When foreign-owned enterprises establish trade unions in China

Despite constant efforts at promotion by local authorities, foreign enterprises continue to encounter challenges and obstacles when establishing trade unions in China

According to the Trade Union Law and Enterprise Union Work Regulations, Chinese trade unions are mass organisations composed of voluntary workers under the party’s leadership.

More than simple negotiators and defenders of workers’ rights and interests, Chinese trade unions also aim to promote the sustainable operation of enterprises, and emphasise the mutual growth of both employees and employers. For corporate managers, maintaining good communications and building partnerships with trade unions can greatly contribute to good employee relations.

CONCERNS FROM OVERSEAS

Pressure from senior leadership. Enterprises may receive a risk notification letter from the district trade union. Depending on the enforcement of policies in different regions, relevant departments may also urge the payment of fees for establishing a trade union, and even directly deduct them from the company’s bank account. This can raise concerns among foreign companies about compliance in operations.

Misled by confrontations organised by foreign unions. Foreign companies’ senior management may be concerned about the impact of non-violent confrontation between foreign trade unions and enterprises, such as strikes and negotiations, on their operations. They may worry that the establishment of trade unions in China could bring uncertainty to their business.

Balance of interests and needs. Local management faces the challenge of balancing the stability of existing management, compliance requirements and employee care at local factories, while also maintaining good relationships with local governments and addressing concerns from their foreign headquarters.

Requirement for extensive practical experience and support. The manager needs to have a comprehensive understanding of the legal requirements, policy trends and government promotion efforts related to the establishment of trade unions. They also need to provide thorough and effective analysis and recommendations to the overseas decision-making team to help them make informed decisions.

LEGAL BASIS

China’s Constitution, Trade Union Law, Foreign Investment Law, Constitution of the All-China Federation of Trade Unions (ACFTU), and several local trade union regulations all require enterprises to establish trade unions. These requirements embody the following principles: citizens have the freedom to associate, and have the right to participate in and organise trade unions in accordance with the law; relevant organisations “should” establish trade unions in accordance with the law and provide the necessary conditions for their activities.

In terms of daily management, enterprises should consult trade unions on certain major issues. When formulating, amending or deciding on rules, regulations or major issues that involve core interests of workers such as layoffs, the statutory procedure of “equal consultation with trade unions or worker representatives” should be followed. If there is no trade union, then “discussion with all employees” is required. This, however, can make the process of soliciting opinions and communication more complex, and may even be regarded as not following the equal consultation procedure.

According to articles 41 and 43 of the Labor Contract Law, when an enterprise terminates an employment contract or lays off employees, it should inform the trade union, who in turn should exercise its supervisory duties. However, under current laws, administrative regulations and judicial interpretations, clear provisions on how enterprises without trade unions should fulfill the notification procedure are still absent. The lack of procedures may lead to different arbitration/adjudication results, increasing uncertainties of compliance management.

IMPACT ON MANAGEMENT

Newly added costs must be taken into account. Enterprises without trade unions may also be required to pay for their establishment. Regulations for trade union establishment funds are different in each region.

After the establishment of a trade union, enterprises need to contribute 2% of their total employee salary as pre-tax expenses for the trade union fund, which will be collected by the tax authorities on behalf of the trade union. The higher the total salary of employees is, the higher the amount of union dues. Although the higher-level trade union organisation will return about 60-70% of union dues to the enterprise trade union for its daily operation, the fixed expenditure remains an addition to the enterprise’s costs.

In addition, setting up full-time or part-time trade union chairs, establishing a trade union committee and carrying out trade union activities will all definitely increase the employment and management costs of the enterprise.

Public risks without trade unions. In practice, the level of enforcement in promoting the establishment of trade unions varies between regions. There is no clear state provision on penalties for enterprises without trade unions, but in the Special Action Plan for Promoting the Establishment of Trade Unions in Enterprises with Over 100 Employees, issued by the ACFTU in 2019, it was pointed out that those who obstruct workers from establishing trade unions can be exposed through the media or government credit information platforms until legal liability is pursued.

DO’S AND DON’TS

Due to the supervisory function of trade unions and their stance on protecting workers’ rights, enterprises must investigate historical debts and management loopholes before establishing trade unions. If there are too many historical debts or disputes, enterprises should be more prudent when considering the establishment of a trade union.

Establishing a trade union requires the following four steps: setting up a preparatory group; making establishment plans; developing the operational process; and making a contingency plan for the unexpected.

The most critical step is how to democratically elect the best person as trade union chair. Most enterprises hope to quickly select the trade union chair and committee without fuss, while also fulfilling the requirements for democratic elections.

In terms of process control, the manager needs to conduct research, select candidates for the trade union chair and committee, make the rules to govern the proceedings, and standardise the establishment process. It is worth noting that if the government does not collect establishment funds, enterprises can maintain the status quo while ensuring legal management.

Alex Xing is a partner at Labour Consulting (LABOURS). He can be contacted by phone at +86 10 8225 5618 and by email at xingguang@laibei.com