McDonald's, KFC, and Pizza Hut Cleared by Labor Bureau, but

UNCLAS SECTION 01 OF 02 GUANGZHOU 000462 SIPDIS SENSITIVE SIPDIS USPACOM FOR FPA E.O. 12958: N/A TAGS: ELAB ECON PGOV CH SUBJECT: McDonald's, KFC, and Pizza Hut Cleared by Labor Bureau, but Face Union Pressures REFERENCE: A) Guangzhou 421; B) 06 Beijing 22277 (U) This message is sensitive but unclassified. Please handle accordingly. ¶1. (SBU) SUMMARY: McDonald's and Yum! Brands are pleased that the Guangdong Labor and Social Security Bureau (LSS) investigation has cleared them of charges that they underpaid student part-time workers. The companies acted in accordance with regulations that exempt certain part-time student workers from the minimum wage. Chinese labor advocates have since called for a revision to such regulations. Both companies continue to talk with the All-China Federation of Trade Unions (ACFTU),which is using the controversy to promote itself in a good light and advance its campaign to organize more unions in foreign-invested enterprises. The companies have not reached any new agreements with ACFTU as a result of this controversy. END SUMMARY. The Labor Bureau Clears Companies of Labor Violations -------------- -------------- ¶2. (SBU) The Guangdong LSS released a statement to the media on April 10 saying that McDonald's and Yum! (which owns KFC and Pizza Hut) did not violate labor laws by paying student part-time workers at levels below the minimum wage. According to the statement, such workers are not considered full-fledged employees under China's labor regulations and are not covered under minimum wage guidelines. In a separate investigation in Shanghai, the Shanghai LSSB also cleared the companies of underpaying workers. However, the Guangdong LSSB in its statement cited other "problems" (without using the term "violations") in some of the companies' restaurants, including employees who worked more hours than allowed under law and others who did not have employment contracts. ¶3. (SBU) Following the announcement, the Guangzhou daily New Express (which broke the story on March 28) ran an article quoting lawyers and labor experts who said that China should revise the country's labor regulations to give student part-time workers the same rights as other workers. The lawyers and experts said the regulation (Article 12 of the Opinions on Enforcing the Labor Law) could lead to social instability and called for the draft Labor Law, which is expected to be issued in 2007, to give student workers more rights. The Union Steps into the Spotlight -------------- ¶4. (SBU) Guangdong ACFTU representatives have criticized McDonald's and Yum! Brands repeatedly in the press, accusing the companies of violating labor regulations; however, the government made no such finding in this case. Several days before the Guangdong LSS released its findings, the Guangdong ACFTU stated that part-time student workers are indeed entitled to minimum wage. A Guangdong ACFTU representative said the case presented an opportunity "to continue to push foreign companies to set up trade unions." ACFTU launched an initiative in July 2006 to unionize foreign companies and has a stated goal of establishing itself in 70 percent of foreign companies by the end of 2007 (ref B). Wal-Mart, Kodak, and Foxconn (which makes Apple products) all opened ACFTU branches in ¶2006. The Companies on the Investigation and Unions -------------- ¶5. (SBU) McDonald's and Yum! representatives told Congenoff and Embassy Laboff that they are pleased with the results of the Guangdong and Shanghai LSS investigations and with media stories affirming that they did not violate the law. They said the Guangdong LSS acted fairly and professionally throughout the case. Peter Kao, Yum! General Manager for Guangdong, said China's labor laws consider college students who work to be gaining professional experience and thus not subject to general labor laws. Both Kao and Greg Gilligan, McDonald's Government Relations Officer, insisted that the "problems" found by the Guangdong LSS relating to overtime and lack of contracts are minor, isolated cases. ¶6. (SBU) Regarding the ACFTU, both Kao and Gilligan said unionization was already taking place before the Guangzhou story broke and further expansion is inevitable. Both companies continue to have an open dialogue with the ACFTU but said no new agreements were reached as a result of the story. Both Kao and Gilligan said GUANGZHOU 00000462 002 OF 002 ACFTU took advantage of the media attention in this case to promote itself. Gilligan added that ACFTU continues to distort the issues and misrepresent the regulations in question in order to cast McDonald's in a negative light. Comment -------------- ¶7. (SBU) Though the Guangdong and Shanghai LSS investigations both clear the companies of violating China's labor law, the Guangdong report seems to bow to local political pressures by citing other "problems." Nevertheless, the Guangdong LSS acted in a professional manner over the past two weeks, refusing to condemn the companies before completing the investigation and distancing itself from the ACFTU findings. The ACFTU clearly used this story to its advantage and will continue to press U.S. companies in its effort to expand its presence in foreign companies. ¶8. (U) This cable was coordinated with Embassy Beijing. GOLDBERG