By Lucy Lu and Ding Wu King&Wood Mallesons’ Labor Group

lu_lucyRecently, the Standing Committee of People’s Congress of Shanghai has approved the Amendment to Shanghai Collective Agreement Regulation (the “Amendment”), which shall become effective on 1 October 2015. This Amendment further improves the clauses regarding the scope for collective negotiation of salary, emphasizes on the effect of superior trade union in the collective negotiation, and stipulates certain punishment on enterprises that refuse to conduct the collective negotiation.

Improvement on the Scope for Collective Negotiation of Salary

Apart from regular amendment on salary allocation system, salary standards, salary allocation mechanism, salary payment mechanism and salary adjustment, the Amendment includes the bonus, allowance, subsidiary and the remuneration of overtime working, probation period, sick leave and personal leave into the salary collective negotiation scope.

The new collective negotiation system articulates the allocation mechanism of bonus, allowance, subsidiary and the remuneration of overtime working, probation period, sick leave and personal leave. This will help build transparent enterprise salary allocation mechanism, increase employee’s understanding and acknowledgement of how the salary is allocated and help the enterprise avoid potential conflicts concerning salary. Although the scope of salary collective negotiation is further clarified, it doesn’t necessarily mean that the gross salary of all employees will have to be enhanced. The Amendment allows the enterprise to take production rate, economic performance and average labor cost of the city and the industry into consideration while implementing the collective negotiation system, which actually leaves flexibility and discretion for the enterprise.

Reinforcement of the Role of Trade Union

The Amendment further clarifies that the superior trade union has the right to send inspectors to the collective negotiation, and its members could be authorized as negotiation representatives for the employees. In case the collective negotiation is hindered or both parties fail to reach agreements, employees shall seek guidance from superior trade union via its trade union or negotiation representative. Besides, the scope of union entities that are eligible for proposing negotiation is also expanded while formulating industrial and regional collective contracts

In practice, the superior trade union usually plays a significant role in the collective negotiation when local trade union and the employees are short of knowledge about the condition, procedure and mechanism of collective negation. The Amendment enhances the guiding role and participation level of the superior trade union in regards of negation initiation, negotiation procedure and how to cope with the situation when no agreements are reached. Thus enterprises shall be fully prepared for the involvement of superior trade unions and proactively report the collective negation status to the superior trade unions, to avoid being passive when the superior trade unions participates or guides the collective negotiations.

Legal Consequences on the Enterprise’s Refusal to Negotiate

For the first time, the Amendment specifies the two-level consequences for the situation that the enterprise refuses or delays the collective negotiation without a due cause. Under the first level, aside from the coordination by the Human Resources and Social Security Administration, the Federation of trade unions can also issue a reform notice to such enterprise. And if the enterprise refuses to amend its action, the notice will be announced at the municipal public credit service platform.

In the process of formulating the Amendment, there were some arguments about the legal consequences for enterprises refusing or delaying the collective negotiation without a due cause. As a result, to publicize the enterprise’s actions on the credit record platform was finalized after rounds of coordination among different parties. The public credit service platform has access to the enterprise credit records and is open to the general public. While in its initial stage, the platform has not yet certified how such enterprises’ records shall be recorded, how long shall these records be kept and how will such records influence the enterprises. Thus the actual effects that the platform will bring to the enterprises are still to be tested in practice.

In conclusion, even though the law does not have a compulsory stipulation that the enterprise should enter into a collective agreement with the employees, the implementation of the Amendment will possibly raise the concerns and demands by the employees regarding the collective negotiation for salary and collective agreement. When facing such collective negotiation, the enterprise shall have a comprehensive understanding of the scope, procedure and legal consequences of the negotiation, and keep close communication with the competent superior trade unions and the Human Resources and Social Security Administration in a timely manner, in order to avoid employment dispute or other negative legal consequences arising from the collective negotiation.