By Chen Hong (China Daily)
Updated: 2007-11-03 09:22

More than 7,000 loyal employees of Huawei, China's largest private telecom gear maker based in the southern city of Shenzhen, have quit in exchange for the chance to work for the company again.

The mass resignation triggered by the company management started last month. Many legal experts believe it was an irresponsible decision to exploit a legal loophole before the Labor Contract Law takes effect on January 1 next year.

Under the new law, employees can sign open-ended labor contracts if they have worked for the same company for 10 or more years in a row.

Huawei employees who have been serving the company for at least eight years, including founder Ren Zhengfei, will soon sign new contracts, lasting one to three years, but may have to leave when they expire.

To encourage them to accept the new arrangement, Huawei worked out a compensation scheme based on length of service, salaries and bonuses. The total cost of the package is expected to reach 1 billion yuan (US$134 million).

"I can't understand why Huawei has taken such an unwise step," You Yunting, a lawyer with JoinWay Law Firm in Shanghai, said.

"Once this problem is solved, new problems will arise and the costs will mount up."

You added that open-ended contracts did not necessarily mean the employees had jobs for life.

According to the Labor Contract Law, employers can revoke the contract under six circumstances, including seriously violating the company's rules and causing the employer major losses due to serious dereliction of duty or engagement in malpractice for selfish ends.

"I think it's more important to improve internal governance and the existing rules rather than look for legal loopholes," You said.

Lu Tong, a researcher at the China Academy of Social Sciences, said: "I think it's a very bad example. Other companies will follow Huawei's example and mess things up."

Xiao Fangsheng, director of the labor law committee of the lawyer's associations of Guangzhou in Guangdong Province, agreed that Huawei did not have a clear understanding of the contract law.

"It tries to dodge the disadvantages of the open-ended contract but its efforts will turn out to be invalid.

"Even with the new contracts, employees can still enjoy the benefits of open-ended contracts because they never left the company and are still working for the company even if they quit," Xiao said.

An official at the Shenzhen labor authority told China Daily that an official investigation into the case is ongoing.