Impact of the New Civil Code on Human Resources

September 7, 2020 / CanCham

Author: Lu Jingbo 陆敬波, Managing and Founding Partner

Translators: Normand Gauthier, Su Yiwei

On May 28, 2020, the Third Session of the Thirteenth National People’s Congress deliberated and adopted the Civil Code of the People’s Republic of China (herein after referred to as the Civil Code). The content of the Civil Code will come into effect on January 1, 2021, and is vast, with a total of 1,260 articles divided into seven parts: general principles, property rights, contracts, personality rights, marriage and family, succession, and tortliability. This is the first law named “Code” since the founding of the People’s Republic of China, and it is a major achievement of the country’s rule of law and occupies an important position in the legal system. It is a fundamental law that strengthens the foundation, stabilizes expectations, and benefits the long-term development.

The “Combination of Civil and Commercial” of the Civil Code is known as the “encyclopedia of social life”, and its influence is extremely extensive, profound and far-reaching. Among its influence, the Civil Code on corporate human resource management is particularly worthy of attention. As a human-centred law, it intersects with human resource management, especially its general rules, contracts, personality rights and tort liability. The more intersections, the more impacts for enterprises, yet, these impacts are not scattered, but multifaceted and systematic; there are many opportunities and challenges. So how does the Civil Code affect the human resource management of enterprises? What are the main impacts and which ones are the opportunities and the challenges? What kind of response measures do companies need to take to effectively grasp opportunities and handle challenges? This article will try to answer the above questions.

1. The basic logic of the influence of the Civil Code on human resource management

From basic logic, the civil code mainly affects the human resource management of enterprises through the following three paths.

(1.1) The Civil Code affects the human resource management by influencing labor laws

Labor law is undoubtedly the law that is most closely related to enterprise human resource management, and from the beginning labor law and civil law have always had a complicated relationship. Labor law is detached from civil law and has been deeply affected by civil law since its birth. However, labor law is dedicated to correcting the imbalance between employer and laborer by strengthening protections of laborers, while civil law is committed to adjust the balance between equal subjects by protecting autonomy. Each develops along different paths, but there is always an overlap. The intersection of the two is mainly in the private and labor law such as the general provisions of the labor contract law and the civil law, the general provisions of the contract, personality rights, tort liability, and intellectual property rights. As for the public labor law, it should have nothing to do with the civil law; and the civil law degree of relevance to labor law is very limited in the property law, marriage and family, inheritance, etc. Therefore, if there are two circles to represent labor and civil law, they should be two intersecting circles, and the intersection is the aforementioned intersection.

Now that there is an intersection, the question is: who has the final say at the intersection, civil law or labor law? This involves the issue of the relationship between the two at the intersection. This issue is not only an important theoretical issue, but also an important and unavoidable practical issue. Some people think that it is the relationship between an upper law and a lower law, others argue it is the relationship between a new law and an old law, and some say it is the relationship between a general law and a specific law. In our opinion, the intersection of civil law and labor law is not the relationship between an upper law and a lower law, nor the relationship between a new law and an old law (due to length considerations, the argument is omitted), but the relationship between a general law and a specific law. The reasons briefly include but are not limited to:

a. Compliance with the provisions of the Legislation Law of the People’s Republic of China;

b. Compliance with the objective process of labor law originating from the civil law;

c. Compliance with the scope of application of both (employers and workers are private legal subject who are equal subjects in a broad sense, and at the same time are unequal subjects in a narrow sense based on subordination);

d. It conforms to the current general judicial practice. For example, Article 28 of the Supreme People’s Court “Notice of the Supreme People’s Court on Issuing the Minutes of the Eighth Work Conference of the Courts Nationwide on Civil and Commercial Trials (Civil)” (法[2016]399号) stipulates that:

“Where the liquidated damages agreed by an employer and a worker in the Non-competition Agreement are excessively high or lower than the actual losses and the party requests to adjust the amount of the liquidated damages, the people’s court may handle the case, mutatis mutand is to, the provisions of Article 29 of the Interpretation II of the Supreme People’sCourt on Several Issues concerning the Contract Law of the People’s Republic of China.”[1]

Another example is the Notice of the Shanghai Higher People’s Court on the Issuance of “Several Specific Opinions on the Trial of Civil Cases“ (沪高法民[2000]44号):

“As to whether the general rules of civil law and the provisions of the contract law can be applied in labor dispute cases, we believe that the labor law has its own specific regulated object, and the law should be applied first when trying labor dispute cases. Where there are no direct and specific labor law provisions in the relevant provisions of the labor law, the general rules ofthe civil law, the contract law and other relevant laws may be applied to the closest provisions.”

For example, in the (2017) Jingminzai No. 65 labor dispute between Alibaba and Ding, the Beijing High Court retrial finally held that:

“In cases not specifically covered in labor disciplines and rules and regulations, they should be understood and applied in accordance with the basic principles of civil law. The principle of good faith is not only a social ethic that workers should abide by, but also the cornerstone of the establishment and performance of labor relations between employers and workers in accordance with the law.”

The characterization of the relationship between general law and the specific law means that specific law, namely the labor law, should be applied first, and the general law, namely the civil law, should be applied in addition. However, how does this complementary role of civil law affect the labor law? The “debut” of the Civil Code is a powerful influencing factor, which also overlays on the heavy weight factor of COVID-19 in early 2020. We have noticed that from the relationship between civil law and labor law two major trends have emerged more clearly, we refer to it as: “civil advancement, labor retreat” and “conversion of labor law towards civil law”.

The so-called “civil advancement, labor retreat” means that in the scope of application of labor and employment, civil law is expanding strongly while labor law is shrinking. For example, flexible employment and flexible employment are currently supported and respected by policies to achieve the goal of securing employment under the current unfavorable situation, but how to achieve flexibility? Under the premise of labor relations flexibility is quite limited, because it is subject to various controls of labor law, so most of the current flexibility is actually through getting rid of labor relations. The so-called “de-labor relations”, thereby getting rid of the control of labor law, and then accept the “autonomy” of civil law and finally realize flexibility. With the continuous increase in the number of flexible employment and the continued effect of the Civil Code, the trend of “civil advancement, labor retreat” in the field of labor employment will become increasingly apparent.

The “conversion of labor law towards civil law” means that within the scope of application of labor law, the provisions of civil law are introduced more and play a more important role. For example, the labor law stipulates that labor contracts that violate the mandatory provisions of laws and administrative regulations are invalid. The mandatory provisions here do not distinguish between different types. At present, more and more judicial practices introduce mandatory provisions of effectiveness and administration into labor judicial trials to judge the legal effect of clauses such as unapproved special working hours agreements. For example, the principle of good faith in the labor law system is only stipulated by the Labor Contract Law as a principle that should be followed in the conclusion of a labor contract. However, in recent years, this principle has become popular in labor judicial practice, and is especially as a legal basis for contract termination. Another example is public order and good customs. This concept is not in labor law. However, in recent labor judicial practice, there has been an increase in cases where public order and good customs are directly cited as the legal basis for judging the legality of labor contract termination. For example, employees with have extra marital affairs or other improper personal ethics, ultimately the court decision support the termination with the main legal basis of the decision being public order and good customs. We noticed that public order and good customs are more “favored” in the civil code than the principle of good faith, so it can be reasonably foreseen that the influence of public order and good customs on labor law will still have a considerable importance in the future. In fact, it is not just these few examples, with the release of the Civil Code, many basic provisions or even some specific provisions in the Civil Code will enter the labor law and have different depths of influence on it.

As far as companies are concerned, how do they view the relationship between civil law and labor law, especially the two trends mentioned above. Are they opportunities or challenges? We believe that, in general, for good enterprises it is an opportunity, and it is necessary to study how to grasp and use it most effectively.

(1.2) The Civil Code directly affects human resource management

The labor law is undoubtedly the law that is most closely related to corporate human resource management, but it must be pointed out that corporate human resource management has never simply required to comply only with the labor law and without considering other laws. These other laws include the Company Law, Tax Law, Public Security Administration Punishments Law, Exit-Entry Administration Law, Criminal Law, etc. It also includes Civil Law, and the promulgation and implementation of the Civil Code will make civil law play a more important role in enterprise human resource management. This is not only because the Civil Code affects enterprise human resource management by affecting labor law, but also because the Civil Code can directly affect enterprise human resource management and make the latter be subject to adjustment and regulation of civil law. There are numerous considerations, for example, return of improper payment of wages due to operational errors, the civil capacity of mentally ill employees and their legal representation, the job technical achievements of the employee, the legal responsibility of the employee’s job behavior, etc.

In our opinion, the Civil Code directly affects the human resource management of enterprises. In addition to the specific systems listed above, the one with the most direct impact and the widest scope is the “personality rights” in the Civil Code. The main reasons include, but not limited to:

a. The provisions of personality rights are independent and rich in content. The independent compilation of personality rights is one of the major highlights of the Civil Code, declaring that it attaches great importance to the protection of personality rights. At the same time, a total of 51 articles have been reorganized, involving the rights of life, body, health, name, portraits, the enjoyment and protection of rights of voice, reputation, honor, privacy, personal information, freedom, dignity, against sexual harassment, etc.

b. This part is closely related to corporate human resource management. Among the many personality rights mentioned above, except the right to name, employees who are natural persons enjoy and are protected in accordance with the law, and the enterpriseis likely the civil subject with the most extensive, frequent, and closest contact with the employee’s personality rights. This is due to the continuous, personal, and subordinate labor relationship between the company and its employees. It also is for this reason that there is even a direct stipulation of employers’ legal obligation in this part, such as employers’ obligation to combat sexual harassment in the workplace, to protect personal information, etc.

c. There are many new provisions in this part. There is new content on protection against sexual harassment, of privacy, of personal information, etc. This content required a special attention as it is closely related to the company’s daily human resource management. Since it is new, the content adds a much new requirements to the company, such as for related regulations, establishment of organizations, contractual agreements or employee consent, etc. Additionally, most enterprises are not yet familiar with this content and on how to implement the requirements of these new provisions into the practice of business management.

Human resource managers of enterprises are generally familiar and more concerned with labor law; however, they are relatively unfamiliar with civil law. It is reasonable to foresee that the above-mentioned direct impact of the civil code on enterprise human resource management will be a significant challenge for most enterprises.

(1.3) The Civil Code influence the human resource management by raising awareness of rights

It can be assumed that the Civil Code will have a significant and positive impact on the promotion of civil rights awareness in Chinese society. First of all, the Civil Code, imposing status, great significance, important role and vast content is a milestone achievement of China’s rule of law, and led to high promotion and popularization since its promulgation. The promotion comes from both orderly arranged by officials and spontaneous by the private sector. Secondly, after the Civil Code is formally implemented on January 1, 2021, a large number of judicial cases will directly quote the provisions of the Civil Code as the legal basis for the judgment. The online publication of judgments will inevitably make a statement by producing acontinuous and massive number of references in cases. Thirdly, the content of the civil code is close to the daily life of the population, and it is more likely to attract the popular attention and dissemination than most other laws.

The increase in the awareness of social civil rights will inevitably have an impact on the human resource management of the enterprise. That is, enterprises will have avoided being passive and actively strengthen and improve its own human resource management level keep up with, or even surpass, the pace of the increasing awareness of employees’ rights. At present, most companies are more familiar and concernedwith the management of labor contracts, which is objectively directly related to the promulgation and implementation of the Labor Contract Law which has greatly enhanced the employees’ awareness of labor rights.

The Civil Code indirectly affects corporate human resource management by enhancing the awareness of social civil rights. This impact is both an opportunity and a challenge for enterprises.

2. The main aspects of the impact of the Civil Code on human resource management

Our research results show that the impact of the Civil Code on corporate human resource management is multifaceted or even systematic. In fact, it is difficult to completely exhaust the major and main impacts, we summarized them into seven categories:

a. The influence of the Code on employee entry management;

b. The influence of the Code on the management of remuneration;

c. The influence of the Code on the management of employees underprotected categories;

d. The influence of the Code on the protection of employees’ personality;

e. The influence of the Code on the protection of the rights and interests of enterprises;

f. The influence of the Code on the management of employee resignation and termination;

g. The influence of the Code on the management of labor disputes.

Each category contains different items, and the seven categories contain a total of 31 items. For example, the following categories include:

a. The influence of the Code on employee entry management

– Code and employee background investigation;

– Code and offer letter;

– Code and entry information;

– Code and signing the labor contract;

– Code and the effectiveness of labor contracts;

– Codes and flexible employment methods.

c. The influence of the Code on the management of employees underprotected categories

– Code and sick leave management;

– Code and mentally ill employee management;

– Code and employee after care management;

– Code and work injury liability management;

– Code and female employees management.

d. The influence of the Code on the protection of employee personalityright:

– Code and protection against sexual harassment in the workplace;

– Code and employee privacy protection;

– Code and employee personal information processing;

– Code and employee honor and dignity protection;

– Code and use of employee portrait & voice;

– Code and compensation for employees’ mental damage.

f. The influence of the Code on the management of employee resignationand termination:

– Code and employee resignation management;

– Code and employee dismissal management;

– Code and termination agreement effectiveness;

– Code and termination of labor contract.

3. The necessary response measures from enterprises

Clarifying the basic logic of the Civil Code’s affecting corporate human resource management is to accurately grasp the impacts; the goal after accurately grasping these impacts is to find and propose effective management measures for companies as a response. Overall, we believe that these measures include at least the following seven points:

(3.1) Rules and regulations: establish, reform, keep, and abolish

The labor rules and regulations of an enterprise are an extremely important tool for an enterprise to conduct human resource management. Faced with the multifaceted and systematic impact brought by the Civil Code, the best choice for most enterprises is to establish, reform, keep and abolish its own rules and regulations. In particular, it needs to be reminded that the establishment of sound rules and regulations is notonly the right of the enterprise, but also the obligation of the enterprise. If the necessary rules and regulations are missing, the enterprise needs to bear corresponding legal responsibilities and adverse consequences.The rules and regulations that need to establish, reform, keep and abolish include but are not limited to the following systems: recruitment, dismissal, sick leave, monitoring system, protection against sexual harassment, employee personal information protection and safety guarantees, female employee management, property management, etc.

(3.2) Labor contract: strengthen and supplement

The expansion of the scope of application of civil law and its penetration into labor law have provided a new and broad space for pre-emptive agreements between both companies and employees, and it is clear these kinds of agreements can improve management efficiency and reduce labor costs. Therefore, strengthening and supplementing the agreed content of labor contracts should be an important measure for enterprises to respond to the influence of the Civil Code and seize good opportunities. Roughly, fifteen points of the Civil Code could have an effective pre-emptive agreement and re-examining and revising the existing labor contract model is the main starting point for strengthening and supplementing the contents of the labor contract.

(3.3) Standalone agreements: review and optimization

The standalone agreements here include, but are not limited to, service period, non-competition, confidentiality, labor contract modification, labor contract termination, etc. The reasons for reviewing and optimizing these standalone agreements are basically the same as the above-mentioned section (3.2).

(3.4) Forms: review and optimization

Various standard forms are commonly used as management tools for enterprise human resource management. They are convenient and efficient. Their functions are often very important as carriers of various information to employees. Due to the enhancement of the protection of personal information and of privacy rights in the Civil Code, as well as the standardization of the way of expression of intention, such standardized forms need to be reviewed, optimized and supplemented.

(3.5) OA system: security upgrade

The Civil Code clearly increases the personal information security obligations that companies have towards their employees. Companies have the obligation to ensure the safety of employees’ personal information they hold: not to be leaked, tampered with, or lost. As more and more companies adopt digital and information management, most of their employees’ personal information is stored in the OA system. Therefore, companies must effectively fulfill this statutory obligation and, in addition to establishing rules and regulations in accordance with the above-mentioned section (3.1), it is also necessary to conduct a safety assessment and necessary upgrades to the existing system.

(3.6) Targeted training

The Civil Code abolishes nine laws. Therefore, the impact of the new civil code on corporate human resource management and the corresponding measures that companies must undertake contain rich and new content. If these elements are delivered to the different management groups of the enterprise in a targeted manner through various thematic trainings, the efficiency will be greatly increased. Thus, these trainings are should be considered as a must.

(3.7) Daily operation: consultant consultation

The labor law has become very complicated and varied, and the civil law is more extensive and profound than the labor law. No matter how strict and powerful the rules and regulations, labor contracts, individual agreements and forms, no matter how meticulous the training, they cannot completely predict and solve all the problems in the daily management of the enterprise. When the company encounters unforeseen and unsolved problems, the professional opinions and suggestions given by the hired legal counsel are truly timely help.

Thanks to our SME corporate member River Delta Law Firm for providing this article.

Established in Shanghai in 2004, River Delta Law Firm is a boutique law firm focusing on labor and employment law. Since its inception, River Delta has established nine branches in China and a representative office in San Francisco Bay Area, USA. With over 200 labor law professionals and nearly two decades of practice, their firm consistently focused on labor & employment law with at heart, a desire for innovation and accumulation of knowledge.