Trade Unions and Multinational Companies in China

In theory, Chinese trade unions have a similar mission to the West: protecting and promoting the interests of employees. But Chinese trade unions differ in two main aspects.

Under Chinese law, no union is allowed to exist outside the government union system, which is controlled by the ruling Communist Party. Sitting at the apex of this system is the ACFTU, which acts like a government agency. This official nature of the Chinese trade union system is set out in the provisions of the Trade Union Law and ACFTU directives concerning the roles played by “higher level unions” in the formation of union councils and the election of the union chairmen. “Higher level unions” in this context means the local ACFTU offices in the provincial, cities and at district levels. They have the power to issue directives to “lower level unions,” referring to trade unions in each company that employees join.

This close between the Chinese trade union system with the government has two important implications, the first being trade unions in China are not likely to act as aggressively as their counterparts in the United States, Europe, Japan, Korea or India, unless the government intends them to do so; and secondly trade unions in China will always receive the backing of the government. All signs indicate that the ACFTU organising initiatives of the past several years have enjoyed the full endorsement of China's top leadership.²

The Roles of Chinese Trade Unions

Trade unions in China play many roles, and several of these roles have an especially significant impact on foreign companies operating in China.

1) Collective Bargaining. While the Trade Union Law of 2001 limited the role of trade unions to providing “assistance and guidance to employees in signing labor contracts with enterprises…,”³ the Employment Contract Law《劳动合同法》(ECL), adopted in August 2007, gave trade unions the power to conclude a collective contract on behalf of employees.⁴ The Shenzhen Trade Union Implementing Rules (the Shenzhen Implementing Rules), which took effect August 1 2008, went much further. These rules are the first in China to use the term “collective bargaining”, suggesting a trend toward a more active role played by trade unions in negotiating collective contracts over matters important to employees, such as wages, benefits, and holidays.

2) Developing Company Rules that Affect Employees' Interests. A second important role played by trade unions is their representation of employees' interests in the adoption or revision of company rules and policies, for example, rules and policies on integrity, compliance, compensation and benefits, fair employment, prohibition of sexual harassment, and non-solicitation. The ECL requires employers to take certain steps when they make rules or decisions on labor disciplines, compensation, and “other important matters related to the vital interests of employees.” Specifically, the ECL requires employers to; hold discussions with the employees' representative council (ERC) or “all employees” in formulating drafts of rules; engage in “equal consultation” with trade unions or employee representatives; and communicate the adopted rules to all employees.⁵

3) Giving opinions on termination of employees. The ECL provides that, when an employer decides to terminate an employment contract unilaterally or lay off a group of employees, it must inform the union in advance. The union has the right to demand that the employer reconsider its decision if it believes that the termination violates laws, regulations or terms of the employment contract. The employer must study the union's opinions and notify it in writing as to the disposition of the matter.⁶ Although these rules have allowed the employer to have the final say in a termination decision, the rules do give the trade union the potential power to intervene on behalf of an employee facing termination.

The Formation of a Chinese Trade Union

Before the issue of unions in multinational companies came under the spotlight of the local and international media, some companies quietly formed their own unions and managed to exercise enormous control over them. The ACFTU appeared to turn a blind eye to such practices. But in the current atmosphere and because of the ACFTU's active involvement, such pro-management unions are nearly impossible to maintain. In a press conference held in early July, 2008, the head of the Department of Grassroots Organization of the ACFTU said that companies which intend to form trade unions should form a “union preparation team” first, which should be comprised of local ACFTU officials, employees, and mid-level management (who cannot comprise more than 20% of the total members of the team), but not members of senior management. This mechanism was first introduced in a five-point memorandum negotiated between the ACFTU and Wal-Mart in 2006 following the Wal-Mart's agreement to form trade unions in its stores across China.

In addition, the Shenzhen Implementing Rules provide that an employer which has set up a union preparation team according to these rules should pay 2% of its total payroll to the local ACFTU as union preparation fund contributions. According to the law, the local ACFTU shall return a portion of such reserve funds to the employer after its union is established.⁷ This provision is an incentive for companies to shorten the transition from the preparation team to a fully-fledged union.

The ACFTU has also repeatedly emphasised a “local jurisdiction principle.” According to this principle, 1) the unions of a company's subsidiaries (which have independent legal status) or branches (which do not have independent legal status) are under the leadership of local higher level unions and not affiliated with the union of its corporate headquarters and 2) the union fund contribution must be paid at the local level . However, during its recent Fortune 500 unionisation campaign, the ACFTU showed more willingness to make “innovations in organisational structures” along the following lines: 1) all legal entities of a company must form their own trade unions under the leadership of local “higher level unions;” 2) but a “service type (ie non-productive)” corporate legal entity and its branches in other cities may form one grass-root union at the legal entity level; 3) in such instances, branches must form branch union councils if they have at least 25 employees or union teams if they have less than 25 employees; 4) these branch union councils or teams shall be under the leadership of both the company's trade union council at the legal entity level and local higher level unions. ACFTU officials have also indicated that different legal entities of a same group company within one city may form a “united union” after forming their own grass-root unions. Thus the trade unions at the headquarters of a group company may exercise its leadership over the unions of its subsidiaries or branches at least in the following two ways: 1) lead the branch unions across the country and 2) lead the unions of all subsidiaries and branches in the same city. A third way can be envisioned: having all trade unions within the group voluntarily form a “united council” or “joint conference” with no independent legal status for the sole purpose of coordinating their policies.

The Operation of a Chinese Trade Union

Since the passage of the PRC Trade Union Law in 2001, 23 laws and 41 administrative regulations have been adopted with provisions concerning the roles of trade unions. At the local level, 74 cities have promulgated implementing rules for the Trade Union Law. The rules regarding how a Chinese trade union should operate in a company are primarily found in the Trade Union Law, the Enterprises Trade Unions Work Rules (the ACFTU Work Rules) issued by the ACFTU on July 6 2006, and “trade union law implementing rules” promulgated by local legislatures.⁸ The revised Shenzhen Implementing Rules contain many rules that reflect the ACFTU's new thinking and will most likely serve as a model for other cities and in the revision of the Trade Union Law.

The Assemblies. Chinese trade unions have a three-level structure. At the lowest level is the General Assembly of Members (the General Assembly) for trade unions with less than 100 members or the Representative Assembly of Members (the Representative Assembly) for trade unions with 100 or more members. Each year, one or two meetings of the General Assembly or Representative Assembly may be called. Union representatives are elected for a term that runs in parallel with the union committee and may be re-elected. The main functions of the assemblies are electing the union council and union budget review board and reviewing the work report of the council.⁹

The Union Council. The next level of the assemblies is the Union Council. It is elected by the assemblies with confirmation from higher level unions. The term of the council is three to five years. Large companies may establish standing committees responsible for the daily operations of the council. The union council is the executive body of the assemblies and is responsible for the daily work of the trade union when the assemblies are not in session. The total size of a company's union normally should be no less than 0.3% of the total number of employees.¹⁰

The Chairman. The head of the union council is the chairman of the union. Companies with more than 200 employees should have a full-time trade union chairman. The chairman of the trade union in a foreign invested company should be nominated by union members through election and confirmed by higher level unions or directly nominated by higher level unions. The chairman also enjoys certain immunities as well, including immunity from re-assignment of his work and termination of employment.¹¹

Rules against Installation of Pro-management Candidates. The Shenzhen Implementing Rules provide that senior managers and HR directors, as well as their relatives who work in the same company, may not qualify as candidates for union council members, chairmen, and vice-chairmen.¹² The same provision was found in the ACFTU-Wal-Mart five-point memo, mentioned earlier; furthermore, the memo laid down more detailed rules for the election of union council members and the chairman and vice-chairman:

1) Nomination of candidates must be made by union members at open meetings convened by upper-level unions and must receive the latter's approval.

2) Elections must be held through the use of anonymous balloting.

3) Election results must be approved by upper-level unions.

Conclusion

The labor relations environment in China is experiencing rapid change. All foreign companies operating in China must learn the new rules of the game from scratch. But the sooner a company acquires such knowledge, the better prepared it will be to adapt to the changes. And the more a company is willing to participate in the process, the more likely it will have a greater say in its future, including the shaping of its union relations.

Endnotes

1 In an important March 2006 directive, President Hu Jintao wrote: “We must make serious efforts to reduce conflicts and assure stability of the enterprises and the society by strengthening the roles of the Party and trade unions in foreign invested enterprises.”

2 Such endorsement is illustrated in the following two developments: 1) a recent draft for a national wage regulation issued by the Ministry of Human Resources and Social Security (MOHRSS) provides that, unless an employer engages in collective wage negotiation, the company will not be allowed to include employees' wages as pre-tax business expenses; 2) on July 23, 2008, a senior ACFTU leader presided over a national conference of tax bureaus, called to intensify the latter's effort to collect union fund contributions from employers as part of their tax collection efforts.

3 Trade Union Law, Art. 20.

4 Labor Contract Law, Art. 51.

5 ECL, Art. 4.

6 ECL, Arts. 43, 41.

7 Shenzhen Implementing Rules, Art. 39.

8 The China Trade Union Charter, adopted in 1998 by the 13th National Congress of Trade Unions, is mostly a policy statement and contains very few operational rules.

9 ACFTU Work Rules, Arts. 8, 9.

10 ACFTU Work Rules, Arts. 11-13.

11 ACFTU Work Rules, Arts. 23, 24, 28.

12 See Shenzhen Implementing Rules, Art. 11.

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