The general counsel of the National Labor Relations Board yesterday upheld a contract between the United Auto Workers and Saturn Corp., a new subsidiary of General Motors Corp., setting up a unionized company in the right-to-work state of Tennessee.

The ruling by Rosemary M. Collyer gives GM and the UAW permission to proceed with an ambitious, $5 billion project to produce 500,000 small cars annually, beginning in 1990, at facilities now under construction in Smyrna, Tenn.

The ruling also represents a major setback for right-to-work advocates, who have argued that the UAW-Saturn contract contradicts Tennessee's "open shop" law, which gives workers the right to hold jobs without belonging to a labor organization.

Under the terms of the contract, approved last July 26 by Saturn officials and the union's executive board, UAW-represented workers currently employed at other GM facilities in the United States would receive preferential treatment in hiring at the new company.

The contract also guarantees "permanent job security" for at least 80 percent of the UAW-represented workers who would be hired at the Saturn complex.

In addition to those guarantees, Saturn officials agreed to give the union unprecedented access to company financial information and an equally unprecedented right to participate in nearly all decisions affecting Saturn operations.

The Virginia-based National Right to Work Committee, which last year filed unfair-labor-relations charges againt GM, Saturn and the UAW, said that the employment preferences given to the UAW in the contract were unlawful. The committee also accused GM of illegally accepting UAW representation before actually hiring a work force at Saturn.

Collyer rejected both of those arguments in her ruling yesterday.

The UAW-Saturn pact allows union membership only "to the extent permitted by Tennessee law," Collyer said. Because Tennessee is a right-to-work state, union security clauses -- "closed shop" provisions -- cannot be enforced, Collyer said. There are no union security provisions in the contract, which means that new Saturn employes have the right not to join the union, she said.

Collyer also said the preferential-hiring provisions of the UAW-Saturn contract are legal because they are "the result of bargaining between the parties about the effects of the Saturn Project on employes at existing GM plants."

That kind of bargaining is permissable under the National Labor Relations Act, she said.

"That's ricidulous," said Steve Kerekes, a spokesman for the National Right to Work Committee. "Her decision seriously jeopardizes right-to-work laws all around the country. This is a really sad development."

The NRWC will announce plans to appeal the ruling at a Washington press conference this week, Kerekes said.

Saturn officials applauded Collyer's ruling.