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China Brief: Labor Contract Law Strengthens Chinese Union

This article by Han Dongfang first appeared in the Jamestown Foundation's China Brief. Copyright remains with the original publisher.

By Han Dongfang
On January 1, 2008, the Chinese government added another major component, the Labor Contract Law, to its already substantial canon of labor legislation. Since the promulgation of the Trade Union Law in 1992 and Labor Law in 1994, the government has regularly introduced new legislation and regulations designed to protect the rights and interests of workers, and from a legal standpoint, the protection of workers’ rights in China is systematically improving. However, while the interests of workers are increasingly enshrined in law, their rights on the factory floor remain precarious and are routinely ignored or violated by management. The cause of this apparent contradiction is not hard to find; put simply, workers in China still do not have the right to collective bargaining.

There is a labor union in China, the All China Federation of Trade Unions (ACFTU), which could potentially represent workers in collective bargaining with management. The ACFTU, however, is first and foremost a servant of the Chinese Communist Party (CCP) and therefore an instrument of the party-state—representing labor and protecting workers’ rights is secondary. ACFTU Chairman Wang Zhaoguo freely admitted in a speech in December 2006 that China’s unions “cannot blindly copy union models in Western countries” (Gongren Ribao, December 26, 2006). The ACFTU sees itself as a “bridge” between labor and management, not merely as an advocate for labor. As such, it does not actively defend workers’ interests in negotiations with management but seeks to facilitate a compromise between the two sides.

The ACFTU’s approach may seem attractive on paper, but in reality it has categorically failed to protect workers’ rights and interests. Take the minimum wage for example. Because there is no freedom of association or genuine collective bargaining in China, employers can get away with paying the minimum wage to all employees regardless of the profits they make or the productivity of the workers. Indeed, in the vast majority of enterprises across China today the minimum wage mandated by law has become the basic flat wage paid by employers by default. In other words, the minimum wage regulations designed to protect workers’ interests have become the legal foundation of management’s exploitation of labor.

China’s Trade Union Law mandates the ACFTU to represent workers’ interests in wage negotiations. Since, however, in the majority of enterprises, ACFTU branch union officials are appointed by or in some other way beholden to management, they would not dare raise an effective challenge to management on behalf of the employees. There is a mechanism—the “collective consultation and collective contracts system”—developed by the government and ACFTU over the last two decades, through which workers’ demands for higher wages can in theory be discussed. Yet because there is no genuine collective bargaining between labor and management, most of the collective contracts that the ACFTU has announced do not represent the workers but are rather the results of a “collective contracts production line.” These mass-produced contracts are typically copied from the provisions of relevant labor laws and regulations and are of little or no help to workers on the factory floor.

There are also strict rules and regulations covering work hours and overtime. However, because of the excessively low wages paid by employers, workers very often cannot earn a living wage by working eight hours a day. Because they cannot bargain collectively, individual employees will certainly not dare to ask for a pay rise on their own. Their only option is to ask to work longer hours. In the majority of incidents where employees work long hours, it is because they requested it, and as such, the labor bureaus—who are supposed to monitor breaches of work hour regulations—are powerless to intervene.

The Labor Contract Law has numerous provisions designed to protect workers’ rights and enhance job security. One key provision is that workers who have been employed at the same enterprise for ten years or more will be legally entitled to an “unlimited” labor contract, which should guarantee them adequate financial compensation should they be made redundant. Many employers have panicked on learning of this provision and urged, bribed or coerced long-serving employees to take early retirement or voluntary redundancy. The most famous example of this tactic was the move by Huawei—the former state-owned enterprise and now privately owned telecommunications conglomerate based in Shenzhen—to persuade about 7,000 employees who had been with the company for more than eight years to resign. In return, the employees received a lump sum of one month’s salary for every year of employment, plus one additional month’s salary, and were allowed to rejoin the company on a short-term contract (China.org, November 2).

Huawei’s reaction to the new legislation was rational in a system where laws are largely theoretical and all the power inside enterprises resides with management. China’s numerous labor laws are like swords suspended above the heads of factory owners and managers. They can all see the swords but none of them can really be sure what will happen if one falls. Huawei’s management could not be sure if the Labor Contract Law would hurt them or not, and so they did everything in their power to minimize the potential damage. Management had the power to persuade long serving employees to give up their contracts, so it did. Yet again, a new law—intended to protect workers—instead led to the violation of workers’ rights.

The Huawei case begs the question: do the workers really want long-term contracts or is this just something that legislators and concerned academics think they want or should have? In the Huawei case, if the workers had the right to free collective bargaining, this situation would not have arisen. Even without a new law requiring employers to give employees unlimited contracts, workers and management could have sat down together as equal partners, raised their concerns, made their demands and ironed out their differences at the bargaining table. If the employees wanted unlimited contracts, their representatives would be empowered to negotiate a deal with management on the issue. If workers did not consider unlimited contracts to be of great importance, they would not place it on the negotiating table.

With a collective bargaining system in place, workers would no longer walk into the “dead end” of rights protection that exists at present. Workers and employers would in addition both be able to improve their “fire prevention” work. An effective collective bargaining system would lessen the risk of labor disputes igniting into conflagration, and allow both labor and management to focus on prevention, rather than trying to put the blaze out after it had already erupted and most likely caused irreparable damage.

China Labour Bulletin has closely monitored the workers’ movement in China over the last decade, and has repeatedly noticed labor disputes that could have been prevented or resolved through a system of collective bargaining escalate into strikes, public protests and demonstrations simply because the workers had no other outlet. Over the last few years, disputes over the non-payment of wages, low wages, forced overtime for little or no additional pay, unsafe working conditions and the lack of benefits, have all developed into mass protests. As a result, what should have been a simple matter between labor and management became a complex and very costly public matter. Had an effective collective bargaining system been in place, the dispute would most likely have been resolved within the enterprise and the local government could have avoided expending its time and resources on trying to bring about a peaceful end to a dispute that had already gotten out of hand.

In terms of developing a collective bargaining system, the new Labor Contract Law comes at a good time and occupies a favorable position in China’s legislative landscape. It is a propitious time because both those in the central government in Beijing and ordinary workers across China now agree that—after three decades of accumulated tension between labor and management—something has to be done. If the situation continues in which management routinely exploits labor and violates workers’ rights with impunity, workers, as in the past, will increasingly resort to protest and even violence in order to seek redress, and this will benefit no one. The law occupies a good position because it effectively builds on China’s existing foundation of labor legislation and regulation. In particular, the Labor Contract Law stipulates that it is the employer’s responsibility to sign a collective labor contract with the employees’ representative. If the ACFTU and its branch unions can grasp the opportunity presented by the law, it is probable that after a couple of years of finding their way and gaining experience in negotiations with management, the creation of a genuine and effective collective bargaining system in China will no longer be a problem for the unions.

The big push for collective bargaining should come from grass-roots unions. Right now, the vast majority of the so-called “unions” at the enterprise level are controlled by management—they do not speak for the workers nor do they really listen to the higher-level unions that are supposed to supervise them. If the workers, however, can democratically elect their own union leaders, and those leaders can effectively represent the employees in negotiations with management, the union will not only gain credibility and the trust of the workers, it will be much more willing to listen to and benefit from the expertise and skills offered by the higher-level unions in terms of organizing and negotiating with management.

Thus, by developing collective bargaining at the grass roots level, the enterprise-level unions will both be transformed into a representative labor organization and once again become a functioning part of the ACFTU. In short, therefore, a collective bargaining system can, at the fundamental level, both protect workers’ rights and provide the ACFTU with an excellent opportunity to rebuild itself as a genuinely representative trade union.