Human Assets & Compliance in New Period of China Civil Code and Judicial Interpretations

By Last updated Jan 11, 2021

Together with the implementation of the Civil Code of the People’s Republic of China (“Civil Code”), which came into force on January 1, 2021, the Supreme People’s Court issued several judicial interpretations (“SPC”) recently in China, including the interpretation on certain questions of the application of law in the examination of labor dispute cases (I) (“New legal interpretation”). The new judicial interpretation also came into force on January 1, 2021 and has replaced the previous judicial interpretations (“Earlier judicial interpretations”), which were of great importance in practice in the field of labor law.

The aforementioned judicial interpretations relate to the official interpretation and explanation of SPC or the Supreme People’s Prosecutor’s Office on the application of laws to certain issues and usually bind the courts in court. For this reason, judicial interpretation plays a key role in dispute resolution. especially in certain areas where the provisions are more general and ambiguous and local practice may differ from region to region and from court to court.

To give HR managers a better understanding of the new legal interpretation, we summarize the key points as follows.

1.	Overview of the changes 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 mainly relate to the subject matter and statute of limitations of the arbitration, as well as those inconsistent with applicable laws.
2.	Effects of the Civil Code on the Industrial Disputes Process The new judicial interpretation clearly identifies the relationship between employment laws and the Civil Code and establishes the Civil Code as the source of law when examining labor disputes and therefore certain provisions in civil law are expected to apply to the Code as well by the courts when deciding on labor law cases. The German Civil Code specifies the principle of “public order and good morals”, extends the scope of protection of the rights of the individual and has significant effects on personnel management Employers now have certain restrictions on performing the reference test, vacation management, disciplinary procedures, investigations, and file and record management. For this reason, we recommend that personnel managers carefully observe the relevant provisions of the German Civil Code. (Note: Ms. Helen Liao, partner in our Employment Team, held a seminar on “The Impact of the Civil Code on Corporate Human Resources Management and Relevant Actions” in December 2020, which summarized the key points related to the relevant human resource management and compliance as well as in-depth analysis in case studies. If interested, please click here to request the PPT.)
3.	The validity of the “oral contract amendment” and the requirement of “mutual consent” The Employment Contract Act provides that the terms of the employment contract can be changed after mutual consent through consultation between employer and employee. This change must be made in writing. The New Judicial Interpretation has further emphasized the importance of “mutual consent” and provides where An employment contract was changed orally rather than in writing, but was later carried out for more than a month. The validity of such a change will be confirmed by the court. In practice, employers bear the burden of proof in the sense of “mutual consent”, e.g. B. the recording of the conversation and the minutes of the meeting. For this reason, we recommend employers, if a change to an employment contract is required, to do so in writing by concluding a supplement in order to effectively reduce the compliance risk.
4th	The “Hong Kong, Macau and Taiwan Resident Work Permit” requirements have been removed Pursuant to the decision to revoke a series of administrative permits issued by the State Council of China on July 28, 2018 in Hong Kong, Macau and Taiwan (“HMT”) Residents no longer need to apply for a 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 HMT residents’ work permits, various companies have hired them to work in mainland China. Employers must therefore pay close attention to the questions Double employment, cross-border tax planning, protection of trade secrets, cross-border restrictive agreements and respect for human resources in both countries (i.e. Hong Kong and mainland China) to protect the interests of companies. Unlike HMT residents, foreigners must still obtain work permits in order to be legally employed in mainland China, and companies must also provide statutory benefits such as social security contributions. Please note: According to the People’s Republic of China Exit and Entry Administration Act, employers are fined RMB 10,000 up to a maximum of RMB 100,000 for any illegally employed foreigner. All income from the employment of these people will be confiscated. According to the Temporary Social Security Policy for Foreigners Employed in China, employers must register their foreign workers for social security within 30 days of applying for their work permits.
5.	Conclusion The new judicial interpretation as the first judicial interpretation in the field of labor law consolidates the relevant provisions of the previous judicial interpretations and leads to significant effects on human resource management in companies. Employers need to be alerted, identify the potential risks and take appropriate action by reviewing current rules, regulations, legal documents and day-to-day operations.