How to prepare for collective bargaining in Guangdong

The Enterprise Collective Contract Regulations (Regulations), adopted by the Eleventh Session of the Standing Committee of the Twelfth People's Congress of Guangdong Province on September 25 2014 became effective on January 1 2015. The Regulations increase the labour union's involvement in the collective negotiation process, with the aim of providing employees with an effective process for addressing employment related issues with employers. The general framework at the national level has failed to provide such a process. Without an effective process, employees have taken matters into their own hands through industrial action. However, without informed guidance, employees often make demands which have no legal basis or that are unreasonable. This creates an environment that makes it difficult for the parties to resolve issues. Additionally, given the lack of an effective formal mechanism for collective bargaining and the success of employees in obtaining concessions through industrial action, conditions were created for an ever increasing cycle of industrial action. The Regulations are meant to address these structural deficiencies in the collective bargaining process in Guangdong Province.

Building on the bargaining framework

The national level Collective Contracts Provisions (集体合同规定) (Provisions), effective May 1 2004, contain a general requirement that if either employees or a company makes a written request for a collective contract, the other party should not refuse to engage in collective negotiations without a justified reason. However, in practice, this vague legal guideline has not been sufficient to get parties to effectively engage in collective negotiations when issues arose, often resulting in labour unrest, particularly in Guangdong Province. The Ministry of Human Resources and Social Security and the All-China Federation of Trade Unions (ACFTU) jointly published the Notice on the Pushing Forward of Collective Bargaining and the Implementation of the Rainbow Plan (推进工资协商及执行彩虹计划的通知) (Rainbow Plan) on May 5 2010. The Rainbow Plan requires labour unions to focus on collective wage negotiations in the private sector and labour intensive industries, and put in place collective contracts regarding remuneration-related issues. The Regulations are a natural progression at the Guangdong provincial level to implement the principles of the Rainbow Plan, and provide a more detailed legal framework for orderly collective bargaining by employees, with the intention to provide a channel for employees to raise and resolve issues without having to resort to industrial action.

The rise of the union

The Guangdong Province Federation of Trade Unions drafted the Regulations and they have clearly given themselves an important seat in the collective negotiation process. The Regulations indicate that if employees intend to initiate collective bargaining with their employer, they should first direct the request to the employer's labour union, which will in turn decide whether to raise the request with the employer. If over half of the employees or members of an employee representative congress make the request, then the labour union is obliged to raise the request with the employer. If the employer does not have a labour union, the employees should first direct the request to the local trade union, in which case the same parameters apply. Additionally, the Regulations state that the chief representative for the employees in these negotiations should be the leader of the company's labour union or, if there is no labour union, an employee representative elected by way of elections organised by the local ACFTU. It is obvious that there has been some pressure on the Guangdong provincial level ACFTU to take a more active role.

Once the labour union, either at the employer level or local level, makes the request for collective bargaining, the employer has 30 days to respond to each point raised in the request and begin collective bargaining with the employees. Collective bargaining negotiations should be concluded within three months from the date of the notice, with a maximum extension of 60 days permitted if both parties mutually agree to the extension. The Provisions do not contain any specific requirements for concluding collective negotiations once they have begun, so this new provincial level requirement is significant. It is clearly aimed at preventing companies from delaying collective negotiations until they lose momentum and are abandoned.

Preventing labour disputes

The Regulations indicate a variety of issues that may be collectively negotiated, but they place special emphasis on remuneration-related issues, which have been the most common source of disputes. In particular, the Regulations indicate that when discussing wage issues, the following should be taken into consideration:

• labour productivity and economic performance of the employer;
• total payroll and employee's average wage level in the company in the preceding year;
• wage guidelines for companies, issued by labour authorities;
• consumer price index information issued by local authorities; and
• local minimum wage, regional and industrial average wage increase levels.

In 2010, employees at several subsidiaries of foreign companies in Guangdong Province engaged in industrial action which saw them successfully obtain concessions from their employers for higher wages. At Foxconn's facility in Shenzhen, 18 employees attempted suicide in protest over working conditions, resulting in 14 deaths. As a result, Foxconn agreed to increase the salaries of most of its employees in China. In the summer of the same year, employees at a Honda subsidiary in Guangdong went on strike demanding higher wages, with Honda eventually agreeing to increase wages. Around the same time, employees at a Toyota affiliated supplier went on strike, and again were able to negotiate an increase in compensation from their employer. According to the Guangzhou Federation of Trade Unions, more than 100 strikes occurred in 2010 alone. Most of the strikes were settled with increases in remuneration, so industrial action became an established, and effective, form of collective negotiation. With social media and mass texting, employees learn quickly about the industrial action employees take at other companies and what concessions they are able to obtain through such action. Given the government's heavy emphasis on social harmony and stability, this development caused great concern.

As most of the industrial action was over remuneration related issues, it is not surprising that the Regulations give particular focus to the negotiation of these issues, providing guidance as to what should be considered to give collectively agreed contractual provisions actual meaning. In the past, many companies have been able to negotiate collective contracts with vaguely worded provisions regarding remuneration, or which simply restated existing company policy. Such contracts fail to provide the intended mechanism for resolving employee grievances. The Regulations aim to provide guidance and substance to the collective negotiation process, inserting the labour union firmly in the process in an attempt to ensure employees get the most out of negotiations.

A key reason for passing the Regulations is to provide a mechanism for effective communication between employees and employers to avoid employees taking industrial action, which is disruptive to the operations of employers and to society as a whole. The Regulations specifically identify the type of activities employees are prohibited from engaging in during the collective bargaining process. Employees are prohibited from refusing to work, persuading other employees to stop work or disrupting the operations of the employer by obstructing employees or materials from entering or exiting the employer's premises or destroying company property.

A shifting paradigm

Labour unions have historically had limited power in China. They were better known for organising social activities for employees rather than protecting their rights or advocating on their behalf. There have been several reports of employees actually physically fighting with union representatives during the course of industrial action because they viewed the union as being too management friendly. The PRC Employment Contract Law, effective January 1 2008, and the PRC Labour Union Law, effective October 27 2001, contain requirements for labour unions to be notified of certain actions taken by companies and set out specific participation rights. In practice, however, this has generally not translated into meaningful representation of employee interests.

In Guangdong Province there seems to be a slow shift in this dynamic in response to the labour problems of the past several years. During the wave of labour unrest in 2010, the chairman of the Guangzhou Federation of Trade Unions said the union's job was to represent employee interests and that the government, not the union, should act as a mediator. This was unusual as labour unions had historically often tried to mediate labour disputes first and protect employee interests second. The ACFTU has a delicate balancing act. It is tasked with representing employee interests, but simultaneously the Labour Union Law requires it to assist the government with maintaining social harmony. Now in Guangdong Province, it appears that the ACFTU is taking a stronger role in the former, in order to maintain the latter. The fear of the government that giving too much power to unions would allow an effective mechanism for employee organisation that could threaten social stability has not come to pass in Guangdong, particularly in foreign invested enterprises where the government has much less control on internal polices and employee actions. It has had the opposite effect with employees feeling that they have had no choice but to circumvent the labour union and take matters into their own hands through industrial action. The Regulations are a measure aimed at correcting what had evolved as a common practice for getting labour grievances heard and resolved in Guangdong.

Tougher negotiations

This means that employers will face a much more rigorous collective negotiation process. Labour union involvement from the outset will mean employers will face more organised and well-informed employees. Collective contracts that contain vague provisions not obligating employers to any specific annual wage increases or other remuneration related concessions will be harder to negotiate. Additionally, the specific timeline for conducting and concluding collective negotiations means that companies will not be able to delay the process once it has begun. On a positive note, if employees feel that the Regulations give them a real process for resolving labour issues, then industrial action is less likely to be taken. It will take some time to see how the Regulations are implemented and embraced (or not) by employees.


Kevin Jones, Faegre Baker Daniels, Shanghai


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