American Executive Released from Factory

Chip Starnes, an American businessman who was held hostage by workers at his factory outside Beijing, has been released after five days. Starnes, a co-owner of Specialty Medical Supplies, was prevented from leaving his company’s factory in Huairou by angry workers who believed they were going to be laid off without pay. Starnes was released after he agreed to pay the workers, following negotiations with local labor officials. From AP:

Chip Starnes told The Associated Press a deal was reached overnight to pay the dozens of workers who had demanded generous severance packages similar to ones given to co-workers in a phased-out division, even though the company said the remaining workers weren’t being laid off.

The remaining workers said they believed the entire medical supply plant was on the verge of being shut down, saying the company owed unpaid salary and that they saw equipment being packed up and itemized for shipping to India last week.

[…] “We have transferred our funds from the U.S.,” he said by phone early Thursday. “I am basically free to go when the funds hit the account here of the company.” He declined to say how much.

Starnes said he planned to get back to business, and even rehire some of the workers who had been holding him. “We’re going to take Thursday off to let the dust settle, and we’re going to be rehiring a lot of the previous workers on new contracts as of Friday,” he said. [Source]

The New York Times provides background on the standoff:

The dispute, which has drawn a throng of police officers, Chinese reporters and American diplomats to the factory, began when the company, which is based in Coral Springs, Fla., closed its injection molding division and gave roughly 30 employees what Mr. Starnes described in a telephone interview on Tuesday night as a generous severance package.

The division, which manufactured medical goods like lancets and insulin syringes, is being moved to India. But rumors soon spread that Mr. Starnes was planning to close the entire plant and flee without paying the rest of the workers, which happens often in China.

Although he explained that the remaining workers were not being laid off, about 100 employees barricaded the exits on Friday and stopped him from leaving until he agreed to give them compensation identical to that given to the laid-off employees, a sum he contends would bankrupt the company.

Since then he has been trapped within the factory grounds, occasionally appearing at the barred window of his office looking haggard and in the same clothes he has worn since Friday. Over the weekend, local officials coerced him into signing contracts that met some of the workers’ demands, even as employees kept him awake with bright lights and loud noises. [Source]

While police said they were ensuring Starnes’ safety during his captivity, they did nothing to aid his release. Furthermore, local officials negotiated the terms of his release, which required him to pay severance packages to workers who were not, in fact, being laid off. In the Atlantic, Lily Kuo writes that labor protests are increasing in China, as workers have few other channels to air their grievances:

What’s interesting about the case is that, according to Starnes, local officials forced him into agreeing to pay the workers. Chinese labor protests have been increasing over the past several years and so has the number of times their demands have been met. As we’ve written before, without effective labor unions, protests have become the means for workers to negotiate benefits with managers. Worried about labor shortages and public image, company executives give in. Worried about social stability, local officials encourage the companies to settle with workers. (Higher pay is the most common demand.)

More aggressive labor protests could make factories in China — where manufacturing costs are approaching U.S. levels, by some estimates — less appealing to foreign firms. Holding a manager hostage isn’t an unusual practice in Chinese labor disputes, but foreign executives aren’t usually targeted, according to Christian Murck, president of the American Chamber of Commerce in China. [Source]

While it is rare for foreign executives to be held hostage in labor protests, it is becoming an increasingly common and effective tactic for workers. From Wall Street Journal’s China Real Time:

While bosses aren’t held captive in their companies every day in China, Starnes is not the first one. In January this year, around 1,000 workers at Shanghai Shinmei Electric Company held Japanese and Chinese managers hostage in the factory, claiming that work rules for bathroom breaks and punishments for tardiness were too harsh.

Last year, a Missouri executive of tent maker NorthPole Ltd. had his passport confiscated by a court in China’s coastal city of Xiamen after he found himself in the midst of a dispute with his suppliers, according to U.S. media reports.

[…] Part of the problem, experts say, is a dispute resolution system that favors dramatic action.

“China has a very employee-friendly labor mediation/arbitration system,” James Zimmerman, the managing partner in the Beijing office of Sheppard Mullin Richter & Hampton, LLP and former chairman of the American Chamber of Commerce China, wrote in an email. “The perception of workers and petitioners in general is that they do not have effective legal remedies to protect their interests, and find that taking action into their own hands gets near-immediate results,” he wrote. [Source]

On his China Law Prof Blog, Donald Clarke writes:

It’s a little absurd that this kind of official toleration of self-help remedies that violate the criminal law should be going on in the year 2013, in the world’s second-largest economy, on the territory of a permanent member of the UN Security Council. Bananas, anyone? [Source]