Employment: Unions increase the pressure

“We know of one leader in a major industry who is under tremendous pressure,” adds Andreas Lauffs, head of Baker & McKenzie's employment law group.

The Federation has two main goals: to unionise private companies, including foreign-invested companies, and then to ensure that a system of collective bargaining is established in those companies. According to Walsh, it is inevitable that the first goal will be achieved.

“It's not a question of whether companies will accept unionisation, but when, and how,” she says.

If foreign companies do not approach the process carefully, they may find that collective bargaining agreements will significantly restrict their management's ability to adjust wages and regulate the workforce.

“In a worst case scenario, collective bargaining agreements could have minimum annual wage adjustments, seniority systems and restrictive work rules that specify who can do each job, how they get promoted, rules for discipline, and so on,” says Baker & McKenzie partner Joseph Deng.

Such an inflexible agreement would severely restrict management's ability to get anything done; some say that, if the situation develops unfavourably, companies will begin to resemble Chinese state-owned companies of the early 1990s.

At a macro level, it will be hard for foreign companies to influence the unionisation process, except by working with chambers of commerce to submit white papers and opinions. But specialists say that from a company management point of view there are some useful steps that should be taken. Typical anti-union strategies, sometimes popular in the West, will not work in China. Instead, companies should try to co-operate as far as possible, and maintain good relations with their employees and union representatives.

“Companies should get their internal house in order so if they have to have a collective contract they will get a friendly one,” says Deng.

According to this strategy, the union will already be friendly by the time negotiation begins, meaning the resulting contract will be favourable and not differ drastically from the current employee handbook. Walsh advocates a similar approach, emphasising the avoidance of ACFTU scrutiny as far as possible.

“If you're not in the limelight, don't put yourself there,” she says.

Companies should bear this strategy in mind when dealing with any employment issues. If, for example, a non-unionised company is carrying out a restructuring which results in staff layoffs, the Federation is more likely to make the company a target for unionisation if generous payments are not made to departing staff. One of the worst outcomes for a foreign company during an ACFTU unionisation drive would be badly-publicised compliance issues or disgruntled employees. Businesses should, therefore, emphasise good local relationships and be as pragmatic as possible.

As Walsh says in summary: “Don't do anything in a hurry.”