The Shanghai Collective Contract Rules

By Sisi Liu, Margaret Lu, and Ron Cai
[September 2007]

On Aug. 17, the Shanghai Collective Contract Rules (the “Shanghai Rules”) were adopted pursuant to the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China and the Union Law of the People’s Republic of China. The Shanghai Rules will take effect on Jan. 1, 2008. In summary, the Shanghai Rules provide for procedures and legal requirements governing three major areas: 1) collective bargaining; 2) collective contracts; and 3) related dispute resolution. Following are some highlights of the new rules:

Collective bargaining subject matter

The Shanghai Rules provide that collective bargaining shall accomplish the formulation, amendment or adoption of company policies, rules or major decisions directly affecting the following employee interests: (i) salary and wage; (ii) working time; (iii) days-off and vacation; (iv) labor safety and hygiene; (v) social insurance and benefits; (vi) employee training; (vii) labor discipline; (viii) production quotas; and (ix) other matters as required by law.

Composition of collective bargaining teams

The collective bargaining teams of an employer and of its employees must each consist of no less than three representatives; and the representatives in an employer’s team must not out-number those on the other side. The employer’s team is to be headed by the company’s legal representative—or his/her delegate via a written power of attorney—who will also be responsible for appointing the rest of the team members. The employees’ team is to be headed by the person who is in charge of the company’s union; the union selects the rest of the team members through a democratic process. In the event a company does not have a union, an upper-level union organization shall guide the company’s employees in selecting and appointing the leader and representatives of the employee team. Both teams are allowed to engage third-party professionals as representatives to their teams, provided that the number of such professionals does not exceed one-third of the total number of representatives on each team.

Initiation of collective bargaining

If a company has its own union, either the union or the company may initiate a collective bargaining process by providing the other side with a written proposal. In the event a company has not yet established a union, employee representatives selected under the guidance of an upper-level union organization may provide the company with a written proposal for collective bargaining; the company may submit a written proposal either directly to the employees of the company or to the upper-level union organization.

Mandatory collective bargaining

Under normal circumstances, either the employer or employees may reject the other side’s written proposal for collective bargaining within 15 days of receipt, provided they can offer legitimate reasons to support their rejection. Under the following circumstances, however, acceptance of a written proposal for collective bargaining becomes mandatory: (i) when a company must lay off more than 20 employees or more than 10 percent of its employees; (ii) when a labor dispute has resulted in a mass strike or petition to authorities; or (iii) when something in the production process that has the potential to cause major accidents or work hazards has been detected.

Some restrictions on team members

An employee acting as a representative of the employee team is to engage in the collective bargaining process with full pay; however, during his/her entire term as a representative, the employee may spend no more than three working days cumulatively, with pay, on the task of collecting information/materials for the collective bargaining process. Furthermore, the Shanghai Rules require all collective bargaining team members to, among other things, maintain the company’s normal production and working order throughout the collective bargaining process.

Collective contracts

The Shanghai Rules do not require the conclusion of a collective contract unless the sole purpose of collective bargaining is to establish one. If so, a collective contract can only be adopted upon approval of more than half of the total number of employee representatives or employees, and must be submitted to the responsible local labor authority for its records within prescribed time periods. The Shanghai Rules also set guidelines for regional or industry-specific union organizations to engage in collective bargaining with companies in construction or food-service businesses for the conclusion of regional or industry-specific collective contracts.

Dispute resolution

The Shanghai Rules mandate the City of Shanghai to establish a three-party (government authority, union and company representative) system for the coordination and resolution of labor relationships and disputes.

Other union involvement

Under the Shanghai Rules, upper-level union organizations are given the discretionary power to observe collective bargaining activities of companies within their jurisdiction. And, a union has the right to make a claim, in accordance with the law, against a company in breach of a collective contract, in which the breach infringes upon the rights and interests of its employees. A union may also apply for arbitration or file a lawsuit if efforts have failed to resolve, through coordination, a dispute arising from the performance of a collective contract.

If the newly published Labor Contract Law of the People’s Republic of China presented challenges to the devotion and diligence of human resource personnel of U.S. companies operating in China, the Shanghai Rules offer even higher hurdles. As local regulation, the law has limited application. But, as the first law of its kind, and in the absence of national regulations with the same effect, the Shanghai Rules will most likely serve as a prototype for other local Chinese authorities in promulgating regulations regarding collective bargaining and collective contracts. Thus, the trumpet has sounded.

For more information, please contact:

Margaret Lu, Seattle, Washington, (206) 622-3150, margaretlu@dwt.com
Ron Cai, Shanghai, China, (011) 86-21-6279-8560, roncai@dwt.com
Sisi Liu, Shanghai, China, (011) 86-21-6279-8560, sisiliu@dwt.com

This advisory is a publication of the China Practice of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments in China. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations. Attorney Advertising. Prior results do not guarantee a similar outcome. Thank you.

Copyright © 2007, Davis Wright Tremaine LLP.

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