Guo [Chenming, cited as a "local Communist Party official"] doubted the allegation, saying it would be foolish for the police to incite such a massive crowd. He also said the 80 workers didn't get full severance because of bad performance. But he added that the company didn't fully understand new labor laws and was also to blame.
The Labor Contract Law has been something that foreign lawyers in China and legal bloggers writing on China (none more so than China Law Blog) have been talking about ever since it was first announced in June of last year and the fervor continued once it came into force on January 1 of this year.
Most Chinese companies quickly tried to sign contracts with their employees and dot their i's and cross their t's in preparation for the law, but some ignored it, either feeling the government wouldn't enforce it or that their employees wouldn't realize their newfound rights.
With the spotlight on factories of the Pearl River Delta as of late, workers, even migrant laborers working in factories, aren't as ignorant as they used to be and either know of their rights or know enough to find a lawyer who promptly informs them of their rights.
Though the factory claims to have paid all proper compensation under the law, it wouldn't surprise me if they cut some corners and didn't follow the full letter of the current labor law. If you are a business owner in China, you can't be too careful, especially if you're a foreigner, DO NOT play fast and loose with this law, make sure you are in compliance with it (and while you're at it, make sure all foreign employees have the proper visas).
PS: While we're at it, 2 asides, the article paints a good picture of how these protests can come about as well as a brief look at the current (scary) situation in the PRD. And while its not connected, I saw this cartoon today on a Korean blog I regularly visit as to how some Koreans get around the laws/requirements of a contract. Good stuff!