Employment & Labor


Worker unionization has dramatically increased in China since the beginning of 2007. Chinese domestic companies and foreign-invested companies operating in China are both feeling the effects, but in different ways.

Some Chinese firms turn to union mediators to help deal with a growing number of worker strikes, while many foreign-invested companies are being pressed by the Chinese government to open their doors to government unions.

China has had a trade union system in place for some time. The PRC Trade Union Law6,originally promulgated in 1992 and amended in 2001, recognises a hierarchy of unions—"higher level" government supported unions and "lower level" company unions. Higher level unions are government supported oversight bodies and consist of the ACFTU and its local provincial, city and district level offices. Higher level unions have the power to issue directives to, and in respect of, the operation of lower level company based unions. In general, industry based unions are not recognised, although some regulations do allow for local industry unions in transitory industries, such as construction and entertainment services.

The Trade Union Law states that labour unions are to be organised by employees voluntarily and that enterprises with more than 25 members should establish a basic labour union. However, the Trade Union Law is silent on who should be directly responsible for the establishment of the union and, until recently, there was no real penalty or incentive for private companies, including foreign invested enterprises (FIEs) such as joint ventures and wholly foreign owned enterprises, to encourage their employees to form unions. Employees too, who were used to the steady increase in wages and improvement in employment conditions that flowed from continued economic growth, had limited need to seek union protection. Where they did, the laws relating to employment protection lacked teeth. As a result of these factors, the number of FIEs with active unions in China has historically been small.

What Should a Foreign Invested Company Do?

Over the past few years, compulsory unionization of foreign-invested companies in China has often occurred only after the media released exposés detailing labor law violations, salary disputes, and substandard working conditions which can lead to improvements all around.

There is no doubt that Trade Union Law covers both foreign invested enterprises in China and domestic companies, nonprofit organizations and government agencies.

According to Article 10 of Trade Union Law, trade unions should be set up in companies which have more than 25 employees. In companies which have less than 25 employees, a representative may be elected to work with employees on various labor issues. The Law also makes it clear that unionized companies with 200 to 500 employees are required to have at least one full-time union official, and one additional official for every 500 employees.

There are also similar provisions which can be found in laws especially stipulated for foreign invested enterprises, which are Article 13 of Law of the People’s Republic of China on Foreign-funded Enterprises[i], Article 7 of Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures[ii] and Article 14 of Law of the People's Republic of China on Chinese-Foreign Contractual Joint Ventures[iii].

However, although the Trade Union Law and relevant laws for foreign invested enterprises provide so, the question is still not clear as many wondered whether all companies with 25 or more employees must have a trade union, or the trade union should be established only upon request of ACFTU as Article 2 of Trade Union Law only says “Trade unions are mass organizations formed by the working classes of their own free will”.

But looking back to Wal-Mart case, in which the first trade union was established in China, it can be concluded that it is wise for foreign invested enterprises to cooperate with Chinese authorities to establish a trade union as quickly as possible.

How to Establish and Run a Trade Union

Before 2008, many companies were accustomed to disregarding even basic Chinese labor laws without facing significant consequences. Since China’s new Labor Contract Law, there has been more enforcement of labor laws as a whole with companies being advised to bring themselves into compliance.

According to Article 9 of Trade Union Law, the principle of establishment of trade union is democratic centralism. Trade union committees at all levels shall be elected by their general assembly or representative assembly. The close relatives of the major principals of an enterprise may not be elected as the members of the basic-level trade union committee of that enterprise. In addition, the establishment of a basic-level trade union, local all-level federation of trade unions or a national or local specific industry trade union must be reported to the trade union organization of the superior level for approval.

According to Article 7 of Provisional Regulation of Election in Basic Level of Trade Union, which was formulated in 1992, the scale of a trade union committee in basic level is based on the numbers of unionists. There will be only one chairman in basic level of trade union if the unionists are less than 25, 3 to 7 committee members if the unionists are less than 200, 7 to 15 committee members if the unionists are between 201 to 1000, 15 to 21 committee members if the unionists are between 1001 to 5000, 21 to 39 committee members if the unionists are between 5001 to 10000, and not more than 37 committee members if the unionists are more than 10000.

For the employer, it is illegal to interfere the management of trade union, to encroach the property of trade union and to cancel or consolidate the trade union organizations.

In addition, monthly allocations of 2% of the total wages of all its employees shall be paid by the enterprises to the trade union (40% handed to the trade union of superior level and 60% remain in the basic level trade union of enterprises) as funds and the aforesaid trade union funds shall be used primarily to serve the employees and for the trade union activities. The funds allocated by the enterprise shall be deducted before tax collection.

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