Beyond China's New Labor Contract Law

China’s new labor code went into effect on January 1. It could have important consequences for workers in China and in the rest of the world.

The Financial Times on January 2 reports that,

Employers in China fear that a new labour contract law that took effect on Tuesday will intensify growing pressures on manufacturing costs by enhancing the bargaining power of workers.

We estimate that, added together, labour costs [in mainland China] will be close to 40 per cent higher for this year [2008],” said Willy Lin, Hong Kong-based managing director of Milo’s Knitwear (International) Group.

Mr Lin says the new labour contract law, which will make it harder to dismiss workers, could increase costs by about 8 per cent this year, with the rest of the increase caused by higher minimum wages, social security payments and the renminbi’s steady appreciation against the US dollar.

The new law was designed to address some of the rampant abuses in Chinese industry including long hours, dangerous working conditions, and employers that cheat workers out of wages or delay payments.  But like all laws everywhere, the new law will be worth little if it is not interpreted broadly and enforced strictly. If the past is any guide, this could be a problem. China has been notoriously lax in enforcing labor laws. Absent vigorous enforcement, the new law could lead to workers being squeezed even harder in an effort to keep labor costs down. 

The All China Federation of Trade Unions—China’s only legal union and a state/party controlled organization long considered either unproductive or counter-productive in promoting workers’ interests —and various government officials and agencies have pledged strict monitoring and enforcement. In addition, foreign corporations and their business associations have pledged to support the new law.

One provision of the law requires negotiations between workers and companies over terms and conditions of work and enhances the role of the ACFTU in China’s labor relations system. There are signs that the ACFTU may be evolving toward a more proactive worker oriented organization.  Indeed, the China Labour Bulletin (CLB)—an active Hong Kong based  labor rights organization and critic of the AFCTU—argues that it may be time for foreign corporations to move from imposing their own corporate social responsibility models toward working with the ACFTU at the workplace level in multinational companies and their suppliers to improve wages and working conditions.

Since 2005 the CLB has advocated that multinationals unilaterally set up factory based worker organizations to promote bargaining by workers for a collective contract as part of its program of worker rights and corporate social responsibility.  Now according to CLB, 

.….. with the implementation of the Labour Contract Law on 1 January 2008, we….believe multinationals will be best served working directly with local branches of the All-China Federation of Trade Unions (ACFTU). Factory-level unions are legally empowered and encouraged by the government to negotiate collective contracts and we believe the time is right for the union to engage in genuine collective bargaining rather than the largely pro forma “collective consultations” it has promoted up until this point.

While acknowledging the importance of codes of conduct and social accountability standards, we believe the collective contract has the following three advantages over them:

• Since the collective contract is legally enforceable, Chinese supplier firms are obliged to adhere to its provisions, and this gives multinational buyers a more effective guarantee that they can fulfill their social accountability goals.
• Being formulated on the basis both of Chinese law and of the specific circumstances of individual Chinese enterprises, the collective contract better reflects the wishes and aspirations of both workers and management in the supplier factories, and is therefore a more targeted and effective tool.
• Since the workers’ own elected representatives participate in the design and drafting of the collective contract and directly supervise its implementation, the contract can be more readily and fully implemented.

From the corporate social accountability perspective, the collective contract system serves the following three functions:

• It converts the code of conduct from being a moral or ethical standard into a legal standard, and thus transforms the employer’s moral responsibility into a legal obligation.
• It turns the code of conduct – a “foreign imported” standard – into a set of rules that is based on Chinese law and takes into account the specific circumstances of Chinese supplier firms.
• It changes the status of workers from that of observers or onlookers into being direct participants in, and supervisors of, the labour standards process.

CLB is careful to lay out conditions and caveats for its shift in emphasis. In a comment on the China Herald blog CLB staffer Geoffrey Crothwell writes,

….China Labour Bulletin has not abandoned its collective contract programme, nor has our director, Han Dongfang, done an “about-face” on the question of engaging with the ACFTU. Indeed, with the implementation of the Labour Contract Law we believe the prospects for the development of collective contracts in China are greatly enhanced. With our limited resources we would be unable to effectively work as a facilitator in all these potential cases. As such, we are encouraging multinationals to put pressure on the ACFTU branch unions at their supplier factories (if one exists) to negotiate a collective labour contract on behalf of the employees. This will then put the onus on the ACFTU to show whether or not it is really committed to promoting collective contracts to defend workers’ rights.

Transforming the ACFTU into an effective bargaining agent for workers will not be easy.  A story in the South China Post on December 28, 2007 illustrates why many are skeptical of the ACFTU’s role:

When Liu Zhaoguang , a truck driver for a state-owned logistics company in Beijing, turned up at work on November 15, he received a notice saying the company had decided not to renew his contract because of a company policy capping the age of truck drivers at 50.

Mr Liu, who had just turned 50, believed the policy was unjustified, and in any case, the company should have informed him a month before his contract expired at the end of October. But when he approached the trade union for help, union officials said they could do little to challenge the decision.

On the mainland, unions are not independent and their power is undermined by management control. In Mr Liu's case, the head of his trade union was a deputy chief of the company that had fired him.

Proponents of the new Labour Contract Law set to come into effect on Tuesday said the legislation would bolster union power by giving them a role in collective negotiations for labour agreements. But critics insist nothing will change, particularly for people such as Mr Liu, until unions were no longer dominated by employers.

The China Labour Bulletin has just released a new report on labor relations in China in 2005-2006 that contains many similar stories of ACFTU collusion with employers and a dereliction of the basic trade union duty to represent members.

Will foreign multinationals simply sign sweetheart deals with the ACFTU to meet the formal requirements of the new law?   It will take pressure and support from trade unions and labor rights activists around the world to prevent this.

Yet there is an understandable hesitancy among many labor rights activists and trade unionists around the world to engage with the ACFTU.  It is after-all a state controlled union with a pro management history.  The truth is, however, that labor movements throughout the world are entangled with government and law and the degree to which this affects organizational behavior is contested terrain everywhere.  For instance, the AFL-CIO receives considerable US government funding for its overseas operations. And most labor movements are tightly regulated by national laws and customs.  In the US, for instance, the government determines which workers are eligible to form unions, who can and cannot be in a bargaining unit,  and what workers and employers can bargain over.   

As result of law and government action the rights to strike, picket, boycott, and engage in other forms of concerted action have been so restricted that "equality of bargaining power" between labor and management has become a complete fiction. In  fact, the situation is so bad that AFL-CIO filed a complaint in October 2007 with the International Labor Organization charging the US government with “…denying workers rights in violation of international labor standards.”  Yet, despite this US unions have at times won a significant degree impendence and continue to credibly represent their members at worksites where they have recognition.

There have been some experiments with democratic union elections and collective bargaining in China.  China labor expert Anita Chan at Australia’s National University described and analyzed (unpublished) the initial success and eventual failure of union experiments that one foreign owned shoe and apparel company conducted at a supplier firm with the acquiescence of the ACFTU.  A change of ownership, worker inexperience with union management, the sale of the company and the hostility of the new management, and the lack of long term commitment by the ACFTU to make the local union succeed eventually led to the experiment’s failure.  And at least one worker elected to union office was forced out of his job for performing his union duties. But the fact that elections and bargaining happened at all shows that even under current law, more effective union representation is possible. And, as Chan points out in a recent paper, the rapidly evolving Chinese industrial relations system presents new hopes and opportunities for change.

What would it take to establish real collective bargaining at a local level in China?   International experience suggests that it would require least the following,

The right to elect union officials and representatives nominated by workers themselves.  As we noted above, this has already happened with the acquiescence of the ACFTU in a few supplier plants of foreign companies.   Elections do not guarantee good unions but they are a fundamental prerequisite to legitimacy.  Managers must be barred from holding union office.  Hourly employees should have their unions, managers and supervisors should have theirs.

Protection from reprisals by management or union officials for carrying out legitimate union activities such as collective bargaining or grievance handling.  Union activists should not be threatened for carrying out their duties.

The right to ratify contracts. Workers should have the right to examine, debate, and vote on any collective contracts.

Resources to maintain a functioning union at the local and industry level. No union can survive without resources needed for grievance handling, court challenges, collective bargaining, and staff and member education programs.  Stewards and local union officials need training and reasonable time-off to conduct union business.  In workplaces where it is recognized, the ACFTU receives 2% of the payroll, this should be distributed fairly at the local level.

No firings for strikes or protests. There is no right to strike in China, but  tens of thousands of strikes occur each year. Foreign firms and their suppliers should pledge to bargain in good faith, respect the right of workers to refuse to work when bargaining breaks down, and to not call the cops to end stoppages. 

Unions and other supporters of international labor rights can play an important role in persuading foreign corporations to insist on such protections for the workers in their own and their subcontractors’ facilities in China.  Without demonstrating that they are insisting on such protections, all their claims of corporate responsibility will be dubious at best.

M.O. 

Comments

[Olga]

Does it actually say anywhere in the the legislature that companies must have labor union? or is it implied somewhere? i would really appreciate help finding any legal act's articles in this regard

[Hu]

Also, there will be some troubles, we have to notice this.
baoshuai.hu@hotmail.com

[Hu]

China's New Labor Contract Law is importmant for the future of the China. It is not only useful for the workers, but also good for the stabilization of the socity. It can make people and company to learn more about the responsibility. Also, the Chinese bans to use plastic bag is the responsibility to the environment. Today, China has her own charactor in the world.