Human Resources & Compliance in New Era of China Civil Code and Judicial Interpretations

Along with the implementation of Civil Code of the People’s Republic of China (“Civil Code”), which came into effect on 1 January 2021, several judicial interpretations have been issued by the Supreme People’s Court (“SPC”) recently in China, including the Interpretation on Certain Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (I) (“New Judicial Interpretation”). The New Judicial Interpretation also became effective on 1 January 2021 and has replaced the previous judicial interpretations (“Previous Judicial Interpretations”), which used to be of high importance in the area of labor law in practice.

The aforesaid judicial interpretations refer to the official interpretation and explanation made by SPC or Supreme People’s Procuratorate on the application of laws to specific issues, and usually bind the courts in trial. For this reason, the judicial interpretation plays a key role in the dispute resolution, particularly in certain areas where the provisions are more generic and ambiguous, and the local practice may vary from region to region, and from court to court.

To help human resources managers better understand the New Judicial Interpretation, we summarize the key points as follows.

1.

Overview of the changes made in the New Judicial Interpretation

The New Judicial Interpretation, which consists of 54 articles, has slightly revised and consolidated various provisions under Previous Judicial Interpretations, which consist of 72 articles. The abolished articles are mainly related to the subject and limitation period of arbitration, as well as those inconsistent with the current laws.

2. 

Impact of Civil Code on the Trial of Labor Dispute

The New Judicial Interpretation clearly identifies the relationship between the laws in the field of employment and the Civil Code, and further sets the Civil Code as the source of law in the trial of labor dispute, and therefore it is expected that certain provisions in the Civil Code may also be cited by the courts in deciding the cases on labor dispute.

The Civil Code clarifies the principle of “public order and good morals”, expands the scope of the protection of individual rights, and leads to significant impact on the human resources management, as the employers now have certain limitations in exercising the reference check, leave management, disciplinary procedures, investigation and file & record management. For this reason, we suggest the human resources managers to pay close attention to the relevant provisions under the Civil Code.    

(Note: Ms. Helen Liao, Partner in our employment team, delivered a seminar on the topic of “The impact of Civil Code on Corporate Human Resources Management and Relevant Measures” in December 2020, which summarized the key points in relation to the relevant human resources management and compliance, and made the in-depth analysis in case studies. Should you be interested, please click here to request for the PPT)

3. 

The Validity of “Modification of Contract in Oral” and the requirement of “Mutual Consent”

Labor Contract Law provides that the terms of labor contract may be modified upon “Mutual Consent” through consultation between the employer and employee, and such modification must be done in written format. The New Judicial Interpretation has further stressed the importance of “Mutual Consent” and provides that where a labor contract has been modified through oral agreement rather than written format, but subsequently performed for more than one month, the validity of such modification shall be supported by court.   

In practice, the employers bear the burden of proof in terms of the “Mutual Consent”, such as providing the record of the conversation and minutes of the meeting. For this reason, where the modification of a labor contract is necessary, we recommend employers to do so in written format by concluding an addendum, which could effectively mitigate the compliance risk.

4. 

Requirements on “Work Permit for Hong Kong, Macau & Taiwan Residents” have been removed

According to the Decision on the Cancellation of a Series of Administrative Permits, issued by the State Council in China on 28 July 2018, Hong Kong, Macau & Taiwan (“HMT”) Residents are no longer required to apply for work permit to be employed in mainland China. The relevant requirements have also been removed in the New Judicial Interpretation.

In line with the cancellation of work permit for HMT residents, various companies have been assigning them to work in mainland China. It is therefore necessary for employers to pay close attention to the issues on dual employment, cross-border tax planning, protection of trade secrets, cross-border restrictive covenants and human resources compliance in both jurisdictions (i.e. Hong Kong and mainland China) in order to protect the interests of the companies.

As opposed to HMT residents, foreigners are still required to obtain the work permit to be legally employed in mainland China, and companies are also required to provide the statutory benefits such as the contributions of social insurance. Please note:

  • According to the Exit & Entry Administration Law of the People’s Republic of China, employers will be fined RMB 10,000 for each illegally employed foreigner up to a maximum fine of RMB 100,000; any proceeds gained resulting from the employment of such individuals shall be confiscated;

  • According to the Interim Measures for Participation in the Social Insurance of Foreigners Employed in China, employers shall register their foreign employees for social insurance within 30 days after applying for their work permits. 

5. 

Conclusion

The New Judicial Interpretation, as the first judicial interpretation in the field of employment law, consolidates the relevant provisions under the Previous Judicial Interpretations, leads to a significant impact on the human resources management within companies. Employers shall be alerted, identify the potential risks and take the appropriate measures by way of reviewing the current rules, regulations, legal documents and daily operations.

Deacons will continue to monitor and release the latest development of policy and law amendment.