China Frontline July: The Impact of the Newly Enacted Civil Code on HR Management

By Ying Wang, Ruowei Li, Amy Farrer

07-2020

China’s top legislature, the National People’s Congress, passed the long-awaited Civil Code (the "Code") on 28 May 2020. The Code consists of seven parts and 1,260 articles, forms the most extensive piece of legislation in the history of the People’s Republic of China, and will come into effect on 1 January 2021. When the legislation takes effect, it will replace the General Principles of the Civil Law, the PRC Succession Law, the PRC Marriage Law, the PRC Adoption Law, the PRC Guaranty Law, the PRC Contracts Law, the PRC Property Law, the PRC Tort Liability Law and the General Provisions of the PRC Civil Law.

It is worth noting that certain legislation (namely the PRC Labour Law, the PRC Employment Contract law and other labour related laws and regulations) will not cease to have effect when the Code comes into force. However, the Code toughens up almost every dimension of the regulation of civil society and will have a significant impact on HR management in China. We provide a brief overview of the key HR implications of the Code below.

Increased protection against sexual harassment

Sexual harassment is one of the least-developed areas of law in China. While local regulations provide definitions of sexual harassment applicable at the local level (e.g. Beijing and Jiangsu), China does not have a uniform definition of sexual harassment at a national level, and previous national legislation only contains a vague reference to sexual harassment being prohibited. To address this, Article 1020 of the Code introduces the following adjustments to existing legislation:

  1. It sets out a clear definition of sexual harassment: according to the Code, sexual harassment is unwelcome sexual behaviour against another person via written texts or images alone, in addition to spoken words or conduct. Whilst previous legislation limited protection to female employees, the Code extends the protection to include male employees.

  2. It requires employers (including government organs, businesses, and schools) to prevent, stop and investigate workplace harassment.

  3. Employers are required to establish an internal mechanism for the reporting of complaints.

With increased protections against sexual harassment under the Code, employers will need to take a more proactive stance to the prevention of sexual harassment and the management of complaints. It is also advisable for employers to audit their policies and procedures, to make sure they have an enforceable and practical set of company rules and policies on sexual harassment that comply with both national and local laws in China.

Employees' right of privacy

Current legislation, including the Tort Liability Law (which was introduced in 2009), explicitly states that the individual right of privacy should be protected. However, existing legislation remains general and lacks a uniform definition of privacy. The Code introduces a definition of "Privacy", defining it as "a natural person’s peace of life and the private space, private activities and private information which he/she is unwilling to let others know". The Code also sets out a list of actions that must not be conducted by any organisation or individual without consent.

In the workplace, employers should consider and re-evaluate whether their management behaviours (including the monitoring of employee work and internal investigations against employees) and internal policy exceed the limits of the legislation, and if so, how to adjust them to ensure compliance with the Code. Management should also be brought up to speed so that they are aware of their obligations.

Personal information

The Cybersecurity Law, introduced in 2017, systematically regulates the protection of personal data, and will continue to sit alongside new rules on personal data in the Code. The Code defines Personal Information as "all kinds of information recorded electronically or in other ways that independently or in combination with other information allows the identification of a natural person’s individual identity, including: natural persons’ names, dates of birth, ID numbers, biologically identified personal information, addresses, telephone numbers, email addresses and whereabouts, etc". It is worth noting that email addresses and whereabouts are not included within the definition of personal information under the Cybersecurity Law, so the new definition represents an expansion in the scope of data subject to regulation.

Within the labour law context, employers are allowed to collect the personal information of employees, providing that such information is closely related to performance of the employment contract. In view of the COVID-19 outbreak, the government also currently requires businesses to monitor its employees' health status and whereabouts, and as such, employee consent might not be needed in these circumstances. However, obtaining employee consent before collecting, transferring, sharing, processing of personal data is always the safest approach if there is no explicit legal basis allowing an employer to do so.

Clarification on definition of relatives, close relatives and family member

The Code outlines definitions of "relatives", "close relatives" and "family members", who can act as legal references when employers are deciding (i) the scope of the information to be collected from employees (it is common for the employer to collect family member's information for welfare purposes, and/or as an emergency contact), and (ii) whether to approve bereavement leave.

Under the Code:

  1. "Relatives" refers to the person's spouse, blood relatives and affinity.

  2. "Close Relatives" includes the person’s spouse, children, parents, siblings, grandparents and grandchildren.

  3. "Family member" includes the person's spouse, children, parents and other Close Relatives living together with the person.

Employer may seek civil remedies from its employee who caused damages to the third party

Existing legislation (i.e. the Tort Liability Law) vaguely states that when a staff member causes damages to a third party during the performance of their work duties, the employer of the staff member should be responsible. However, national legislation does not clarify whether the employer is permitted to seek compensation from the employee, in circumstances where the damage is caused intentionally by the employee, or due to his or her serious negligence.

Article 1191 of the Code expressly addresses this matter, allowing an employer to seek compensation from an employee for damages caused intentionally, or by his or her gross negligence.

Prior to the introduction of the Code, some local rules already provided a legal basis for an employer (as the infringed party) to seek civil law compensation from the responsible employee. For example, local legislation in Jiangsu states that it is unfair to compel an employee to pay for damage caused by the employee during the performance of his/her duties, unless such damage is intentional or caused by serious negligence. The rationale behind this position is that damage caused by employees that is neither (i) intentional, nor (ii) as a result of serious negligence, should be regarded as a business operation risk which should be borne by the company. Even where an employee is found to be liable to pay for such damage, the level of compensation, the degree of the employee's fault, the level of the employee’s remuneration and the severity of the damage must be taken into account.

Conclusion

The Code brings with it a significant amount of change for employers with operations in China to get to grips with. Preparations should begin now for the adjustments that will need to be made at the start of 2021.