Research on ‘collective bargaining’ in China and minimum wages protection: a case study of the collective contract of the catering industry in Wuhan City

Issue No : 79  April-June 2011

By Han Guijun

On 23 April 2011, the first ‘Collective Contract on Wages and other Specific Items of the Catering Industry’ (referred to hereafter as ‘Collective Contract’[1]), was signed by ‘representatives’ from enterprises and employees of the catering industry in Wuhan City, Hubei Province. It is known as an industrial collective contract covering the largest number of employees in China, roughly 450,000 employees, and apparently considered by the ACFTU as a milestone.

This article would first look into the making of this Collective Contract, introduce the key players and describe how they interact and view the process. The first part is written based on newspaper clippings. Then the author will discuss the significance of this case, to see if the Collective Contract would eventually improve the working conditions of the catering workers, if the case is worthy copying or can act as a reference for workers from other industries, and what the remaining concerns are.

Part I

Significant moment: Collective contract for catering workers

Led by the Federation of Trade Unions of Wuhan City (referred to hereafter as ‘Wuhan ACFTU’), the Collective Contract was signed by representatives from enterprises and employees of the catering industry on 23 April 2011 and was approved by the city’s Labour and Social Security Bureau on 30 April 2011. The Collective Contract attempts to spell out the details on setting wages, payrise standards and benefits for the employees of the industry.

As there is no industrial union among the catering employees in Wuhan, the Wuhan ACFTU took the ‘top down’ approach, by appointing the city’s Trade Union Federation of Trade, Finance and Tobacco (referred hereafter as ‘TUFTFT’) to represent the employees and the Wuhan Catering Association (referred hereafter as ‘WCA’) the employers.

This industrial Collective Contract is known to be covering the largest number of employees in China. Zhang Jianguo, the head of the collective contract department of the ACFTU, says that the Wuhancase is significant in introducing and exploring the area of collective bargaining on wages.

So what has been done so far? Havethere been any twists and turns? Zhou Guohua and Liu Guoliang, representatives of employees and employers respectively, tell us the story.

Employees’ representative and vice-chairperson of the TUFTFT, Zhou Guohua, says that they spent two years to prepare for the 60-day period of negotiation. ‘It took barely 60 days from our first round of negotiation till the signing of the contract, but our preparation work started two years ago’.

In two years’ time, representatives from the TUFTFT have visited nearly 100 catering enterprises, talked to more than 1,000 employees and completed 600 questionnaires for both employers and employees. The draft of the Collective Contract was signed on 24 March, followed by a week of public consultation. The consultation hotline received an overwhelming number of responses, from both entrepreneurs and workers, with their concerns focusing on 17 issues.

After the public consultation, representatives from both sides negotiated again. ‘It was a tough negotiation; nobody was willing to give in, not even a bit.’ Zhou said the disagreement was mainly on Article 8 of the Collective Contract, which reads:‘when a worker is on medical leave due to an illness or a non-work-related injury, his actual wages should not be lower than 80% of the industry’s minimum wages, after deductions of all applicable social insurances.’ The employers’ side counter-proposed it to be ‘80% of the legal minimum wages of Wuhan city’. The negotiation came to a dead end at some point, but with further lobbying, finally the original version, which is in favour of the workers, has prevailed.

It was not an easy task from the beginning. Liu Guoliang from the employers’ side, president of WCA and director of Xiao Lanjing Hotel, describes:‘we had three rounds of negotiations with the employees’ representatives, but we met each enterprise up to five or six times.’ WCA collected comments from several hundred enterprises, from luxury hotels to tiny canteens that have only a few tables. ‘We ran into a lot of resistance from the beginning. With repeated communications and lobbying, people started to realize that it might increase the cost in the short run but would eventually be helpful for the industry to develop as a whole.’

Liu believes that by adopting the Collective Contract, companies can improve their image and stabilize their workforce. In fact, reducing staff turnover and avoiding a labour shortage are the priority for the enterprises. ‘Generally speaking, I am quite positive. Though it might be hard for some small and medium size companies to compete under the Collective Contract, there is a market mechanism. If other companies are increasing wages and you don’t, your workers would simple vote with their feet.’

How well can it be implemented?

‘The Collective Contract could help the catering business to develop in Wuhan’, says another hotel manager, Mr.Xie. For his hotel, wages are offered which are higher than the minimum wages stated in the Collective Contract, so it would be not difficult to implement those terms. ‘The catering industry is indeed labour-intensive and we would have a problem in keeping our staff if we don’t offer them decent wages.’ He believes, ‘the new Collective Contract might be a burden for medium or small size restaurants, it could cause a reshuffling of the catering business.’

Zhou from TUFTFT also predicts that five percent of the smaller enterprises would have to shut down.

Most of the small restaurants in Wuhan have reached the minimum wages stated by the Collective Contract, i.e. 1,196 RMB per month. Yet some dishwashers receive extremely low wages, less than 900 RMB.

A restaurant owner says that his employees are all paid with same wages or higher than the wages from the Collective Contract, but he finds it difficult to commit to Article 7 of Collective Contract, ‘Increase on wages for 2011 should not be lower than nine percent’.

After reading a copy of Collective Contract, many workers from small restaurants tell the reporter that they find the contents quite good but are uncertain if they would apply to them. They report that overtime work is common and often without pay. The restaurants also provide no social insurance[1]to them.

Another concern comes from the customers, do higher wages of catering workers mean dining out becomes more expensive?

Currently there are about 40,000 catering enterprises in Wuhan, of which eighty-four percent are small and medium-scale enterprises. The regular workforce is estimated at 450,000. Only four-fifths of the enterprises would offer certain welfare and security to their chefs and headwaiters, but leave ordinary workers unprotected. Since the end of 2009, the Hubei Province’s Federation of Trade Unions and Wuhan ACFTU have worked on collective consultation[2]for the industry. Yet their work has been suspended due to the global economic crisis at the time.

As the economy recovers, the previous labour excess has become a labour shortage. ‘The catering enterprises started to notice that they need a breakthrough. Time is ripe for collective consultation on wages’, says Zhou Guohua.

Apart from implementing the Collective Contract, TUFTFT also encourages enterprises in the same region to negotiate local wages or some better off companies to negotiate internally.

Yet, the core question is, how to ensure the Collective Contract is being implemented, after the review from the Labour and Social Security Bureau of Wuhan City. WCA (the employers group) says that they are organizing entrepreneurs to study the Collective Contract attentively while the Wuhan ACFTU is promoting education and trainings for workers and organizing unions at the enterprises.

Zhu Yi, a standing committee member of the Wuhan municipal government committee and the chairperson of the Wuhan ACFTU, says that the ACFTU is gradually promoting regional and sectoral collective contracts. It will coordinate resources from the government, sectoral associations and trade unions, to push for collective negotiation on wages.

Part II

Legal interpretations of the case study

1. The doubtful legitimacy of the ‘representatives’

The representatives engaged in this collective bargaining are both assigned by the Wuhan ACFTU, or they take it as a mandatory order coming from the Wuhan ACFTU. Such an arrangement violates the principle of two parties with equal standing getting into a voluntary negotiation for a collective contract.

Looking into the representatives’ background, it also tells us that the employees’ representative, the TUFTFT, is inappropriately chosen to represent the catering employees. The Wuhan ACFTU calls it a ‘top down’ order, to appoint the TUFTFT as the representative for the employees. Yet how can the catering workers be sure that the TUFTFT is able to represent them, while it is a trade union from other sectors? As a general rule of representation, the approval of representation should come from the people affected, as they should know the best, who can truly represent their interests. However, the Wuhan ACFTU has not taken such a basic rule into consideration and has chosen a representative without seeking the approval from the catering workers. Then the second question is, is the TUFTFT truly and willing negotiating for the interests of the catering employees? The motivation of the representatives and the effort they pay in the negotiation are positively related. An inappropriate representative might find himself in a difficult and embarrassing position throughout the negotiation process.

The similar problem also occurs in choosing the representative of the catering employers. A catering association functions differently from an employers’ association, though their membership might overlap. The catering association looks into all aspects for the sustainable development of the industry, develops certain rules and has certain executive and disciplinary power on the players of the industry. An employers’ association’s role is to discuss, handle cases and negotiate with the sectoral union, for issues related to labour standards. The collective contract should be a result of negotiations, communications and compromises between employees and employers. However, WCA is more of a catering association, not purely an employers’ organization.

The Collective Contract in this case study is established on an incorrect procedure of representation, which inevitably leads to flawed collective consultation and a problematic Collective Contract. One might call it a Collective Contract with Chinese characteristics, but one should not be too optimistic about it. All along, it has been violating the basic principle of representation, the legal interpretation and rationale of collective bargaining and signing a collective contract.

2. The so-called ‘timing’ for collective consultation

The significance of signing a collective contract is not only as a way of protecting the workers, but also as an important mechanism to coordinate the interests of the two parties in a labour relation. Having the labour legislation as a foundation, the employers and employees meet and negotiate regularly, and spell out each other’s rights and responsibilities in the collective contract by taking the general economic situation and the enterprises’ performance into consideration. It is a way for the enterprises to adapt to the market changes. Therefore, collective bargaining should not only take place during an economic recovery. The case study here gives out a wrong message, by saying that the Collective Contract is only possible when the economic crisis is over. It makes one believe that a collective contract protects only the workers and hurts the employers’ interests.

The Wuhan ACFTU takes the lead in deciding when and who to conduct collective bargaining for the catering workers. To a certain extent, such an approach, by intervening in so many aspects, is unhelpful. The responsibility as an upper level trade union is to organize and provide necessary education to a lower level trade union, and let the lower level union run by itself. As the journalists find out, most of the catering workers in Wuhan are paid with the Collective Contract’s wages, i.e. 1,196 RMB or higher (the current legal minimum wages in Wuhan is 900 RMB). The higher wages of the catering workers show that even without this Collective Contract, the demand and supply of labour have already set the market wages and are accepted by the employers. In other words, the articles on wages in this Collective Contract are not particularly helpful for workers, as their wages have already been higher than the one introduced in the Collective Contract. For the upper level trade union, its priority should be set to help workers and the lower level unions understand the trends and developments of the industry, the relations between the profit ratio and workers’ contribution. Training and organizing workers and their representatives should include negotiating skills, tactics, how to formulate reasonable demands, and how and when to achieve them. However, ACFTU never try to educate ordinary workers in organizing Union and help them develop bargaining skills.

3. Distortion of the concept and intention of ‘collective bargaining’

The Wuhan ACFTU and other similar authorities have been using an administrative order to come up with the following model in signing a collective contract:

Assigning representatives > distributing and collecting questionnaires > drafting a collective contract > public consultation > redrafting the collective contract > signing the contract = one success case

More surprisingly, the ACFTU has called this model an experience for exploring and developing a mechanism to conduct collective negotiation in the future, without seeing how it distorts the basic meaning of collective bargaining. Collective contracts should be based on the law, while the national labour laws are respected, and both employers and employees should enjoy equal legal status, to mediate and resolve labour conflicts through equal consultations. The local setting, the economic situation and the performance of the enterprise should all be taken into consideration. The three essential factors of a collective negotiation are: an independent trade union with negotiation skills, an independent employers’ organization which respects the trade union, and a stringent and rational consultation procedure.

This case study demonstrates again that the ACFTU has not stepped out of its mindset of a planned economy; it still orders administrative directives to achieve superficial success. In other words, it has not taken proactive moves to adapt to the market economy for its functions as a trade union. Such backward behaviour could only lead the trade union movement in China onto a winding path, pulled by the ever-changing market economy (rather than defending workers’ rights in the face of it).

4. A Collective Contract that has not been collectively and voluntarily reached

A proper collective contract should include the definitions of the two involved parties, the contract period, the rights and responsibilities of each party, the implementation methods, the consequences of violations, and accountability and dispute resolution. However, the Collective Contract for the catering workers in Wuhan contains very few precise definitions that a proper collective contract should contain. It is a so-called ‘contract’ but looks more like a set of regulations imposed by the local government. As many of the workers interviewed by the journalists say, they are worried whether the contract could be implemented.

For agreements in reality, those made under mutual goodwill often have a higher rate of being respected. It is not rocket science to understand that, when an agreement reflects both sides’ interests, people are more likely to follow the agreement. It goes back to the core problem of the procedure of this Collective Contract, in which both employees and employers are given a ‘mission’ to come up with a contract from an outsider, instead of reaching an agreement out of their free will. Thus, as a vicious cycle, it seems reasonable for the outsider to ensure the contract’s implementation, while the two key players have very little say from the beginning.

In a labour relation, the distribution of rights and responsibilities is often not something an outsider can determine. The two players, i.e. the employees and the employer, should be in relatively equal positions, going through rounds of negotiations, compromises and finally coming up with an agreement reflecting both sides’ interests. Yet, in the Wuhan catering industry’s case, the employees lack the power of self-organizing; they are not involved in the actions and determining their own interests. Overall, it is not a valuable experience of collective consultation and forming a collective contract. To be precise, it is just an example of window dressing by the ACFTU to boost its image through administrative orders. The quantity of collective contracts signed, instead of the quality, is what the ACFTU is after.

5. ACFTU’s neglect of workers’ education

The Wuhan ACFTU has the responsibility to provide workers with trainings on union organizing, negotiation skills and how to operate a basic level trade union. Yet, this case study tells us that the Wuhan ACFTU is taking a shortcut. It fails to conduct the slow but decent education work, to train the workers to be finally capable in bargaining themselves. That is why it is called a Collective Contract with Chinese characteristics, with a trade union from another industry to bargain for the catering workers. Sad but true, and ridiculous…

Workers’ rights and interests are extensive but with limits according to Chinese labour law. They cover many aspects, such as equal employment, freedom to choose work, right to pay and safety, vocational training, right to terminate a labour relationship, democratic management at workplace, solidarity among workers, social security and etc.. The limits of these rights and interests are shaped by the socio-economic conditions, the national laws and the performance of the enterprise. In China, workers’ rights and interests are often seen and discussed only in the context of an individual and his employer, while the collective labour relation is often deliberately ignored or even oppressed.

As mentioned above, due to the neglect of the Wuhan ACFTU, workers have not received trainings on organizing and consultation for collective bargaining, legal issues or how to evaluate their own interests. Many of them are not even informed of their own rights and interests. It can lead to two unfortunate situations: either workers’ rights are violated without access to justice, or workers seek for long-term legal procedures when they consider their rights to have been violated – even if what they want to claim is not even within the current set of rights granted to them in the law.

6. Loopholes of the current legal minimum wage in China

Legal minimum wage protection is known as a basic component of China’s wage protection system, as a minimum payment an employer has to offer for ordinary labour of a worker. It also serves as an important component of the labour laws, with an objective of offering workers basic protection of their livelihoods, and preventing employers from taking advantage of the workers, who might be in a less privileged position than the employers. Its original purpose was indeed positive. Yet, in the process of implementing it, many problems have arisen and the positive aspects of the legal minimum wages have been buried. In some occasions, the employers even use this system to harm the workers’ rights and interests.

6.1. Unfairness and complexity of the legal minimum wages

The provincial government is entitled to set the standard of the local legal minimum wages. As each province’s economic development is different from the other, each province has its own legal minimum wages. Within a province, many different wages zones are divided, as a reflection of the local economy. Therefore, workers’ legal minimum wages are different, depending on where they work in the province. It might be unfair but to a certain extent understandable to have some 30 different minimum wages standards across the country. However, when it comes to the provincial level, even though there are different levels of prosperity within a province, the costs for living, children’s education and workers’ self-enhancement are more less the same. Currently, there are four wage zones of Hubei Province, with legal minimum wages from 600 RMB to 900 RMB. For example, if a worker receives lower wages in the less developed county of Hubei (let say Badong County, with legal minimum wages of 600 RMB per month), while his child goes to a school in Wuhan City (where the legal minimum wages are 900 RMB). His child’s tuition fee is in fact a lot higher than the local classmates, as his household registration is from another city. In other words, this worker is earning less while paying more for his child’s education. Therefore, to divide a province with various legal minimum wages standards is incredibly unfair.

6.2. Legal minimum wages as the maximum wages

Since the legal minimum wages are introduced, most of the labour contracts are adopting them as standard wages. Furthermore, many employers do not pay extra, even when the workers have been asked to work overtime, which means that the workers’ effective hourly wages are lower than the legal minimum hourly wage. Many workers dare not demand higher wages, and their employers are never punished for such exploitation. The legal minimum wages sometimes act as the reason for low wages. The situation might not improve in the short run, if the right to collective bargaining is not protected.

6.3. Flawed wages-setting mechanism

While setting the legal minimum wages, the provincial government would invite the representatives from the provincial labour and social security bureau, the ACFTU at provincial level and the employers’ associations to participate. Yet, as discussed earlier, the sectoral unions and local ACFTU branches are poorly equipped in terms of personnel, functions and operations. They are mainly administrative organs, highly bureaucratic and not interested in the workers’ urgent demands. On one hand, it does not represent the workers; on the other hand, the union officials’ position, income and promotion are in the hands of the government, so they are actually working along with the official lines. For a provincial government, its priority is to achieve higher GDP, even it comes at the sacrifice of the workers’. Thus, workers’ interests are often not reflected in the legal minimum wages. The legal minimum wages system can only be truly meaningful, when workers can freely elect their representatives.

Conclusion

The method to get Collective Contract of the Catering Industry in Wuhan City should not be as model for the future. It would be better for Wuhan ACFTUto work hard in educating, organizing, and developing workers’ ability to bargain. The representative of collective bargaining should be elected by workers rather than be appointed. As far as minimum wage, each province should consider granting fair for all citizens and try to set out the standard of minimum wage using each county no matter where it lives.

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