Imagethief spent a fine evening over tall beers with China Law Blog's Steve Dickinson in Shanghai last Friday. One thing we didn't talk about was China's new labor law. That's a shame, because he's clearly been paying attention to it, as is clear from the brief but interesting article he wrote for China International Business.

China Law Blog's other half, Dan Harris, has put together a really interesting post that brings his own analysis together with Steve's and that of several other analysts to give a good overview of a very interesting situation:

Everything is going to change on January 1, 2008, for employers in China. Well almost everything. That is the day China's new labor law goes into effect and if you have employees in China (especially if you "unofficially" have employees in China), you absolutely must take various steps to get into compliance AND to avoid being sued. And you better start taking those steps now.

CLB's Steve Dickinson has been working with many foreign companies to get them ready for the new law, called the labor contract law (LCL) and he just wrote a column for China International Business magazine on the basics involved. The article is entitled, "Power to the People," with the "people" being employees and Chinese lawyers, who are already salivating about suing foreign companies on this. And when I say salivating, I mean salivating. We have heard from Chinese lawyers who already have plaintiffs all lined up and ready to sue various foreign companies for when those foreign companies fail to comply. I kid you not.

There is an interesting comment thread unfolding as well.

It's not just lawyers who will be salivating over this, it's PR people as well. Personnel disasters and related litigation are one of those things that can damage a company's reputation very fast. That's particularly here in China, where the "Chinese employee vs. callous multinational employer or foreign boss" story is well entrenched, and has a near limitless ability to excite the media and Chinese Internet users. For examples you can refer back to McDonald's and KFC minimum wage scandals of last March, or the "World's Toughest Secretary" story from May 2006. Or any of a host of similar situations over the years.

Foreign companies are targets. I suspect this is for a few reasons: they are much easier to arouse public sentiment against; they are seen as having deep pockets; and they are probably seen as less likely to be locally connected.

Litigation is rough on all its own, but the cost of reputation damage is real too. A company that gains a reputation as a bad workplace will find it tougher to hire and retain the most talented local staff. It will find itself more likely to be on the receiving end of unwelcome attention from labor-related GONGOs or even the government. And it may thus find its ability to curry government favor reduced (in a country where the government has significant power over the fortunes of foreign businesses). If the company is a consumer brand and its situation is bad enough, it may find its sales affected.

So foreign companies should start considering now how they'll handle communication should they find themselves the targets of labor law litigation. While one incident or a single person's case can possibly be explained as an aberration. But a group case (if such is possible under Chinese law) or several cases either in parallel or over a suitably short period of time would almost certainly look very bad, and make a foreign company appear either ignorant of Chinese law or indifferent to its Chinese workers. Neither is an ideal perception, even if unfairly bestowed. Companies should expect litigants to take their cases to the press and make any fuss as public as possible.

So, are your in house and agency PR people aware of the risks? Are there known issues that might surface and should be prepared for in advance? Are there prior incidents long forgotten about that a diligent reporter might dig up? Is your crisis management system tuned up in case this blows up in your face? Are your public affairs people looped in and ready to address the government or regulatory side of any necessary communication? What will you do if journalists start calling your employees directly or ambushing them outside the office to ask about treatment and working conditions? Yes, that sounds extreme, but it can happen.

Imagethief along with Dan and Steve has joked before about the sometimes strained relationships between PR people and lawyers. (You did what to my press release!?) But this is one of those times when they should really be cooperating.