16 August 2016

Basic Legal Facts of Trade Unions in China

This article was written by Xiaodan Xu(Partner)  and Xiu Pei(Associate).

Trade unions always play a critical role in reconciling employment relationship in China, however, and enterprises often could not get to the nitty-gritty when it comes to trade union related problems due to their complexity.  In order to give you a basic concept of trade union, we collected and listed some frequently asked questions and our answers are also provided thereunder. 

Firstly, is an enterprise obligated to establish a trade union? 

From the perspective of national legislation, enterprise-level trade unions are organizations organized and formed voluntarily by employees, and enterprises themselves are not eligible to do so hence also released from the obligation.  At the same time, enterprises are prohibited from hindering or restricting establishment of trade unions by employees, and administrative penalties will be imposed if otherwise.  

Some of the local regulations, however, made it compulsory for enterprises to establish a trade union. For instance, Article 8 of the Trade Union Rules on Foreign Invested Enterprises of Chengdu  provides that provisions concerning the establishment of trade union shall be written into the Articles of Association of foreign invested enterprises and the establishment of a trade union  shall be completed within one year as of the date of incorporation. Article 5 of the Measures on Implementing < Trade Union Law > of Inner Mongolia Autonomous Region also provides that any enterprises, public institutions and governmental organs domiciled within the administrative territory of the autonomous region shall establish its own trade unions in accordance with law. 

Secondly, is a founded trade union obligated to obtain legal person status?

Legal person, as defined by the General Rules of Civil Law, includes enterprise legal person, government organ legal person, public institution legal person and social group legal person. According to the Trade Union Law, a base level trade union having satisfied the conditions of a legal person required by law could obtain the legal person status as a social group. As it can be seen, a base level trade union. namely enterprise level trade union, may obtain legal person status as a social group after going through certain procedures, such as approval from a superior trade union.  It should nonetheless be noted that obtaining a legal person status is not compulsory. 

In terms of local practice in some cities, after having applied for establishing a trade union to the local trade union organization, a base level trade union could decide whether or not to register as a social group legal person and obtain legal person status. Generally speaking, if a trade union has 25 or over members and has established a trade union committee, it shall complete the registration of legal person and obtain legal person status so as to set up an independent bank account to manage union funds. 

Are there any special rights exclusive to base level trade unions with legal person status?

Base level trade unions with legal person status are social group legal persons and according to relevant provisions of the General Rules of Civil Law, social groups are entitled to possess its own properties and funds, independently enjoy civil rights and assume legal responsibilities. 

In accordance with the relevant provisions by the Ministry of Civil Affairs and the State Administration for Industry & Commerce, base level trade unions with social group legal person status, for the purpose of benefiting employees, may establish enterprises, carry out profit-making activities and return the profits earned to the trade union.  In practice, some enterprises implement equity incentive plans for employees through trade union shareholding.

Issues of particular importance to enterprises: how is union funds paid and returned? Who is entitled to supervise the use of union funds?

Article 42 of  the Trade Union Law provides that 2% of the total amount of all employees’ salary of an enterprise shall be handed to a higher level trade union as union funds. After receiving, the higher level trade union will return part of the funds received to the base level trade union as union funds.

In Beijing, the ratio of the part of union funds should be returned is 60% and it means that 40% of the funds will be kept and used by a higher level trade union and the remaining 60% will be returned to the enterprise level trade union. 

Although the subject making the payment of union funds is an enterprise, due to the feature of independence of the funds, the enterprise is not entitled to interfere with or supervise the use of union funds. According to the Trade Union Law, a budgeting, auditing and examination and supervision system for the use of funds shall be established in each trade union. The financing and expenditure shall be managed by trade union committee and a system of group leadership by trade union committee, responsibility to chairman of trade union shall be implemented. Moreover, the use of funds could also be supervised by an enterprise-level funds examination committee, members’ congress, congress of members’ representatives and the higher level trade union.

Myriads of other issues are related to trade union and there is a plethora of rules and circulars regulating on union-related matters. It is impossible to exhaust every single one of them. When encountering union problems, it is suggested that enterprises should plan thoroughly before making a move so as to better tackle the conflicts and avoid legal risks.

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