Unionization Drive Leaves Room for Compromise

China plans to unionize all foreign-invested enterprises by 2010, but companies can work with employees to achieve a relatively positive outcome

by Andreas Lauffs and Jonathan Isaacs

The All-China Federation of Trade Unions (ACFTU) last June formally announced a new phase of its unionization campaign that targets the Global Fortune 500, the top public companies in terms of global revenue. All union organizations in China must belong to and work under the leadership of ACFTU, which is controlled by the Chinese Communist Party (CCP).

ACFTU’s stated goal was to unionize at least 80 percent of Global Fortune 500 companies’ China subsidiaries and branch offices by the end of September 2008. At the start of this new phase of the unionization campaign, ACFTU claimed that the unionization rate at Global Fortune 500 offices in China was less than 50 percent. (ACFTU did not disclose the exact figure.) In early October, an ACFTU official in charge of union organization, Wang Ying, announced that 82 percent of Global Fortune 500 company offices in the PRC had been unionized. She also announced that ACFTU’s ultimate goal was to unionize 100 percent of all foreign-invested enterprises (not just Global Fortune 500 subsidiaries) by the end of 2009.

Perhaps recognizing that many foreign companies have complex corporate structures in China, ACFTU has also announced a new policy of allowing subsidiaries with multiple branch offices to “centralize” their union structure. (Previously, ACFTU required each branch office of a company to have its own union.) Though ACFTU still insists that each branch office have some type of union representation, it now allows companies to have a union in their head office to supervise and lead the union representatives in each of the branch offices.

Now what?

Though companies in China cannot prevent ACFTU officials from organizing employees or employees from organizing or joining a union themselves, companies are not legally required to establish unions. ACFTU is controlled by the CCP but is not a government ministry with direct administrative enforcement powers. Thus, it has been using a number of strategies to pressure companies to unionize, such as

• Threatening to expose companies in the media as being noncompliant with PRC law or as refusing to allow its employees to unionize. Companies that have noncompliant employment practices may be more vulnerable in this respect, though even companies that comply with the letter of the law have been named by ACFTU in the media as being noncompliant. For example, the PRC state-run media in 2007 published articles in which ACFTU accused McDonald’s Corp. and Yum Brands Inc.’s Kentucky Fried Chicken and Pizza Hut chain restaurants of violating PRC labor laws when, in fact, the labor bureaus never confirmed violations.
• Trying to convince local government bureaus with legal enforcement power over companies to exert pressure on companies in their jurisdiction. For example, the approval authorities in Shanghai refused to allow Wal-Mart to establish any stores in the city unless it agreed to establish unions in its stores, according to the 21st Century Business Herald, a Chinese business publication.
• Directly approaching company employees and trying to convince them to join ACFTU and organize a union in their company. If ACFTU decides to approach employees directly, the company cannot obstruct such efforts. This was, in fact, the method used to establish the first union in a Wal-Mart store in July 2006 in Fujian.

In addition, there is always the risk that some disgruntled employees may decide on their own to approach ACFTU about establishing a union. As employees in China become increasingly aware of their rights and less willing to tolerate perceived mistreatment, there is a greater risk that employees who harbor grievances against their companies will try to use unions to push their views on the company.

If a company decides to set up a union—what next?

Most companies would prefer not to have a union established in their PRC subsidiaries, but until mid-October of 2008 unionization appeared to be unavoidable for many. Since then, probably in response to the global economic crisis, ACFTU has significantly slowed its campaign. Still, the worst case scenario for a company would be if a union led by hostile employees was established without any company influence; in some cases, such employees may even refuse to listen to upper-level ACFTU branches—or the government—in their dealings with the company. Several FIEs in this situation have experienced major disruptions to their operations.

Though unions are given significant powers under the law and could seriously disrupt a company’s operations, companies can still try to influence the process of union establishment and improve the odds of the company management and the union developing a friendly and cooperative relationship.

The exact procedures for establishing a company union are not described in the PRC Labor Union Law or in any other law or regulation. ACFTU has established its own general guidelines for how a company’s union should be established, with detailed procedures set by local ACFTU branches across China. Though some details in the procedures may vary from city to city, the general process is as follows:

• The first few employees to join ACFTU form an initial “preparatory team” (choujian xiaozu or choubei xiaozu) to lead the union establishment process.
• This preparatory team tries to recruit as many employees in the company as possible to join the union.
• The employees who have signed up to join the union elect the union committee members, including union chair and vice chair.
• The election results and application for establishment are submitted for approval to the “upper-level” branch of ACFTU (the district-level or street-level ACFTU branch with supervisory authority over unions established in that district or neighborhood).

In various ways, the union establishment process allows companies to try to influence who is on the union committee, the leadership body that ultimately runs the company union’s daily affairs and represents the company union (and ultimately all employees) in its dealings with the company. For example, if a company decides to cooperate in the establishment of a union, it can choose who will make up the initial preparatory team. Local ACFTU branches have generally been quite flexible in accepting a company’s choices. Through the preparatory team, the company can create the candidate list for the union committee. In addition, the preparatory team can decide whom to recruit as the first company union members prior to the election of the union committee, allowing the company to determine the voting body that will elect the union committee.

To ensure that the union committee represents employees’ rights and interests, the national ACFTU recently issued regulations that restrict eligibility for the union committee and chair. Under these regulations, top company administrators (senior management, for example) and their relatives may not serve on the union committee. In addition, foreign nationals and human resources directors may not serve as union chair.

In practice, enforcement of these restrictions has been inconsistent, and local ACFTU branches have much discretion in determining how to interpret them. For example, some local ACFTU branches allow management to serve on the union committee, excluding only the company’s general manager and deputy general manager.

In addition, though the Labor Union Law requires companies to contribute 2 percent of their total payroll to the company union as union fees, some local ACFTU branches have offered to give companies a “discount” on union fees if they cooperate on union establishment. This raises the question of whether the PRC government really views unions as organizations meant to robustly defend employees’ rights and interests or primarily as mechanisms to ensure stability in labor relations as part of China’s effort to create a “harmonious society.” Contradictory public statements on this issue result in confusion for companies about how to respond to the unionization campaign.

For now, local ACFTU branches are mainly concerned about fulfilling their quotas for establishing company unions and are often willing to compromise on the issues of concern for companies. In this respect, they resemble government bureaucrats trying to meet minimum target goals set at the national level rather than union organizers committed to representing employees’ best interests. There are, however, some signs that company unions may be encouraged to play a more aggressive role in the future.

What does the future hold?

Unfortunately, there is no crystal ball for predicting how company unions will act in the future. Moreover, the PRC government is not known for transparency and openness, particularly in its long-term strategic goals, and different parts of the government may have different or contradictory visions of China’s future direction in general and of PRC labor relations in particular.

Though stability is certainly an overriding goal of the government, company unions will not always be docile and cooperative with management. At some point, the government may decide that it would be beneficial for social stability if unions were to start playing a more robust role in representing employees’ interests. For example, ACFTU has openly proclaimed that once the unionization drive is over, the next step will be to promote collective bargaining in companies, with a particular stress on collective wage bargaining. This makes sense from the PRC government’s perspective in light of rising living costs and the growing disparity in wealth between rich and poor. The conclusion of collective bargaining agreements in many Wal-Mart stores has been consistently heralded in the state-controlled media as a sign of things to come. The main focus of the Wal-Mart store agreements has been to establish minimum wage levels for all employees and to guarantee a certain percentage annual wage increase. Agreements were negotiated on a store-by-store basis for the first few stores, but Wal-Mart China later negotiated collective bargaining agreements under an umbrella agreement.

In addition, many local governments have recently publicized non-binding general policy goals to promote collective wage bargaining. National regulations require companies to engage in collective bargaining if requested to do so by a union or by an employee representative elected by the employees in a company that has no union. (In practice, collective bargaining almost never occurs if the company has no union.) An exception is made if the company has a “justifiable reason” for not engaging in collective bargaining, though the law does not define “justifiable reason.” The Tianjin CCP and Municipal Government have gone a step further: In a September 2008 regulation, they appear to impose minimum and maximum wage increases on all companies.

Companies have 20 days to respond to the union or employee representative’s request for bargaining, according to Article 32 of the Collective Contract Provisions of May 2004. Most provinces and major cities have their own corresponding collective bargaining regulations, however, many of which require companies to respond to the request for bargaining within a shorter period of time. In practice, the local regulations usually take precedence if there is a conflict.

The Shenzhen implementing regulations for the national Labor Union Law, the most publicized set of local regulations dealing with union issues and collective bargaining, were recently amended and took effect August 1, 2008. The amendments seem to reflect the growing influence of, or at least greater governmental support for, ACFTU policy. For example, though the national regulation requires a union committee to be established when the company union has 25 or more members, the Shenzhen regulations set a lower threshold of 25 employees, regardless of whether they are union members. The Shenzhen regulations also put into law ACFTU’s policy of restricting eligibility for the union chair or union committee members.

Unlike the national Labor Union Law, the Shenzhen regulations define what exactly is meant by “obstructing” union establishment: not only coercive or retaliatory action taken against employees but also refusal of the company’s senior management to discuss union establishment with an upper-level ACFTU branch.

The Shenzhen regulations diverge from the national law on the union’s role during a work stoppage. The national law requires unions to play a mediating role and to encourage employees to return to work as soon as possible, where-as the Shenzhen regulations contain no such provisions and simply state that the union represents the employees in bargaining with the company if a work stoppage occurs.

The Shenzhen regulations seem to reflect a better understanding of how unions work in other countries by using a translation of the term “collective bargaining” (jiti tanpan) that is more accurate than the term used in the national regulations, jiti xieshang, which is better translated as “collective consultations.” “Collective consultation” connotes the idea of “just talking,” whereas “collective bargaining” connotes a give-and-take negotiation between two parties, union and management, that may have opposing views.

In short, though the central government’s overarching goal in labor relations is stability, it also seems to realize that unions will need to be a genuine force for employee protection to help achieve this goal. The government, however, shows no sign that it wishes to allow ACFTU or company unions to act as independent unions do in other countries. The interesting development to watch, therefore, is the extent to which ACFTU and the government allow company unions to truly represent workers’ rights and interests.

Andreas Lauffs is the head of Baker & McKenzie’s Employment Law Group for Greater China. Jonathan Isaacs is an associate in that group.