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Collective Contracts for Head Offices and Branch Offices


Author: Xinxia Zhong & Kun Wu

Background: A well-known electric company headquartered in Beijing with branch offices and factories across China had trade unions set up at its head office and branch offices respectively. A two-year collective contract signed at the Beijing head office has been effective since 2017. Some branch offices have already signed collective contracts while others haven’t. At the beginning of 2018, one of its factories in China requested a trade union fee refund and got rejected, a collective contract has not been signed by the factory. They were told by the local primary trade union via the phone that the trade union fee would be refunded when a collective contract is signed by the factory and approved by the local authority[1].  The company consulted the author: will a collective contract signed by the head office automatically apply to branch offices?

Main Body
A collective contract is a written agreement negotiated collectively between the employer and its employees according to the applicable laws and regulations. It regulates remuneration, working hours, rest, and leave, working safety and sanitation, training, social insurance and welfare, etc. For the head office and its branch offices, how shall their relationship be defined? Will a collective contract signed by the head office automatically apply to its branch offices, or does the head office have to sign collective contracts respectively? The writer will share some opinions on how collective contracts shall be signed for a head office and its branch offices based on many years of labor law practice.
1.  Legal relationship between head office and its branch offices
Under Corporate Law, a branch office does not constitute a separate legal entity, while being physically separated from the organization's head office. Head offices takes full responsibility for its branch offices. A branch office does not hold any independent assets and it is not self-governing in human resources or operation. Rather, the head office makes decisions concerning the branch offices’ business activities and management assigning. 
Under labor law, in accordance with the Regulations on the Implementation of Labor Contract Law, Article 4:
“A branch office established by an employer as defined in the Labor Contract Law which has obtained its business license or registration certificate according to law may conclude labor contracts with employees in the name of an employer”
And the Regulations of the People's Republic of China on Administration of Registration of Companies, Article 47:
“A company which establishes a branch office shall, within 30 days from the date of making the decision, apply for registration with the company registration authority, it is concluded that under labor law, a branch office, the same as the head office, is able to negotiate labor contracts with its employees in its own name as an eligible subject.”

2.  Employment model between the head office and branch offices
The employment model between the head office and the branch offices falls into two categories determined by how close the branch offices are tied to the head office:
1)  Closely related: the employee signs the labor contract with the head office and then it is sent to work in a branch office. The head office pays or contributes to the employee’s salary, social insurance and individual income tax. Some enterprises’ head offices would apply such an employment model due to the benefits of collective human resources management. In practice, enterprises need to avoid that under such model, relationships between employees and branch offices could be concluded as a factual labor relationship.
2)  Loosely related: the employee signs the labor contract with the branch office and his/her salary, social insurance and individual income tax are paid or contributed by the branch office.

3.  Model of signing a collective contract by head office or branch offices
The answers vary depending on how closely the branch office is tied to the head office, as detailed below:
1)  Under the closely related employment model, the employee signs the labor contract with the head office and then is sent to work in a branch office. Such employees can be selected as representatives and participate in the negotiation of collective labor contracts. In such cases, collective labor contracts are signed between the trade union of the head office and the company’s representatives, and will apply to the head office’s employees who work at the branch office. 
2)  Under the loosely related employment model, the labor contract is signed between the employee and the branch office as an independent employer. Meanwhile, according to the most of regional regulations, once employees make an offer of collective negotiation, branch offices - as employers - are forbidden to reject or delay it without justified reasons and must respond and undertake negotiations with the employees.
From our research on laws, regulations and other official documents - nationally and regionally - all the provinces, autonomous regions and municipalities have legislated on collective contracts, collective negotiation or dedicated collective contracts (mainly on salary) and given local authorities territorial jurisdiction without exception. This has undoubtedly confirmed again that branch offices shall sign collective contracts independently to ensure that the contract terms are in conformity with local regulations and their own factual situation. Judging from the practices all over the country, company’s legal representative’s signature on collective contracts and a hard copy of company’s business license are usually required when branch offices implement the report and record procedure after signing collective contracts.
To sum up, under the closely related employment model, collective contracts signed by the head office applies to its branch offices. While under the loosely related employment model, branch offices shall follow local regulations and sign collective contracts respectively.

4.  Precaution for branch offices to sign collective contracts
1)  Due to the principle of territorial jurisdiction, branch offices shall pay extra attention to local municipal and provincial regulations and other special regulations on labor standards (including minimum wage standard, etc.), labor protection, etc. For instance, the people’s government of Xi’an has included paid annual leave as an essential term for labor contracts or collective contracts. Besides, notices and regulations introduced by local general trade unions must not be ignored. For example, Beijing general trade union has clarified in its published guidance that collective contracts shall include terms on usage of employee welfare benefits and education expenses, labor protection standards, treatment of highly skilled talents and paid leave. All the relevant regulations and notices which have composed a complex system are scattered in different regional regulations and government documents. Hereby branch offices are suggested to consult local primary trade unions when necessary. 
In addition to the issues listed above, trade unions in different places are making innovative attempts on contract terms when guiding collective contract negotiation. For example, Shanghai primary trade unions try to include terms on assured staff canteens and mother-and-baby rooms in collective contracts or dedicated collective contracts.
2)  Procedure of report and record: collective contracts won’t be effective upon signing but need to be reported to local relevant labor administration departments within a certain period (5-10 days, regulations vary in different places) after signing. The definition of “local relevant labor administration department” is not always clear from place to place. According to regional regulations and government documents, it is advisable to report to labor administration department that is at or above county level and located where the branch office is registered, not including central enterprises and cross-provincial enterprises. Collective contracts become effective if there is no objection from the labor administration department within fifteen days since it receives the collective contract.
3)  Is signing collective contracts mandatory or negotiation without reaching an agreement is allowed after companies receive an offer of collective negotiation?
To this question, there is no law, regional regulations or guidance forcing companies to actually sign collective contracts with employees via negotiation. Practices all over the country differ: in Beijing and Shanghai, if collective contracts fail, companies may be included in the list of dishonest enterprises. In Jiangsu Province, Shandong Province, Bengbu City in Anhui Province and Hubei Province, human resources and social security departments are obliged to work with trade unions to intervene when necessary or when collective negotiation fails. Rules in Guangdong Province, Liaoning Province, Sichuan Province and Ningxia Hui Autonomous Region show some tenderness: when negotiation fails, both parties have the right to apply to the relevant human resources and social security departments, which will work with trade unions at the same level and the companies to negotiate a solution. Only in Sinkiang, negotiation will end if neither party applies to the relevant authority.

It is trade union’s fundamental purpose to protect staff’s interests through collective negotiation and collective contract systems. All-China Federation of Trade Unions have published that, up till the end of 2016, over 2.4 million collective contracts have been signed covering approximately 6.8 million enterprises and 0.29 billion employees. In 31 provincial trade unions and Sinkiang Production and Construction Corps’ trade union, 80% of the enterprises with trade unions have established a collective negotiation system, and 90% of the enterprises with trade unions and over 100 employees have established a collective negotiation system. Under current circumstances - that all regional governments are prompting collective contracts – companies, especially state-owned enterprises and state-holding enterprises, should particularly focus on risk prevention and differences in the application of collective contracts signed by head offices when signing collective contracts. Among many of trade union’s advantages is coordinating, making full use of these will help companies better motivate employees, and increasing the productivity which eventually that will have great significance to the sustainable development of enterprises.


[1] It must be clarified that there are not any laws or regulations supporting the primary trade union’s action. This case only indicates trade union's compulsory measures against enterprises that have not signed any collective contracts in that particular area. It does not mean trade unions in other areas will take the same or similar measures.

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