Sunday, August 1, 2010


A more demanding workforce in the ‘Factory of the World’

By Andreas Lauffs
Baker & McKenzie

In late May, workers at a Honda factory in Foshan went on strike resulting in a shutdown of operations at the factory as well as shutdowns or significant impacts on production in other factories in the supply chain, with the main demand directed at increased wages.

The workers also demanded a more representative union and publicly condemned the local chapter of the Chinese Communist Party-controlled All-China Federation of Trade Unions (“ACFTU”) for ignoring employees’ rights and interests.

After the widespread publicity initially given to the Honda strike in the Chinese state-controlled press and the international media, many strikes followed in other parts of China.

Legal background

In China, independent union organizations are illegal. Instead, all union organizations that are established must be approved by and operate under the supervision of the ACFTU. The ACFTU has a pyramid structure, with a national congress and chapters at provincial, municipal, district, and oftentimes even at street level, with the lowest level being the company union, which is established among the employees at a particular company and whose establishment must be approved by the “upper-level” ACFTU chapter (either the street level or district level ACFTU in most cases). These company unions are the union organizations that companies would deal with on a day-to-day basis.

Company unions are given significant statutory powers, such as the right to demand collective bargaining with the company management, the right to be consulted on employment related matters, the right to attend meetings where employment related matters are discussed, and the right to be notified prior to any employee termination. However, one significant power that unions are not given is the right to lead a strike.

Political background and reaction to strikes

During the past year, the Government has repeatedly indicated that reducing the income gap and eliminating discriminatory treatment against migrant workers (who tend to be at the lower end of the income gap) are key policy goals. Against this background, the striking migrant workers’ main goal - to increase wages and thereby improve their living conditions- is supported by national policies.

On 5 May, the Government, the ACFTU and an employers’ association issued a “Rainbow Plan” notice, which called for all companies with unions to be covered by collective wage bargaining agreements by the end of 2012. It can therefore be expected that FIEs that have not yet unionized will come under renewed pressure to do so. Further, pressure to engage in collective wage bargaining will likely increase for all companies in China.

Companies will therefore need to consider whether to cooperate with the ACFTU’s unionization campaign and voluntarily help its employees establish a company union. In such cases, at least for the time being, companies may still be able to influence the process of union establishment and decrease the odds that it acts too aggressively. In addition, companies that already have unions may need to consider whether it would make sense to ensure that the union committees are more representative as to the employees’ concerns, since a company union without any credibility among the workforce will be ineffective or completely useless in helping the company to resolve a strike if one occurs, as seen in the Honda strike.