Thorough compliance self-inspection across all aspects of labour management is an effective way for employers to identify any non-compliance, enabling them to formulate plans of improvement, remedy legal hazards and minimise labour disputes.
Based on first-hand experience in such operations, the authors introduce guidelines in this article on how enterprises should conduct compliance self-inspections related to human resources, in accord with the most up-to-date legislation.
UNDERSTANDING THE CONCEPT
Human resources compliance self-inspection – also known as labour compliance self-inspection – applies to every step in an employer’s labour management within the current labour-related legal framework, from recruitment (interviews) to labour management (signing labour contracts, social insurance payments) and pre-departure (work handover).
Such an inspection allows enterprises to learn of risks plaguing its labour management, and essentially includes the following two steps:
Conduct due diligence. Due diligence primarily targets information and materials collected based on the compiled list of HR compliance self-inspection items, and may involve, when necessary, interviews with employees and senior executives. For enterprises to accurately assess legal risks during due diligence, apart from scrutinising all documents and information, it is necessary to research laws, regulations and judicial cases relevant to labour compliance.
Summarise risks and formulate improvement plans. After identifying and combing through the labour-related compliance risks, enterprises should proceed to working out plans for improvement. For example, if the company should have set up a workers’ congress, given its nature, size and number of staff, but has failed to do so, it should immediately correct the situation and ensure the number of representatives, ratio of composition and election process are in line with legal requirements.
COMPILING COMPLIANCE LIST
Before initiating the labour compliance self-inspection, employers should first prepare a list of HR compliance self-inspection items befitting their own situation, covering a variety of aspects such as the nature of the company, number of employees, mode of employment, signing of labour contracts, formulation of internal rules and regulations, and whether it is subject to industry regulation.
Based on practical experience in assisting enterprises to compile such compliance self-inspection lists, the authors believe this is a vital foundational document, indispensable for the due diligence process.
Accordingly, the following is a summary of common items relevant to labour management that should usually be covered by the list:
Mode of employment. For example, does the company’s current mode of employment involve labour dispatch, labour outsourcing, part-time employment or other forms of flexible labour? If labour dispatch is indeed a part of the lineup, the relevant positions must be temporary, auxiliary and alternative; otherwise the company may be subject to employer liabilities, or even legal risks of administrative penalty.
Process of recruitment. Employers should scrutinise their recruitment advertisements and entry registration forms for any discriminatory content related to e.g. gender, marriage or maternity.
The Law on the Protection of Women’s Rights and Interests (Law on Women’s Rights), becoming effective on 1 January 2023, explicitly forbids any discrimination against female employees and limits the scope of personal information that employers may collect.
For example, it is forbidden to limit recruitment conditions to exclusively male candidates; or grant them preference; or inquire or research female candidates about their marriage and maternity status; or consider them as conditions of employment.
If found to be in conflict with latest current laws and regulations, the employer should promptly modify and adjust recruitment conditions, or be subject to multiple layers of penalty for employment discrimination.
Labour supervisors may order a correction in course, which if not carried out in time, or in serious circumstances, may incur a RMB50,000 (USD7,100) fine. Employers may also face public interest lawsuits filed by the procuratorate and possibly be ordered to compensate for personal damages.
Additionally, according to the Personal Information Protection Law, enterprises must inform candidates of the purpose, manner and scope of their personal information collected, stored and used – and obtain their prior written consent, or risk being liable for personal information infringement.
After recruitment but before starting work. Enterprises should verify whether prospective employees have severed labour relationships with their former employers and whether they are free from bindings of non-compete agreements or any other restrictions. An employer hiring someone who has not terminated their former labour relationship, or is still bound by non-compete obligations to the former employer, may be held legally accountable by the former employer.
Labour management. Clauses of labour contracts should be examined for their completeness, such as in respect of the term of the contract, compensation and labour protection. Under the imminent Law on Women’s Rights, a special clause for protecting female employees should be included as an essential provision in labour contracts signed with all female employees.
Furthermore, the Law on Women’s Rights builds on foundations laid by the Civil Code by further clarifying employers’ duty and legal responsibilities to prevent and protect against sexual harassment.
Accordingly, it is worth checking if relevant systems are in place. If not, it is imperative to immediately formulate rules to ward off workplace sexual harassment, and refine the definition, scope and disciplinary action relevant to such conduct.While implementing anti-sexual harassment protocols, enterprises should also set up and maintain compliant channels, and establish sound investigation and handling processes.
Democratic administration. Enterprises should note whether democratic consultation, public announcement and notification procedures have been implemented when formulating and revising internal rules and regulations vital to the interests of employees – such as the performance appraisal, personal data and privacy, and the disciplinary system. If such procedures are found to be missing, these rules are likely to be less than effective.
Departure from company. Prior to an employee’s departure, the employer should check if there is any non-compete obligation and explicitly inform the employee of its exemption, or necessity to fulfil it. Failure to exempt the employee of a non-compete obligation in time (prior to or on the day of departure) will in general incur extra costs of three months’ compensation for non-competition.
Tracy Liu is a partner and Larry Lian is a counsel at Jingtian & Gongcheng
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