Why businesses should establish a grassroots trade union soon: a perspective from human resource management to legal compliance

In the context of rapid socio-economic changes and an increasingly complex working environment, building harmonious and stable labor relations is a vital goal for all businesses. One of the effective and sustainable solutions to achieve this is the early establishment of grassroots trade unions – organizations representing employees at enterprises.

However, many businesses, especially small and medium-sized companies, are still hesitant or hesitant to establish grassroots trade unions, due to concerns about operating costs, interference in business operations, or simply not understanding the long-term benefits that this organization brings. The following article will comprehensively analyze the reasons why the early establishment of a grassroots trade union is not only a legal requirement, but also a wise human resource management strategy and the foundation for the sustainable development of the business.

Source: THACO

Obligations of enterprises for the establishment of trade unions

A trade union is a legal organization representing employees. According to the provisions of the Law on Trade Unions 2024, which will take effect from July 1, 2025, the Labor Code 2019 and guiding documents, grassroots trade unions are organizations established at enterprises to represent, take care of and protect the legitimate rights and interests of employees. Trade unions play an important role in collective bargaining activities, periodic dialogues, labor dispute resolution and supervision of the implementation of labor policies and laws in the workplace.

Clause 1, Article 177 of the Labor Code 2019 clearly states  the obligations of employers to grassroots employee representative organizations: "Employees must not obstruct or cause difficulties when employees conduct lawful activities to establish, join and participate in activities of grassroots employee representative organizations". At the same time, the Trade Union Law requires enterprises to create conditions for the time, location and funding of trade unions, in accordance with the scale and actual situation.

In many cases, the fact that enterprises do not create conditions for employees to form trade unions, or have obstructive behaviors, has led to administrative sanctions and led to many legal risks as well as serious damage to the image of the enterprise.

Benefits of establishing a grassroots trade union for businesses

Strengthen human resource management and team engagement

In many enterprises, especially large-scale manufacturing enterprises, where there are hundreds to thousands of employees, grassroots trade unions act as a "bridge" between the board of directors and employees. The Trade Union helps to timely transmit two-way information, answer problems and reflect the thoughts and aspirations of employees in a systematic way.

When there is an effective trade union, businesses can easily grasp and handle internal conflicts early, thereby minimizing the risk of strikes, mass resignations, or prolonged complaints.

In addition, the trade union is also an active force in organizing welfare, cultural and sports activities, supporting difficulties for employees, thereby contributing to building a positive working environment and improving attachment to the business.

Support for management and compliance with labor laws

Grassroots trade unions, as employee representative organizations, regularly coordinate with employers to conduct periodic dialogues, negotiate and sign collective labor agreements. These documents, with the constructive participation and contribution of opinions and votes of the trade union, will create a solid legal foundation with strict compliance with the law of the enterprise. This will help businesses:

• Standardize personnel policies, create transparency and fairness among departments.
• Minimize legal risks in case of disputes over working conditions, salaries, bonuses, etc.
• Increase compliance assessment scores in inspections of state agencies.

In recent years, many enterprises have been fined hundreds of millions of VND for failing to organize periodic dialogues or signing labor agreements in contravention of regulations – violations that a legal grassroots trade union can completely help to avoid.

Keep most of the trade union funds to serve the company's employees

Article 4 of the Government's Decree 191/2013/ND-CP dated 21/11/2013 stipulates detailed regulations on trade union finance: "Subjects who pay trade union dues according to the provisions of Clause 2, Article 26 of the Law on Trade Unions are agencies, organizations and enterprises, regardless of whether such agencies, organizations or enterprises have or do not have grassroots trade union organizations...". Therefore, even though enterprises do not have a grassroots trade union, they still have to pay trade union funds.

However, according to Decision 8108/QD-TLD dated October 16, 2023 of the Vietnam General Confederation of Labor on the distribution of trade union dues to trade unions at all levels, in case the enterprise has legally established a grassroots trade union at the enterprise, the grassroots trade union is entitled to use 70% of the trade union fee revenue[1]. Therefore, having a grassroots trade union will help businesses retain and use significantly the amount of union dues payable according to regulations. This is a great benefit when businesses establish grassroots trade unions.

Creating an edge in the global supply chain and attracting investment

Many international partners, especially from the European Union, the United States, Japan... when looking for suppliers in Vietnam, they all carefully evaluate social responsibility and labor rights, including whether there is an effective grassroots trade union organization or not.

The fact that enterprises have trade unions, collective bargaining mechanisms and transparent dialogue is an important competitive advantage in bidding, signing large contracts, or when participating in the supply chains of multinational corporations.

In addition, for listed companies or preparing for IPO, having a trade union also helps to improve the ESG (Environment – Society – Governance) score, which is a mandatory criterion in the assessment of sustainable investment of many modern financial institutions.

Consequences of delaying or not forming a trade union

In practice, many enterprises have fallen into the situation of collective complaints by employees, prolonged strikes, or administrative sanctions due to violations of regulations on collective dialogue and bargaining – mostly stemming from the absence of grassroots trade unions or grassroots trade unions operating in a formal manner.  perfunctory.

The fact that enterprises have not established grassroots trade unions can leave many consequences that harm businesses. The table below will illustrate some specific problems and consequences that businesses may suffer if there is no grassroots trade union.

The early establishment of grassroots trade unions is not only a legal responsibility, but also a strategic management decision of enterprises when carrying out business activities. In the context of global competition and increasing requirements for social compliance, a substantive and effective trade union will become a sustainable competitive advantage, helping businesses develop stably and affirm their position in the domestic and international markets in terms of the image of a responsible business enterprise.

Lawyer Nguyen Van Phuc

HM&P Law Firm