The Guangdong Regulation on Collective Contracts (the “New Regulation”) was passed by the Standing Committee of the People’s Congress of Guangdong Province on 25 September 2014, and it will take effect on 1 January 2015.

The most significant provisions contained in the New Regulation which may have a significant impact on employers in Guangdong are highlighted below:

Negotiable Matters for General Collective Bargaining

Employees may initiate collective bargaining with their employers on matters below: (i) determination, increase and decrease of wages; (ii) working hours, including working hours system, measures for extending working hours, working hours under special working hours system, and standard for labour production quota; (iii) rest and leave, including daily time-off, weekly time-off, measures for annual leave, leave and rest policies for employees who are not able to enforce standard working hours system, and other leave; (iv) occupational safety and health; (v) insurance and welfare; (vi) special protection for female employees and minors between 16 and 18 years of age; (vii) liquidated damages for breaching a collective contract; and (viii) other negotiable matters agreed by both parties.

Negotiable Matters for Wages Collective Bargaining

Employees may initiate a special collective bargaining on wages. The negotiable matters on wages include: (i) wage standards, wage distribution system and other wage distribution issues, and measures for wage payment; (ii) average annual wage level of employees, wage adjustment flexibility and wage adjustment measures; (iii) wages during the probation period, medical leave or personal leave; and (iv) other negotiable matters on wage agreed by both parties.

Employer’s Duty to Provide Required Information

The New Regulation requires employers to provide information in relation to the collective bargaining to the employees’ negotiation representatives. Correspondingly, the employees’ negotiation representatives bear confidentiality obligation on information obtained during the collective bargaining.

Employer’s Right to Initiate Collective Bargaining on Wage Reduction

Both employees and employers may initiate a collective bargaining on the matters of wage increase, wage maintenance, or wage reduction.

Employees may initiate collective bargaining on wage increase based on such factors as annual profit growth of the employer, wage increase guideline issued by the local government, and wage level of the employer in its industry.

Equally, when experiencing serious financial difficulties, an employer may initiate wage collective bargaining to reduce employees’ wages. Such factors as local price index and wage increase guideline issued by the local government should be taken into consideration when determining the scale of wage reduction.

Requirement for Triggering Collective Bargaining and Follow-up Process

Generally, collective bargaining is required to be conducted once a year. Any request for initiating collective bargaining by any party should be made in writing.

According to the New Regulation, both employees and their employer are required to make the collective bargaining request through the enterprise union, or the upper-level union if there is no enterprise union. An enterprise union is free to decide whether to initiate collective bargaining. However, if more than half of the employees, or half of the employee representatives make such request to the enterprise union or the upper-level union, the collective bargaining must be initiated. The above requirement does not apply if an employer initiates collective bargaining.

If collective bargaining is proposed by one party, the counter party should sign on the delivery receipt of the collective bargaining request (including the proposed time, place, matters and reasons for initiating the collective bargaining), and respond to each matter in written within 30 days after delivery. The collective bargaining should be done within 3 months after delivery, with a maximum extension of 60 days if agreed by both parties.

Employees are forbidden to initiate or promote a collective bargaining by: (i) refusing to complete assigned duties by breaching employment contract; (ii) breaching disciplinary rules, or forcing other employees to leave their duty; or (iii) blocking up entries and exits of enterprise or traffic arteries, impeding the transportation of personnel and assets, destroying equipments and facilities, or impairing business order or public order.

To conclude a collective contract, a draft collective contract agreed must be submitted to the employees’ representative congress or the employee assembly for consultation. Over two-thirds of the employee representatives or all employees must be present, and the draft must be approved by a majority of the employee representatives or all employees before the chief representative of each side signs the contract.

After a collective contract has been concluded, employer must file the record to the local labour authority within 7 days (note that the contract does not need to be reviewed or examined by the local labour authority).

The term of a collective contract can be one to three years in duration. It ends upon the agreed expiry date or occurrence of any agreed circumstance. A collective contract is binding on all employees (including existing employees and future employees) during its term, and its performance will not be affected by any change in enterprise name, legal representative, principal person in charge, shareholder, capital increase or decrease, etc.

Other than the above, the specific function of “tri-party mechanism” formulated by the local labour bureau, the local upper-level bureau (representing the employees’ interests) and the local business organisation (representing the employers’ interests, such as enterprise association, commercial and industrial association, chamber of commerce, etc.) has been slightly changed in case of a dispute on collective bargaining between the employees and their employer. In other words, the local labour bureau will intervene in the dispute only if the local upper-level bureau and the local business organisation fail to mediate the dispute, and the local labour bureau may alternatively choose to send professionals (from the professional list on collective bargaining) to mediate the dispute.