It has been a little over eight months since China enacted its groundbreaking new Labour Contract Law ("LCL"). Before enactment of the LCL, employee abuse was rampant in China and worsening.

This Law has been formulated to improve and perfect the labour contract system, to make explicit the rights and obligations of both parties of the labour contract, to protect the lawful rights and interests of labourers and " to build and develop harmonious and stable Labour relationships. (Emphasis added)"

The LCL gives workers a private right of action to enforce their own legal rights. Employees may now sue their employers directly, without the aid of the state. Chinese workers are not hesitating to seek to enforce their rights in the courts. Many labour-intensive companies that manufactured in China have shut down altogether or have moved to lower labour cost countries like Vietnam, Bangladesh, or Cambodia.

Profitable Western companies are talking about expanding outside of China (the "China Plus One Strategy"), but they generally are not leaving. The reason for this is simple: China is better equipped than other countries to manufacture all but the least sophisticated products.

Since enactment of the LCL, foreign direct investment (FDI) into China has continued to increase; China attracted $42.78 billion in FDI from January to May 2008. Many Most Western companies were already meeting the LCL requirements.

French supermarket giant, Carrefour, required most of its forty thousand strong Chinese employees to resign and then sign a new two-year contract on the eve of the LCL becoming effective in order to circumvent the LCL's provisions requiring indefinite contracts, which make employee termination difficult.

Smart companies in China now use written employment contracts, in Chinese, with all of their employees and maintain a written policy manual, also in Chinese, explicitly setting forth the various bases for employee termination. The written contract is necessary to avoid potentially huge penalties and the policy manual setting forth grounds for termination helps militate against having lifetime employees.

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