KRAFT Foods Inc has agreed to pay higher wages to its employees in China after the food giant was accused of violating China's new labor law for failing to consult workers before shifting its headquarters from Beijing to Shanghai.

"A final agreement was reached between the company and the labor union on Friday, with both sides making compromises," Chen Baoqing, chairman of the labor union, told Shanghai Daily at the weekend.

"We are pleased with the results, and the rights of Chinese employees have been ensured," he said without providing details of the deal.

The dispute was ignited when Kraft Foods announced it would move its Chinese headquarters from Beijing to Shanghai in January. The move was due to the firm's restructure after it bought the biscuit and snacks division of Danone in November.

However, the move, scheduled to begin in the third quarter and to finish by the end of the year, may have caused more than half the 340 workers to lose their jobs if they failed to accept the relocation. Employees of Kraft formed a union and asked for higher compensation and an apology.

The labor union earlier said it may apply for legal solutions after Kraft unexpectedly delayed talks until the end of March.

A spokesman for Kraft later said the company would continue to discuss details in good faith.

The final settlement still needs to be approved by workers at a meeting tomorrow, and will become effective 15 days after reporting to the local labor and social security bureau, Chen said.

Under China's new labor law, companies are required to consult staff before making major decisions that may affect employee interests.

Kraft entered the Chinese market in 1984 and set up its Beijing headquarters in 2006. In the past two years, Kraft has achieved double digital sales growth in China.