in the next few weeks. If the law is passed, companies would essentially need to consult with trade unions before issuing any related employee policies.  Foreign companies have already begun lobbying the NPC to make revisions to the law before it becomes official.  Historically, unlike in the US and Europe, trade unions have not been major factors in China with relatively low membership.