Employees’ Participation in Corporate Governance under the Revised Chinese Company Law
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This law affects all companies in the country, regardless of size. It will be effective in July 1st 2024, and there are 3 key points are:

  1. There is a new organ present in each company called the Employee Assembly. This organ is for employees to exercise their power of democratic governance of the company. There are two types, one is an assembly for all employees or an assembly for employee representatives. In general, companies with more than 100 employees will have an assembly for employee representatives, while less than 100 will have an assembly for all employees. The number of employee representatives must not be less than 5% of the total number of employees and also not be less than 30, while the number of managers and executives must not be greater than 20% the number of representatives. The trade union acts as the executive organ of the Employee Assembly.
  2. The Employee Assembly has access to basically all the information a company stores, which can be used to affect the worker benefits of employees. It also seeks to make sure the company is always following the labor laws present at the local and national level. When a company considers dissolution or applying for bankruptcy, it is required to listen to the opinions of its trade union and employees through the Employee Assembly or by other forms.
  3. All companies with at least 300 employees must have employee representatives at the board of directors, unless it already has a board of supervisors with employee supervisors elected by the Employee Assembly in it.
  • qwename
    10·
    6 months ago

    About the post title, this is a revision of an existing law, not a new law, I was confused when I saw the title as I am pretty sure the new laws passed two days ago were not about workers’ rights.

    TLDR: The revised Company Law makes employee representatives mandatory on the board of directors for LLCs or corporations that have 300 or more employees, employee representatives were already mandatory on board of supervisors (one-third minimum) before. Employee representatives are democratically elected by the Employee’s Congress, Employee’s Assembly or other forms. Audit committees (with optional employee representatives) are now allowed in place of the board of supervisors, which the article fails to mention.

    The system of Employee’s Congress (or Employee’s Assembly) and employee representatives on the board of directors is not something new, but was limited in scope or optional. From the Company Law before this revision:

    For LLCs (limited liability companies, 有限责任公司) that had a board of directors, employee representatives were not mandatory, unless they had 2 or more investors that are SOEs or state-owned investment entities. Paragraph 2 of Article 44:

    两个以上的国有企业或者两个以上的其他国有投资主体投资设立的有限责任公司，其董事会成员中应当有公司职工代表；其他有限责任公司董事会成员中可以有公司职工代表。董事会中的职工代表由公司职工通过职工代表大会、职工大会或者其他形式民主选举产生。

    (DeepL translation) A limited liability company invested in by two or more state-owned enterprises or two or more other state-owned investment entities shall have employee representatives on its board of directors; other limited liability companies may have employee representatives on their boards of directors. Employee representatives on the board of directors shall be democratically elected by the employees of the company through the employees’ congress, employees’ meeting or other forms.

    For LLCs that had a board of supervisors (as opposed to small LLCs which can just have 1 to 2 supervisors), at least one-third had to be employee representatives. Paragraph 2 of Article 51:

    监事会应当包括股东代表和适当比例的公司职工代表，其中职工代表的比例不得低于三分之一，具体比例由公司章程规定。监事会中的职工代表由公司职工通过职工代表大会、职工大会或者其他形式民主选举产生。

    (DeepL translation) The Supervisory Board shall include representatives of shareholders and an appropriate proportion of employee representatives of the Company, of which the proportion of employee representatives shall not be less than one-third, with the specific proportion to be stipulated in the Articles of Association of the Company. Employee representatives on the Supervisory Board shall be democratically elected by the employees of the Company through the Employee Representative Assembly, the Employee General Meeting or other forms.

    Corporations (or joint stock limited company, 股份有限公司) are required to have both a board of directors and board of supervisors, but employee representatives were also optional on the board of directors. The one-third minimum for employee representatives on the board of supervisors also applies to corporations (Paragraph 2 of Article 117 is exactly the same as Paragraph 2 of Article 51 mentioned above). Paragraph 2 of Article 108:

    董事会成员中可以有公司职工代表。董事会中的职工代表由公司职工通过职工代表大会、职工大会或者其他形式民主选举产生。

    (DeepL translation) Employees of the Company may be represented on the Board of Directors. Employee representatives on the Board of Directors shall be democratically elected by the employees of the Company through the Employee Congress, the Employee Assembly or other forms.

    Now that we got past the old revision, let’s look at the revised Company Law. While the shared article mentions that Paragraph 2 of Article 17 makes the system of Employee’s Congress the basic form of democratic management, it still preserves the wording that allows “other forms” (通过职工代表大会或者其他形式，实行民主管理). So I would say that the crucial difference is in Paragraph 1 of Article 68, that is for LLCs with more than 300 or more employees, employee representatives on the board of directors become mandatory:

    有限责任公司董事会成员为三人以上，其成员中可以有公司职工代表。职工人数三百人以上的有限责任公司，除依法设监事会并有公司职工代表的外，其董事会成员中应当有公司职工代表。董事会中的职工代表由公司职工通过职工代表大会、职工大会或者其他形式民主选举产生。

    The board of directors of a limited liability company shall consist of three or more members and may include representatives of the company’s employees among its members. For a limited liability company with more than 300 employees, except for a supervisory board established in accordance with the law and with representatives of the company’s employees, its board of directors shall include representatives of the company’s employees. Employee representatives on the Board of Directors shall be democratically elected by the employees of the Company through the Employee Congress, the Employee Assembly or other forms.

    Paragraph 2 of Article 108 then makes the above Paragraph 1 of Article 68 also apply to corporations:

    本法第六十七条、第六十八条第一款、第七十条、第七十一条的规定，适用于股份有限公司。

    (DeepL translation) The provisions of Articles 67, 68(1), 70 and 71 of this Law shall apply to joint stock companies.

    But the revised law also allows both LLCs and corporations to establish audit committees (审计委员会) instead of a board of supervisors, employee representatives are optional on audit committees, as opposed to being mandatory on board of supervisors:

    For LLCs, Article 69:

    有限责任公司可以按照公司章程的规定在董事会中设置由董事组成的审计委员会，行使本法规定的监事会的职权，不设监事会或者监事。公司董事会成员中的职工代表可以成为审计委员会成员。

    (DeepL translation) A limited liability company may, in accordance with the provisions of its articles of association, set up in its board of directors an audit committee composed of directors, exercising the powers and functions of the supervisory board as provided for in this Law, without having a supervisory board or supervisors. Employee representatives of the members of the company’s board of directors may become members of the audit committee.

    For corporations, Article 121:

    股份有限公司可以按照公司章程的规定在董事会中设置由董事组成的审计委员会，行使本法规定的监事会的职权，不设监事会或者监事。

    审计委员会成员为三名以上，过半数成员不得在公司担任除董事以外的其他职务，且不得与公司存在任何可能影响其独立客观判断的关系。公司董事会成员中的职工代表可以成为审计委员会成员。

    (DeepL translation) A joint stock limited company may, in accordance with the provisions of its articles of association, set up an audit committee consisting of directors in the board of directors to exercise the powers and functions of the supervisory board as provided for in this Law, and shall not have a supervisory board or supervisors.

    The audit committee shall consist of three or more members, and a majority of the members shall not hold positions other than director in the company and shall not have any relationship with the company that may affect their independent and objective judgment. Employee representatives of the members of the company’s board of directors may become members of the audit committee.

    • qwename
      6·
      6 months ago

      I reread Article 68 of the Company Law and figured I misunderstood it with regards to the audit committee (AC below) and board of supervisors (BoS below). If a company has an AC (optional employee representatives) in place of a BoS (minimum one-third employee representatives), and has 300 or more employees, then it is required to have employee representatives on the board of directors (BoD below).

      Both the AC and BoS include 3 or more members, here are some of the differences that affect the number of employee representatives (summarized from Article 121 (on corporation AC), 76 (on LLC BoS), 130 (on corporation BoS) of the Company Law):

      • AC: Members are from the BoD, and a majority should not hold positions other than being on the BoD. Employee representatives in the BoD may (optional) join the committee.
      • BoS: Members should include shareholder representatives and employee representatives, employee representatives must make up at least one-third of members. Members of the BoD and senior executives cannot be on the BoS.

      The difference in membership requirements means that at least one-third (x >= 1/3) of the BoS should be employee representatives, and less than half (x < 1/2) the AC can (optional) be employee representatives.

      So if I understood all this correctly, for small private companies that have less than 300 employees and meet the criteria for not having a board of supervisors, they don’t need employee representatives at all. This is where the interpretation of Paragraph 2 of Article 17 matters the most, whether or not establishing an Employee’s Congress is mandatory, but I guess we’ll find out soon enough when the revised law goes into effect on July 1st.