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CHINA (PRC FIRMS): An Introduction to Employment

Dingding Li
Zhao Li
Zhaogang Wang
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China: Employment (PRC Firms) 

PRC Personal Information Protection Law imposes compliance requirements on employers in human resources management activities

In day to day human resources management activities, employers are bound to process quite a lot of personal information of employees. The Personal Information Protection Law of the People's Republic of China (the "PIPL"), which has officially been implemented since 1 November 2021, imposes new requirements on the processing of personal information by employers.

The PIPL lists seven legal grounds under which personal information processors have the right to handle personal information, and the main two out of the seven legal grounds that employers may invoke include (1) to obtain the consent from the individual, and (2) where it is a necessity for the conclusion or performance of a contract to which the relevant individual is a party, or for carrying out human resource management activities following the internal employment guidelines/procedures formulated by the law.

To use the second legal ground mentioned above as a legal basis for lawful processing of personal information, the conditions stipulated by the PIPL must be satisfied. Formality-wise, there must be a contract to which the employee is a party (e.g. employment contract, non-compete agreement) and internal employment guidelines (e.g. employee handbook) formulated by the law (following the democratic and publicising procedure). Content-wise, for greater clarity, it is advisable that the clauses of the aforementioned contract and internal employment guidelines should specify and obtain the employees’ consent with regard to what kind of employee personal information is a necessity for the performance of the contract and the implementation of the internal guidelines.

Even if there are legitimate reasons, the PIPL states that before processing personal information, employers shall inform employees about the following matters in a truthful, accurate and complete way and in an accentuated manner using clear and concise language: (1) the name and contact information of the personal information processor; (2) the purposes and methods of personal information processing, types of personal information processed and retention period; (3) the means and procedures for the individual to exercise rights under the PIPL.

When it comes to sensitive personal information, such as biometrics, medical health, financial accounts, and location tracking, employees should also be informed of the necessity and the potential impact on their rights and interests. On top of that, specific purposes and rigorous protective measures are required for processing sensitive personal information.

The employer may need to process employees' personal information before they complete on-boarding, during their employment and after they leave the company. For example, before an employee joins the company, the company collects the employee's resume and conducts a background check on the employee as a candidate. If companies engage headhunters or background check companies, they may need to share the candidates' personal information, and the PIPL has clear rules regarding the obligation of both parties.

The company's attendance management system and its benefits system also collect data pertaining to the employees, since the former may obtain the employees' biometric information through the use of facial and fingerprint recognition technology and the latter may obtain copies of the employees' marriage certificates, case materials and their newborn child's birth certificate when they apply for marriage leave, sick leave, maternity leave and so on. When employees are asked to provide birth certificates of newborns, the PIPL has stricter compliance requirements as it relates to information about children under the age of fourteen.

After termination of employment contracts, the employer may collect the latest employment information of its former employees in order to fulfil the non-competition agreement.

For multinational corporations, the servers of the email system and human resources management system may be located outside of mainland China and this may involve the transfer of employee personal information across the border due to business needs. In such cases, the employers should assess whether they need to meet the requirements of the relevant authorities such as security assessment, personal information protection certification, or the formulation of a standard contract.

The applicable law on overseas stock options disputes

If an employee that works for a domestic company files a case against an offshore company over granting stock options, even if the offshore company and the employee have agreed to use foreign law as the applicable law, Chinese courts may still apply the PRC law.

In recent years, with a large amount of PRC start-up companies, especially in the TMT industry, listed overseas through setting up offshore entities, the number of disputes in relation to granting domestic employees the stock options of a listed offshore company is also increasing. Although the Stock Options Granting Agreement proposed by listed offshore companies usually agree to apply foreign law, recent cases show that more and more Chinese courts choose to apply Chinese laws in such disputes.

In such kind of dispute cases, because the granting party of stock options is an offshore company, these disputes belong to the disputes of foreign-related civil legal relations, which are stipulated in Article 3 of Law of the People's Republic of China on Application of Law in Foreign-related Civil Relations (the "Application of Law"), and the applicable law of these disputes shall be determined in accordance with the relevant provisions of the Application of Law.

In accordance with Article 4 of the Application of Law and the relevant provisions of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Law of the People's Republic of China on Foreign-Related Civil Relations (I) (the "Interpretation (I)"), those involving “protection of employees' rights and interests” shall be directly governed by China's labour laws and regulations.

Based on the provisions mentioned above, in practice, when dealing with overseas stock option disputes, some Chinese courts will consider factors such as that the grantee is an employee employed by a domestic company and the relationship between the domestic company and the offshore granting company, and then further determine that the overseas stock option disputes involving “protection of employees' rights and interests" stipulated by the Interpretation (I), and then directly apply the Chinese labour laws and regulations as the applicable law. Therefore, even if the parties agree to use foreign law as the applicable law in the Stock Options Granting Agreement, Chinese courts may still exclude the application of the agreed foreign law and follow the provisions mentioned above.

That said, whether the disputes over overseas stock options granted to domestic employees fall within the scope of "protection of the employees’ rights and interests" is inevitably controversial in practice. There is no clear conclusion according to Chinese law and regulations and the current judicial practice has not formed a consistent point of view.