HR in China

October 28, 2024 - Business - Tagged: , , - no comments

The common pitfalls and how to avoid them

Over the past decade there has been an increase in economic volatility and geopolitical tensions. In response, many countries, including European Union (EU) Member States and China, have introduced new laws and compliance measures to adapt to changing times. These factors have increased the governance burden for EU enterprises investing in China. Among these challenges, the most sensitive and crucial are related to the hiring and management of workers. Liu Yufang and Dai Ying of Beijing Jotai Law Firm set out the things companies need to do to avoid some of the common pitfalls.

Labour laws, characterised by strong administrative oversight and regional attributes, vary greatly between the EU and China due to significant social and cultural differences. Grounded in the framework of Chinese labour law,[1] this article examines a number of issues commonly encountered by EU enterprises in China in their human resource (HR) management. It offers targeted compliance suggestions aimed at benefitting their operations.

Avoiding dual employment relationships

EU companies often need to dispatch employees (especially senior managers and technical personnel) to work at their subsidiaries or joint ventures in China.

According to the Regulations on the Administration of Foreigners’ Employment in China,[2] foreign nationals working in China must obtain a work permit and sign an employment contract with a local company. Given that dispatched employees are managed by the parent company located in the EU but also hold a Chinese employment permit, this situation can easily lead to disputes concerning the dual employment relationship.

A 2022 judgement detailed the case of a Malaysian citizen who had signed an employment agreement with an international group registered in Singapore and was then dispatched to work at the group’s subsidiaries, initially in Shanghai and then in Chongqing.[3] The subsidiaries successively obtained an employment permit for the employee, and the Shanghai subsidiary signed an employment contract with him. Later, the foreign national initiated litigation against the Chongqing subsidiary over matters related to the recognition of employment relationships. A local court determined that the foreign national had had an employment relationship with both subsidiaries at different times. The judgement was reached based on the employment permit and the signing of the employment contract.

It is worth noting that for EU companies investing in China, once an employment relationship is recognised between the dispatched or seconded employee and the subsidiary or joint venture, the latter will bear liabilities such as making retroactive social insurance contributions, paying compensation to the employee for terminating an employment contract, or even penalties for illegally terminating an employment contract. Failure to pay social insurance for an employee may also result in administrative penalties.

Compliance Suggestions:

  • Through the design of dispatch agreements and employment contracts, clearly define which entity establishes the employment relationship with the foreign national employee.
  • If it is not desired for the employee to establish an employment relationship with the subsidiary or joint venture in China, then the China-based entity should avoid signing employment contracts. Instead, the dispatch agreement should explicitly state the mutual intention to establish an employment relationship between the employee and the EU parent company.
  • If the employee’s stay in China is limited, it is advisable to use a business visa rather than an employment permit.

Balancing data protection with HR management

It cannot be denied that there is a tension between the employer’s right to manage and the employee’s right to privacy and personal data protection. For example, some Chinese companies provide employees with smart cushions or wristbands to enable HR departments to monitor whether employees exceed their break times.

Although the law stipulates that companies may process personal information without an individual’s consent if necessary for HR management or the establishment and fulfilment of employment contracts,[4] it remains challenging in practice for companies to strike a balance between their operational needs and an employee’s privacy. Getting this balance wrong can lead to labour disputes.

A recent case that drew media attention involved an employee who used an umbrella to cover her desk for 18 days, citing concerns about the exposure of her privacy by surveillance cameras installed over her workspace in Shenzhen. After being fired, she took the company to court for illegal termination of her contract.[5] While the court ultimately ruled that the termination of the contract was lawful, this case illustrates the challenge posed by personal data protection laws to HR management.

Another major challenge is the cross-border transmission of employees’ personal data, particularly as large multinational corporations (MNCs) often use a globally unified HR management system and internal directory for their operations, including for sharing employees’ names, avatars, phone numbers, email addresses and other types of personal data, some of which may be classified as ‘sensitive’ under Chinese law.

Prior to 22nd March 2024, when the Cyberspace Administration of China issued the Regulations on Promoting and Regulating Cross-border Data Flows (Regulations),[6] the criteria for transferring an employee’s personal information abroad had been a persistent concern for MNCs. However, according to Article 5 of the Regulations,[7] companies are exempt from filing for an Outbound Data Security Assessment, entering into a standard contract for Outbound Personal Information, and obtaining certification for Personal Information Protection, if they implement cross-border HR management in accordance with the legally formulated employment rules of the company and collectively bargained contracts. The exemption does not include ‘important data’.[8]

Compliance suggestions:

  • The HR management rules inside a company should be aligned with the company’s collection and protection policies for personal data and reviewed for any conflicts with laws and regulations.
  • When collecting sensitive personal information from employees, the ‘inform-consent’ procedure should be followed, and written records should be properly maintained for a reasonable period[9] as required by law and the internal rules of the company.
  • If there is uncertainty about the categorisation of ‘important data’ being transmitted overseas, it is advisable to consult with local regulatory authorities (such as the local cyberspace administration) to determine whether the information falls within the scope of the exemption provided by the Regulations.

Protections for certain groups of employees

In China, labour protections for pregnant and breastfeeding employees, employees on medical or maternity leave, employees aged from 16 to 18, and those who have suffered work-related injuries are governed by mandatory legal provisions that contractual terms in the employment contract cannot override. The implementation of these provisions varies by region, and such regulations are typically implemented according to local labour norms which can cause compliance difficulties for enterprises when managing human resources across different Chinese regions.

For instance, in Beijing and Shanghai, female employees are entitled to 158 days of maternity leave; in the province of Heilongjiang, the duration is 180 days; whereas in the province of Qinghai, it extends to 188 days. Additionally, a portion of the salary during maternity leave must be borne by the employer rather than being fully covered by the maternity fund. In Beijing, for example, the maternity fund covers payments for only 128 days, with the remaining 30 days of benefits paid by the employer according to the employee’s earnings prior to the start of maternity leave.[10]

Regarding employees on medical leave, employers are required by law to provide a period of medical leave. Following the end of this period, terminating an employee solely based on illness is permissible only if the employee is unable to continue their previous duties or take an alternative position offered by the employer. Otherwise, a termination in these circumstances would be considered illegal. In a case released by the Shandong Higher People’s Court,[11] an employee suffering from cancer applied for additional leave after the period of medical leave had ended. The employer insisted on sending a return-to-work notice demanding the employee resume his original position. After it became clear that the employee was unable to return to work, the employer terminated the employment contract. The court ruled that the termination was illegal and ordered the continuation of the employment contract.

Compliance Suggestions:

  • Companies are advised to fully understand national and local laws and policies applicable to their location or operation areas. When setting rules for working hours, rest and holidays, they should strictly adhere to the special protections mandated by law for female employees, injured workers and sick employees, ensuring they receive the minimum legal entitlements.
  • Companies should incorporate these policies into their internal regulations to ensure the legal entitlements of female employees, sick employees and those who have suffered work-related injuries are protected.

Cultural differences in anti-harassment obligations

In 2020, an employer’s duty to prevent sexual harassment was incorporated into China’s Civil Code. Previously, this obligation was scattered among various public policies and industrial rules.[12] Currently, multiple laws and regulations, including the Civil Code, the Law on the Protection of Women’s Rights and Interests and the Anti-domestic Violence Law, along with local policies, regulate the responsibilities of employers to prevent and tackle harassment. Failure to do so could result in civil liabilities and administrative penalties.

Given the significant differences in culture, values and work practices between China and Europe, EU companies operating in China need to understand local legal requirements and consider the cultural characteristics of the region. Otherwise, the occurrence of a ‘sensitive incident’ could easily trigger a crisis, and improper handling could cause significant damage to a company’s reputation.

In 2021, a sexual assault allegation involving a female employee of Alibaba Group garnered tremendous public attention in China.[13] One of the most criticised aspects of the incident was the claim by the victim that she was pressured to drink excessively during a meal with clients, something that is not uncommon in Chinese workplaces. Following this incident, several Chinese internet giants, including Alibaba, announced they would change their corporate cultures to ensure there were no further such incidents. Alibaba pledged to expedite the formulation of guidelines designed to prevent sexual harassment, with the company also dismissing and penalising several senior executives.

Compliance Suggestions:

  • Companies should establish anti-harassment policies suited to tackling workplace issues common in China, set up dedicated handling bodies, ensure smooth complaint-reporting channels, and conduct anti-harassment education and awareness campaigns for employees. By doing so, businesses can reduce the likelihood of workplace harassment incidents.
  • Companies should promptly investigate and address complaints of harassment, offering support and assistance to affected employees while maintaining confidentiality regarding the whistleblower and the victimised employee.

Conclusion

In summary, understanding Chinese labour laws and establishing an HR compliance system that fits within the local legal framework is a key element of successful operations for any EU company planning to invest in China, or that is already deeply engaged in the Chinese market.

EU companies need to continuously review and adjust their HR management policies, and closely monitor the latest developments in Chinese judicial practices regarding labour laws. It is recommended to conduct regular internal audits of HR compliance, examine the implementation status of relevant systems, and seek the involvement of external professional organisations when necessary, thereby adapting to new norms and legal requirements.

Liu Yufang is a lawyer specialising in Chinese labour law at Beijing Jotai Law Firm. Dai Ying is a partner at the firm and specialises in corporate affairs and investment.

Beijing Jotai Law Firm is committed to providing smart solutions for its clients. Its founder has appeared in the rankings of the ALB and the Chambers. The Cross-border Legal Service Team, comprising lawyers working in French, English and Chinese, is proficient in international investment and trade (particularly EU-China deals), corporate affairs and dispute resolution.

[1] The framework of Chinese labour law integrates private and public law, adhering to a governance model of ‘self-regulation under state control’. The labour law system is complex and is built upon the foundation of labour law and employment contract law, complemented by administrative regulations, normative documents from central and local governments, and judicial interpretations, etc.

[2] Rules for the Administration of Employment of Foreigners in China, State Council, 2nd August 2018, viewed 18th September 2024, <http://english.www.gov.cn/services/work_in_china/2018/08/02/content_281476245886934.htm>

[3] (2022) Chongqing 05 Civil Final Appeal 2464, China Judgements Online (registration required), 2022, viewed 18th September 2024, <https://wenshu.court.gov.cn/website/wenshu/181217BMTKHNT2W0/index.html?pageId=f16d78ac367d1b0eaff723a6aada0dee&s21=(2022)%E6%B8%9D05%E6%B0%91%E7%BB%882464%E5%8F%B7>

[4] On 20th August 2021, China promulgated its first Personal Information Protection Law, forming the ‘three pillars’ of information protection along with the Data Security Law and the Cybersecurity Law, which include enhanced protection of natural persons’ information, including that of employees.

[5] Luo, C, Female employees were fired after they used umbrellas to shield themselves from security cameras at work due to privacy concerns — is this unjust?, Legal Daily, 26th May 2021, viewed 14th September 2024, <https://mp.weixin.qq.com/s/5GEqmlEWs1nwNXcVg1CQ-w>

[6] Regulations on Promoting and Regulating Cross-border Data Flows, Cyberspace Administration of China, 22nd March 2024, viewed 18th September 2024, <https://www.cac.gov.cn/2024-03/22/c_1712776611775634.htm>

[7] Data handlers sending personal information overseas are exempt from filing for an Outbound Data Security Assessment, entering into a standard contract for Outbound Personal Information, or obtaining certification for Personal Information Protection, if such transmission implements cross-border human resource management in accordance with legally formulated labour rules and regulations and collectively bargained contracts, where it is indeed necessary to provide employees’ personal information overseas. See Article 5: Ibid.

[8] A definition of important data is found in Article 19 of the Measures for the Security Assessment of Data Outbound Transfers (Measures), issued by the Cyberspace Administration of China in September 2022. According to the Measures, important data refers to data that, if tampered with, destroyed, leaked, or illegally obtained or utilised, could pose a threat to national security, economic operations, social stability, or public health and safety.

[9] For example, according to the Labour Contract Law, enterprises are entitled to retain the information of former employees for two years. As for the information of current employees, it depends on the company’s rules and the necessity of retaining such information, which requires a case-by-case analysis.

[10] These provisions can be found in various population and family planning regulations, such as those of Beijing, Shanghai and Heilongjiang.

[11] Huang, J, and Zhang, B, If an Employee Fails to Show up for Work After the Expiration of the Medical Treatment Period, Can the Employer Terminate the Labour Contract on the Grounds of Absenteeism?, Shandong High Law, 22nd April 2023, viewed 18th September 2024, <https://mp.weixin.qq.com/s/aIWHq6xHkkCHlPwGsQqdKQ>

[12] The public policies include the Outline for the Development of Chinese Women issued by the State Council and the provincial Implementing Measures of Special Regulations on the Labour Protections of Female Workers, while certain industry agreements, such as the Social Responsibility Management System established by the China National Textile and Apparel Association, also stipulate the obligation.

[13] See: Jinan Public Security Report on ‘Sexual Assault Case of Alibaba Employee’: No Evidence of Rape, China News, 14th August 2021, viewed 18th September 2024, <https://www.sd.chinanews.com.cn/2/2021/0814/79969.html>

Share the post "HR in China"