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Executive hostage taking, while not common, could rise in China, experts say

By: Steve Toloken

July 1, 2013

Labor disputes like the one that saw an American plastics executive held hostage for six days by employees at his Beijing factory will likely become more common as China's economy slows down and financial pressures increase, according to several experts following Chinese labor issues.

"I do think we'll start to see more and more of these types of situations," said Jonathan Isaacs, a Hong Kong-based employment special counsel with the law firm Baker & McKenzie. "Workers will see that those types of tactics work."

The dispute at the Beijing injection molding factory of Specialty Medical Supplies, where co-founder Chip Starnes was held by employees upset over compensation and fears that the entire factory was moving to India, attracted widespread media coverage in the United States.

It ended Thursday with Starnes being released, after the company paid workers more than $300,000 in severance directly to workers, including to employees whose jobs were not being eliminated but who wanted some payment.

Executive hostage taking as part of a business or labor dispute may not happen every day in China but it is more common than people might think. Dan Harris, co-author of the China Law Blog and an attorney with Seattle-based law firm Harris & Moure PLLC, writes that about once a month, his office hears about such a situation, either from the media or someone asking his firm to help.

Vivian Desmonts, head of the Guangzhou, China office for Paris-based law firm DS Avocats, said he also expects such situations to increase because China's economy is slowing down, putting strain on some company finances and making workers nervous.

Desmonts said workers are better informed about their rights than in the past. As in the SMS situation in Beijing, he said resolving disputes can be made more complex because police will often not get directly involved. They will see it as a civil dispute, rather than a criminal matter like kidnapping, he said.

"Usually the police will come and say it is a work and labor law issue, not a criminal case," he said.

Isaacs said there are several steps companies can take to mitigate problems before making major announcements, such as with the SMS plan which led to its crisis — the company's decision to move 30 jobs and some injection molding work to India.

Firms should hire a private security company that can pre-plan escape routes for managers, as well as holding meetings to announce the changes offsite, like in a hotel, in part because police will be more likely to intervene there if trouble develops, he said.

"If it is inside the factory, the police will always say this is an internal company matter," said Isaacs. "I wasn't surprised at all by the police reaction [in the SMS situation]. They are concerned about general social stability."

Both Isaacs and Desmonts said finding ways to build trust and improve communication with workers is another key, as employees are very familiar with cases of factories abruptly closing and leaving workers unable to collect back wages.

Desmonts said more companies are using what is called an Employee Representative Congress, a consultative body under Chinese law whose members are chosen by workers, to build better communication with employees.

Isaacs said such groups, while not widespread in private companies now, can have more credibility with employees than the government-run labor unions.

"Employees just don't feel well represented," said Desmonts.

In some cases, other factories have faced the same situation as SMS, with workers who were not losing jobs but asking for the same severance payment as the laid off workers, and those companies have opted to pay it, according to one factory manager commenting on the website of the South China Morning Post newspaper in Hong Kong.

This particular factory manager, who was not identified, said it did not bother the company to make the payments as it was money workers were owed anyway, and returning employees were then asked to sign new contracts starting their seniority clocks at zero.

"In defense of the employees, in the past 5 years there have been many, many cases of factory owners just bugging out overnight and not paying their suppliers or their staff," the manager said.

In comments to television journalists after his return to the United States, Starnes also talked about his own frustrations resolving the situation, including the seeming inability of government to effectively resolve it.

"I tried to really downplay it over on the China side, is the fact that I was really, really, really extremely upset that the government, being in Beijing, that nobody stepped in to help, to do anything to solve the situation," he said.