Summary and highlights on the Guangdong Provincial Regulations on Collective Contract of Enterprises

On 25th September 2014, the Standing Committee of the People’s Congress of Guangdong Province issued the finalised version of the Guangdong Provincial Regulations on Collective Contract of Enterprises (hereinafter the "Regulations"). The Regulations will take effect on 1st January 2015. The Regulations reflect a number of amendments made to the draft version ("Draft Regulations") previously issued in October 2013, on which the public has submitted opinions. This update provides a summary and highlights of the salient features of the Regulations and amendments made to the Draft Regulations.

A Summary of the Regulations

The Regulations, which are shorter and simplified compared to the Draft Regulations, consist of 6 chapters and 46 articles and the reference to collective bargaining previously used in the title of the Draft Regulations has been dropped in the Regulations.

Definition and Scope of Collective Bargaining

While the title of the Regulations no longer refers to collective bargaining, provisions relating to collective bargaining are still included and the definition of collective bargaining as provided in the Draft Regulations is largely retained in the Regulations. Collective bargaining refers to processes of fair negotiations between the enterprise and employees on a range of matters, including remuneration, working hours, rest and vacation, occupational health and safety and insurance and welfare, etc. Compared to the Draft Regulations, the range of matters specified in the Regulations has been reduced. In general, collective bargaining should be carried out once a year.

Collective Wage Bargaining

Collective wage bargaining is specifically addressed in the Regulations. The factors which should be taken into account during negotiations include the performance of the enterprise and the average wages of the previous year. External factors, such as the local minimum wage, the average increase of wages in the industry, wage indicators released by the local government with reference to market conditions and the Consumer Price Index should also be taken into account. Specifically, both the enterprise and the employees are allowed to request that wages be increased, decreased or maintained at the same level, based on similar factors as outlined above.

Collective Bargaining Representatives

The enterprise and its employees may each have 3 to 9 representatives, one of whom being the chief representative, to carry out the bargaining. The provisions on selecting the enterprise’s representatives are the same as those in the Draft Regulations: the enterprise’s chief representative shall either be the legal representative of the enterprise or management personnel of the enterprise appointed in writing by the legal representative. The employees’ representatives shall either be selected by the trade union or elected democratically. For enterprises which do not have a trade union, employees’ representatives will be democratically nominated by workers through the coordination of the local trade union and then approved by over half of the employees of the enterprise. The provision in the Draft Regulations allowing parties to appoint external professionals as representatives has been removed.

Collective Bargaining Procedures

The threshold for the number of employees required to issue a request for collective bargaining to the enterprise has been raised from 1/3 of the employees to 1/2 of the employees. If a request for collective bargaining has been issued, the receiving party must provide a written response within a specific time period. Such a time period has been extended from 20 days to 30 days in the Regulations.

There have also been amendments to the maximum period allowed for a collective bargaining process. In the Draft Regulations, the maximum period was 60 days from the date of issuance of the request for collective bargaining, with an option of extension by 15 days. In the Regulations, the maximum period is now shortened to 30 days. The parties may agree to shorten or lengthen such period but in any event, the extension cannot exceed 60 days.

Confidential Information

The Draft Regulations specified various types of information required to be provided by a party to another party upon request for the purpose of collective bargaining. Such information was mostly corporate information, such as registration information, articles of association, financial statements, wage payment status and tax and social security payment status. By contrast, in the Regulations, there is now only a general requirement for the enterprise to provide truthful information relevant to the collective bargaining process. Employees are also expressly required to provide relevant information to the enterprise.

As originally provided in the Draft Regulations, the Regulations also impose confidentiality obligation on collective bargaining representatives with respect to trade secrets which have come to their knowledge in the course of the bargaining process. In addition, there is now a specific provision which imposes civil and criminal liability in the event of breach of this confidentiality obligation.

Regulations of Parties’ Conduct during the Collective Bargaining Process

The Regulations contain a new section with general prohibitions against problematic conduct of both the enterprise and its employees. Such conduct includes: unreasonable delay of the collective bargaining process, threats or bribery of the other party’s representatives and violent disruptions of the collective bargaining process, etc. Similar to the Draft Regulations, the Regulations also provide for obligations to be observed by the enterprise or its employees respectively.

1. Enterprises

The restrictions on enterprises’ conduct have been revised and simplified. Enterprises are not allowed to: restrict or otherwise interfere with the selection of employees’ representatives or engage in acts of retaliation against those representatives; refuse to provide truthful information required for the collective bargaining processes; and refuse to carry out the collective contract. Pursuant to the Regulations, duties of an employees’ representative related to collective bargaining are considered to be normal work duties and the enterprise is prohibited from varying the position, wages and benefits of such a representative without a good reason.

2. Employees

Regulations on employees’ conduct during the collective bargaining process have also been clarified and now fall into three categories. Employees must continue to comply with the labour contract. They must not disobey the labour rules (for example, by persuading others not to attend work). They must also refrain from disrupting the order at workplace and obstructing business operations (for example, by blocking routes of transportation or destroying the enterprise’s equipment).

Dispute Resolution

Parties may resolve disputes arising from the process of collective bargaining or execution of the collective contract by mediation, and the local trade union and the labour authorities may also be involved in the mediation. For disputes arising from the execution of the collective contract, if mediation or negotiations are unsuccessful, the parties may resort to arbitration or litigation proceedings.

Conclusion

The Regulations provide for a more streamlined system of collective bargaining. A number of controversial provisions have either been removed or revised, and new provisions have been added which to some extent provide more protection for enterprises. Examples of such include the removal of the requirement to provide corporation information, the addition of an express provision on liability in relation to breach of confidentiality, the extension of the period for issuing a written response to a request for collective bargaining and the relaxation of the time limit of the collective bargaining process. However, enterprises may remain concerned about other features such as the participation of the local trade union in collective bargaining and factors relating to the local economy in determining the appropriate level of wages. Enterprises in Guangdong Province are advised to get ready for the commencement of the Regulations by familiarising with their rights and obligations under the Regulations. Enterprises outside Guangdong Province should also pay attention to the development in Guangdong Province as it is possible that similar regulations may be promulgated in other parts of China in the future. Legal advice should be sought in case of doubt.