Labor: Employers in China must be prepared to engage in collective bargaining

China’s only official union, the ACFTU, has undergone a campaign for the past several years to get foreign-invested companies to unionize.

Work stoppages and strikes in China are becoming more frequent as employees use industrial action to demand negotiations with management over a variety of issues. In many instances, industrial action is sparked by demands related to compensation. However, employees are increasingly using industrial action as leverage to negotiate a wider range of issues. For example, following the recent announcement that India’s Apollo Tyres would acquire Cooper Tire & Rubber Company, the employees at Cooper’s subsidiary in China went on strike. The action was largely due to the fact that they didn’t want to work for an Indian company.

In an attempt to curtail employee unrest, China’s only official union, the All-China Federation of Trade Unions (ACFTU), has undergone a campaign for the past several years to get foreign-invested companies to unionize. Local ACFTU officials have been visiting companies within their jurisdiction to put pressure on management to set up unions. If a company is uncooperative or appears to be taking too long to get a union established, the ACFTU will often circumvent management and reach out to the company’s employees to encourage them to unionize. In some locations, the tax authorities collect and hold labor union dues (2 percent of payroll) in escrow until companies establish a union.

However, getting a union in place does not always provide the anticipated mechanism for addressing employee concerns. In many cases, labor unions are closely aligned with a company’s management. In 2010, employees at Honda’s plants in Southern China fought with union leaders during a strike, as the employees did not think their leaders would act in their best interests. More recently, complaints of supervisor abuse submitted to the enterprise union by employees at Foxconn were ignored, resulting in the employees having to strike to get their grievances heard. Concerned that unions are failing in their roles to represent employee interests and provide a dialogue between employees and management, there appears to be a shift in focus to an emphasis on collective bargaining and getting collective contracts in place.

Industrial parks in Suzhou and Tianjin, for example, are putting pressure on companies within the parks to get collective contracts in place, whether or not they have unions. This initiative is a result of the parks trying to become model “Harmonious Industrial Parks.” The Labor Supervision Bureau in one of the parks recently indicated to companies within the park that it will take special measures against companies that do not get a collective contract in place by the end of August. The measures include not approving applications for flexible working hours, not approving annual inspections and imposing fines against companies that have employees working over the 36 hour per month limitation on overtime. The flexible working hour system allows employers to designate certain employees as exempt from overtime requirements, but this requires the prior approval of the labor authority. The labor authority is one of several authorities involved in the annual inspection process. If they withhold their approval, this could mean that the annual inspection process would not be able to be completed, which could result in the termination of a company’s business license. This last point is interesting as it is common for manufacturers to exceed 36 hours in a month given that this limitation is quite low when compared to similar limitations in many other jurisdictions, and employees typically want to work the extra hours. The labor authority in this instance appears to be saying that if a company doesn’t get a collective contract in place, they will no longer turn a blind eye to this practice, which would likely create significant issues for companies.

Even without pressure from local authorities, companies must be prepared to resolve labor disputes through collective bargaining. Many companies have found themselves in situations where relatively minor, isolated incidents escalated to situations where employees went on strike. Strikes often prompt swift intervention from local governments worried about threats to “social harmony,” and they will get directly involved in mediating any dispute. This mediation may or may not work out in the employer’s favor.  If employers have a mechanism in place to address minor issues before they escalate, they can engage in discussions with employees to minimize disruptions to operations and limit the effects of bad public relations.

Chinese workers are becoming increasingly vocal in protecting their rights and are quick to organize employee representatives to negotiate on their collective behalf. Additionally, authorities are concerned with maintaining social harmony and are putting pressure on companies to get collective contracts in place to proactively address employee concerns. Given the current state of events, employers in China would be wise to plan for how they will handle pressure from employees or the authorities to engage in collective bargaining or to agree to implement a collective contract.

Contributing Author

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Kevin Jones

Kevin L. Jones is a partner with Faegre Baker Daniels. Based in Shanghai, he chairs the firm’s labor and employment practice in China. He can...

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