Below is a brief introduction of China labor union or China trade union law by China employment lawyer.

Unionization status

A few years ago, the state-sponsored All-China Federation of Trade Unions (ACFTU), the umbrella union for the entire country of China, called for all foreign-invested companies in China to recognize its unions by the end of 2008, claiming it would ‘blacklist’ and take legal action against any foreign firms refusing to allow unionization.

As of the beginning of 2009, according to official reports, 313 labor unions have been set up in 83% of multinational corporations’ China headquarters. The future of those companies that have not yet complied remains uncertain.

Historically, because government officials and corporate managers had a common interest in keeping production levels high, there was little official support for dissatisfied workers. China’s state-owned companies had unions under ACFTU, which as a government-affiliated body…is more interested in enforcing worker discipline.

The “Union”

Legally, the union’s nature is an organization formed by the employees voluntarily under People’s Republic of China (“PRC”) Trade Union Law. An employer has no obligation to form a trade union, nor does it have the right to form a trade union irrespective of the employees’ opinions. However, the ACFTU and the central government in 2004 initiated a campaign targeted especially at foreign-invested enterprises to form a trade union.

Impact on companies with subsidiaries in China

Employers that reject pressure to establish unions may face the following measures:

• A “union preparatory fund” calculated at the rate of 2% of total payroll and collected by the tax bureau;
• Annual inspections required by the Administration of Industry and Commerce - carried out more rigorously and difficulties in passing these;
• Possible loss of or ineligibility for tax incentives;
• Increased chance of investigations by labor and customs authorities.

Many foreign enterprises claim they have received a notice from the Tax Authority requiring the submission of relevant forms to “Entrust Tax Authority” to collect the Trade Union preparatory fee.

Legally, neither the trade union nor the Tax Authority has the right to collect a preparatory fund from employer’s bank account without prior approval by the employer.

The Tax Authority relies on the Notice on Management over Collection of Fees by Tax Authorities for funds collection. However, the Notice provides that the Tax Authority cannot collect any fees, unless the fee is provided by law, or approved by the State Council organs or provincial governments in accordance with relevant regulations.

Even though Beijing Municipal Government provides the principle to entrust the Tax Authority to charge trade union fund and preparatory fund as from July 1, 2010, it does not change the lack of legal basis for collection of trade union preparatory fund.

Employers should be cautious about handling trade union formation. Article 3 of PRC Trade Union Law stipulates that an employer may not “hinder or restrict” the establishment of the trade union. A company should, therefore, be careful of activities that could be interpreted as delay tactics that “hinder or restrict” the establishment of a trade union.