Is Office Camera Installation a Violation of Employee Privacy?

On February 1, 2020, Company B installed multiple high-definition surveillance cameras in the work area, one of which was located above the desk of an employee, Ms. Zhu. Ms. Zhu believed that the camera captured her personal privacy, so she used two umbrellas to cover the camera while not obstructing the normal operation of other cameras.

After two oral communications between the HR manager of Company B and Ms. Zhu, the company sent two written “warning letters” to Ms. Zhu. However, Ms. Zhu continued to use umbrellas at her desk for more than ten working days.

On March 7, 2020, Company B terminated the labor contract with Ms. Zhu, citing her serious breach of discipline in using an umbrella at her desk.

Ms. Zhu believed that Company B’s termination of the contract was illegal and filed a lawsuit seeking compensation.

However, the case was dismissed in the first instance, second instance, and retrial.

The final judgment stated the following :

1. Was Company B’s installation of surveillance cameras in the office reasonable?

According to Company B’s statement issued before the installation , the purpose of installing surveillance cameras was to ensure the safety of people, property, and assets in the workplace.

The installation area was a common area where multiple people worked, rather than an individual’s personal workspace. It was not a private living area of employees. The camera was installed in a typical corner location to monitor the area without blind spots.

The installation of surveillance cameras by Company B was considered a reasonable act in line with the general management rights of employers. Ms. Zhu failed to provide evidence that Company B had any other purpose for this installation. The court found that Company B’s installation of surveillance cameras in the office was not inappropriate.

2. Did the installation of surveillance cameras infringe on Ms. Zhu’s personal privacy?    

Ms. Zhu claimed that the camera’s position infringed on her rights, but the specific analysis based on the evidence she provided did not support her claim. As an employee, Ms. Zhu was expected to accept the employer’s management in terms of working hours and workspace. Although surveillance cameras might capture her account passwords, these passwords were meant for work-related tasks, not personal matters, and did not fall under the category of personal privacy information.

As for Ms. Zhu’s claim that her location could be filmed, in practice, proper dressing in an office environment could easily prevent any so-called “indecent exposure” issues.

3. Did Ms. Zhu seriously violate labor discipline?

Ms. Zhu continued to use an umbrella at her desk to avoid surveillance cameras for more than ten working days, despite four instances of verbal and written communication by Company B.

Her refusal to comply with company management not only had a negative impact on other employees but also undermined the effectiveness of the company’s management system. Therefore, her behavior constituted a serious violation of labor discipline. Company B was within its legal rights to terminate the labor contract with Ms. Zhu.

The main controversy in this case was whether Company B’s termination of the labor contract was illegal. In essence, it deals with the boundaries of protecting employee privacy rights when there is a conflict with company management regulations.

First, according to the General Principles of the Civil Law of the People’s Republic of China and the Tort Liability Law of the People’s Republic of China, the right to privacy is a personal right of citizens. It emphasizes a person’s right to control personal information, private activities, and private areas unrelated to public interests.

Employees, as natural persons, have the right to privacy. However, due to the derivative nature of the employment relationship and the special characteristics of an employee’s activity space, the employer’s right to manage inevitably limits the employee’s right to privacy to some extent. Protection of an employee’s right to privacy in the workplace must also take into account the special nature of labor relations.

While employees are entitled to the special protection provided by labor laws (you may check our previous post for more information: What are the Rights of Employee in China?) they are expected to comply with the necessary supervision and management by the employer in the workplace, as long as it does not violate their personal privacy. The employer has the right to exercise management reasonably.    

Of course, the installation of surveillance cameras by the employer in public office areas must have strict internal control regulations for the time and space scope it covers,and an important prerequisite is to provide clear and explicit notification to employees to ensure their right to be informed.

The extraction and use of content must follow certain procedures and should not violate relevant laws and regulations. This reflects the balance between the employer’s pursuit of management objectives and the protection of the employee’s right to privacy.

How Can an Employee Terminate the Employment Contract Legally?

Some foreign employees complained that their labor contracts stipulate a requirement to provide three months’ advance written notice to the employer before resigning, and that compensation is required for early termination. They inquire about the legality of this provision and seek advice on what actions to take.

According to the labor law, our analysis and recommendations are as follows:

1. Advance Notice to the Employer

Article 37 of the Labor Contract Law of the PRC clearly states that employees have the right to terminate the labor contract by giving the employer written notice thirty days in advance or three days in advance during the probationary period.

Please be noted that, if the labor contract provisions are inconsistent with the law, such provisions are deemed illegal and invalid, having no binding effect on the employee at all. As long as the employee resigns within the legally stipulated period, the employer cannot unreasonably obstruct or demand compensation.

If the employer insists on compensation from the employee, the employer must prove the existence of losses and that they are caused by the employee.

Note: Some employers stipulate in the contract that they provided training, and therefore, the employee must compensate for training costs if leaving early, actually, this is another way for the employer trying to stop the employee from leaving, as they didn’t provide any training at all.

In court hearing, the employer must provide evidence that training was actually provided.

2. Employee Entitled to Economic Compensation if Employer’s Fault Leads to Resignation

According to Article 38 of the Labor Contract Law of the People’s Republic of China, if the employer has any of the following circumstances, the employee may terminate the labor contract:    

 (1) failure to provide labor protection or working conditions as agreed in the labor contract;

(2) failure to pay labor remuneration in full and on time;

(3) failure to contribute social insurance premiums for employees in accordance with the law;

 (4) employer’s rules and regulations violate laws and regulations, damaging the rights and interests of employees;

(5) circumstances specified in Article 26, paragraph one, of this law that render the labor contract invalid;

(6) other circumstances as stipulated by laws and administrative regulations that entitle the employee to terminate the labor contract.

In accordance with Article 46 of the Labor Contract Law of the PRC, when an employee terminates the labor relationship in accordance with the aforementioned Article 38, the employer shall pay economic compensation to the employee. You may check our previous article for more information: What are the Rights of Employee in China?

3. Employee Should Handle Resignation Handover and File Transfer Promptly

According to Article 50 of the Labor Contract Law of the PRC, the employer must issue a certificate of termination or termination of the labor contract when terminating or ending the labor contract, and must complete the transfer of files and social insurance procedures for the employee within fifteen days. Meanwhile, the employee should handle work handover promptly according to the agreement between both parties.

In conclusion, for employees, if they submit their resignation within a reasonable period, perform proper work handover, the employer should cooperate in handling the resignation procedures without demanding any compensation from the employee.

New Company Law Says Contribution Shall Be Made in 5 Years

The new Company Law of the People’s Republic of China was officially reviewed and passed on December 29, 2023, and will be officially implemented on July 1, 2024.

The updated Company Law has made revisions to many important issues, and this article will focus on the important provisions of the new Law regarding the shareholders’ capital contribution obligations of limited liability company :

* Set the maximum period for the subscribed capital contribution of shareholders, normalizing the acceleration of shareholder contributions.

The revised Company Law has made certain revisions to the subscribed capital system for limited liability companies, requiring “the total amount of capital contributions subscribed by all shareholders to be fully paid within five years from the date of the company’s establishment” in accordance with the company’s articles of association. It mandates the longest period for shareholders of limited liability companies to fulfill their subscribed capital contribution, aiming to ensure reasonable expectations for the realization of creditor’s rights, reduce transaction risks, and stabilize company operations.

* Introduction of the accelerated contribution expiration system, allowing creditors to demand early contribution of the capital

The revised Company Law introduces the accelerated contribution system, stipulating that if a company cannot repay its matured debts, creditors with matured claims have the right to demand shareholders who have subscribed but have not yet reached the contribution deadline to make early payments.  

* Provide board’s responsibility to urge capital contributions and the system for shareholders losing their rights, enhancing rules for handling untrue capital contributions by shareholders

The new Company Law specifies that after the establishment of a limited liability company, the board of directors is obligated to verify the capital contributions of shareholders.

If a shareholder fails to make a timely and full contribution, the company should issue a written reminder to urge the contribution. Directors are responsible for any losses caused by the failure to fulfill this obligation shall be held liable for compensation.

If a shareholder does not fulfill the capital contribution obligation within the period specified in the company’s written reminder, the board of directors can issue a notice of loss of rights, and the shareholder loses the equity not yet contributed from the date of the notice.

The forfeited equity should be transferred according to the law, or  corresponding capital should be reduced in registered capital. If not transferred or reduced within six months, other shareholders should make the corresponding contributions in proportion to their capital contributions. Shareholders who disagree with the loss of rights can file a lawsuit within 30 days of receiving the notice of loss of rights.

Mainland & HK Mutually Recognize Civil & Commercial Judgments

On January 29, 2024, Mainland of China and the Hong Kong Special Administrative Region (HKSAR) reached a significant milestone with the implementation of an arrangement allowing mutual recognition and enforcement of civil and commercial judgments. This development marks a crucial step towards enhancing Hong Kong’s role as an international legal service and dispute resolution center.

Under the newly implemented arrangement, courts in both jurisdictions can recognize and enforce each other’s judgments in civil and commercial matters covered by the agreement. This streamlines legal procedures, reduces risks, legal costs, and time typically associated with cross-boundary enforcement of judgments.

Justice Secretary Paul Lam highlighted the unique advantages of Hong Kong under the “One Country, Two Systems” framework, emphasizing its status as the only jurisdiction with such a wide-ranging arrangement for reciprocal recognition and enforcement of judgments. Lam underscored the importance of this arrangement in consolidating Hong Kong’s position as a regional intellectual property trading hub and a center for international legal and dispute resolution services.    

The arrangement, the ninth judicial assistance document between the two jurisdictions, is the most comprehensive to date. It is expected to cover approximately 90 percent of civil and commercial judgments from both sides’ courts, according to Si Yanli, deputy director general of the research office of the Supreme People’s Court.

While the arrangement aims to expand the scope of mutual recognition, certain categories of cases remain excluded, including some family and marriage matters, inheritance cases, and certain patent infringement cases, among others. However, these cases represent only a small portion of civil and commercial cases in judicial practice.

Over the past three years, mainland courts have issued rulings for over 55,000 first-instance civil and commercial cases involving Hong Kong, demonstrating the significant facilitation of cross-border recognition and enforcement of judgments.

Addressing concerns about the arrangement’s impact on Hong Kong’s status as a global business hub, legal expert Louis Chen emphasized the solid legal foundation underpinning mutual recognition and enforcement of judgments. He clarified that mainland courts would not enforce judgments that violate fundamental principles of mainland law or public interests, and similarly, Hong Kong courts would uphold their legal principles.

Chu Kar-kin, a veteran current affairs commentator, affirmed Hong Kong’s commitment to its existing legal system under the Basic Law, ensuring judicial independence and adherence to legal principles.

In conclusion, the mutual recognition and enforcement of judgments between Mainland of China and Hong Kong signify a significant step towards enhancing legal cooperation and promoting a robust legal environment conducive to business and investment in the region.

How Much Tax Do You Pay for Running a Small Company in China?

If you’re running a small company in China, then the main taxes you need to pay are business tax and income tax.

1. Business Tax

You need to pay business tax, also known as value-added tax (VAT), on your business income. The tax rate varies depending on the scale and industry of the enterprise.

Generally, the tax rate for general taxpayers engaged in the sale of goods is 13%, and for service providers, it is 6%.

For small-scale taxpayers, whether selling goods or providing services, the tax rate is 3%. For details and definitions of general taxpayers and small-scale taxpayers, please refer to our previous article: General Taxpayer or Small Scale Taxpayer?

2. Income Tax

You need to pay corporate income tax on the profits of the company, which is calculated at a unified rate of 25%.

3. Preferential Policy

However, in recent years, the government has implemented a series of preferential tax policies for small and micro-enterprises. First, you may judge whether you are eligible for these tax incentives based on the following criteria:

  • Engaged in industries that are not restricted or prohibited by the state, and simultaneously meet the criteria for quarterly prepayment and declaration:
  • The average quarterly total assets at the end of the period do not exceed 50 million yuan;
  • The average number of employees in the quarter does not exceed 300;
  • The taxable income(meaning profit) does not exceed 3 million yuan.
If you're running a small company in China, then the main taxes you need to pay are business tax and income tax.

If you meet these criteria and qualify as a small and micro-enterprise, then the VAT rate is:

  • For small-scale taxpayers with monthly sales of less than 100,000 yuan (inclusive), VAT is exempt.
  • For small-scale taxpayers subject to a 3% tax rate on taxable sales revenue, VAT is levied at a reduced rate of 1%.

As for income tax, small and micro-profit enterprises calculate their taxable income at a reduced rate of 25% and pay corporate income tax at a rate of 20%. In other words, the income tax rate for small and micro-enterprises is calculated as: 25% * 25% * 20% = 5%.

According to current policies, both of the above preferential measures will be implemented until December 31, 2027.

Is the Customer List a Trade Secret-A Legal Analysis

Amy, formerly employed as a sales staff at Dashan Company, was entrusted with the responsibility of promoting and selling the company’s products in South China, including the task of finalizing sales contracts with customers. During her tenure at Dashan, Amy entered into an agreement that explicitly outlined her obligation to maintain the confidentiality of Dashan’s Customer List and her commitment to upholding this responsibility, you may check our previous post: Distinctions: Confidentiality Agreement & Non-Competition Agreement

However, after Amy’s departure from Dashan, she joined another company as their Sales Manager, engaged in selling similar products. In a relatively short span, Amy successfully signed numerous sales agreements with Dashan’s former customers in South China on behalf of her new employer. In response, Dashan initiated legal proceedings against Amy, seeking an injunction to cease infringement, an apology, and compensation for incurred damages. Dashan contended that their trade secret had been violated.

Following the court’s deliberation on the matter, a decision was reached that Amy’s utilization of Dashan’s Customer List did indeed constitute an infringement of their trade secret. Consequently, Amy was mandated to cease the infringement and compensate Dashan for the corresponding losses.

Are all customer lists considered trade secrets? The answer is unequivocally no. The pertinent question is: under what circumstances does a Customer List qualify as a trade secret? In order for a Customer List to be categorized as a trade secret, it must meet specific criteria in addition to the foundational elements of a trade secret:

customer lists can be legally recognized as trade secrets and afforded protection only if they satisfy the aforementioned requirements

1. Specificity of the Customer List

The Customer List should be discernibly distinct from general customer lists that are publicly accessible.

2. Comprehensive Content of the Customer List

 The content of the customer list should encompass essential details such as customer names, contact information, purchasing preferences, operational data, price tolerance, and other relevant customer-related information. It’s important to note that a mere list of individual customer names does not qualify as a trade secret.

3. Stability of the Customer List

The customers included in the list should have been acquired by the right holder after significant effort and substantial investments in terms of human resources, finances, materials, and time. These customers should be regular clients with unique trading habits over a relatively consistent period.

4. Confidentiality of the Customer List

The list must be safeguarded by reasonable confidentiality measures implemented by the right holder, making it inaccessible to others through public channels.

In essence, customer lists can be legally recognized as trade secrets and afforded protection only if they satisfy the aforementioned requirements. In Amy’s case, her employment at Dashan granted her access to a highly specific customer list containing detailed information about products, quantities, pricing, and settlement methods, among other factors.

This customer list was not publicly known to other companies and remained inaccessible due to Dashan’s diligent implementation of confidentiality measures. Consequently, the court ruled in favor of Dashan, concluding that Amy’s utilization of her former employer’s client list amounted to an infringement of Dashan’s trade secrets.

Key Points of Intellectual Property Protection in China

Intellectual Property Rights (IPR) are crucial legal safeguards governing the use of inventions and creative works. They grant the holder the right to exclude others from utilizing their intellectual property. These rights encompass patents (including invention patents, utility model patents, and design patents), trademarks, and copyrights.

Here are some main points for navigating the complex landscape of Intellectual Property Rights in China:

1.Register Specifically for China: 

China operates on a “first-to-file” system for trademarks. This means the first entity to register a trademark generally holds the rights to it.

2.Protect from Date of Registration: 

Remember that your patent and trademark are protected only from the date of their registration.

3.Register Patents and Trademarks for China: 

When dealing with intellectual property, it’s critical to register patents and trademarks explicitly for China to secure your rights.

4.Copyright Registration: 

Register your copyrights. This registration provides concrete evidence of your ownership.

5.NDA before Meetings: 

When engaging with potential business partners, sign a Non-Disclosure Agreement (NDA) to protect your intellectual property.

6.Contractual Protection for Know-How: 

If you’re sharing know-how with Chinese companies, ensure you have proper contractual protection in place.

7.Consider Chinese Trademarks: 

If your brand is entering the Chinese market, consider translating your trademark into Chinese. This resonates better with local customers.

8.Timely Trademark Registration: 

Don’t procrastinate when it comes to trademark registration in China. Delaying this step could allow a Chinese entity to register your trademark first.

9.EU Trademarks ≠ China Protection: 

Don’t assume that registering your trademark in the European Union (EU) provides protection in China. Each jurisdiction requires separate registration procedures.

10.Premature Design Disclosure: 

Avoid disclosing a design before registering it, as this can jeopardize your rights.

11.Lack of Chinese Patent Translation: 

Always ensure you have an accurate Chinese translation of your patent. This is crucial for legal clarity.

12.Ignoring Notarised Evidence: 

In China, obtaining notarised evidence of infringement is often necessary to enforce your intellectual property rights.

It’s important to recognize that Intellectual Property Rights are territorial. Registering in the EU or other regions does not automatically safeguard your rights in Mainland of China, Hong Kong, Macao, or Taiwan. Each of these areas has distinct IP laws and regulations, and registrations in Mainland of China do not extend to these separate jurisdictions.

Navigating the intricacies of intellectual property in China requires diligence and a proactive approach to registration and protection, for more information, you may check: Filing a Trademark Application in China, or Securing Your Trademark in China: Exploring Two Application Paths.

By keeping these key points in mind, you can better safeguard your intellectual property in this dynamic and rapidly evolving market.

Can Employers Fire Employees Due to Business Hardships? Know Your Rights

A common question that often arises is whether employers can terminate employees due to adverse business conditions. The answer to this question is not a straightforward yes or no but rather depends on various factors and legal considerations.

First and foremost, it’s crucial to understand that labor laws in many jurisdictions, including China, prioritize the protection of employees’ rights. This means that, generally, employers cannot simply let employees go solely because of a challenging business situation.

Here are some essential points to consider regarding this matter in accordance with the Labor Contract Law of the People’s Republic of China:

1.Employer Responsibilities:

1) Full and Timely Payment:

Regardless of the circumstances, employers are legally obligated to pay their employees in full and on time.

2) Compensation According to Law:

In situations where employee termination becomes necessary, the employer must provide compensation in accordance with the law.

3) Advance Notice:

If an employer needs to terminate the contracts of more than twenty employees or if this constitutes more than 10% of the total workforce, they are required to provide a 30-day advance notice to all employees and inform the local labor administrative authority. This notice period allows time for consultation with the labor union or workers and reporting the plan to the labor administrative department.

employees should seek legal advice to ensure that their rights and obligations are properly understood and upheld.

2. Specific Circumstances for Termination:

The Labor Contract Law of China outlines specific circumstances under which employee termination may be justified, such as:

  • Enterprise Revitalization: When a company is undergoing revitalization in accordance with the Enterprise Bankruptcy Law.
  • Serious Business Problems: If the business faces serious production and operational difficulties.
  • Significant Changes: When the enterprise undergoes significant changes in its products, technological processes, or business operations that necessitate workforce reduction even after modifying labor contracts.
  • Objective Economic Changes: If the objective economic circumstances, upon which the labor contract was based, have significantly changed to the extent that the contract cannot be fulfilled.

3. Economic Compensation:

In certain situations, employers are required to provide economic compensation to workers. These include cases such as:

  • When a worker terminates the labor contract as per Article 38 of the Labor Contract Law.
  • When an employer intends to terminate the labor contract with a worker as per Article 36 and both parties reach consensus through negotiations.
  • When the employer terminates the labor contract under the provisions of Article 40.
  • When the employer terminates the labor contract as per the first paragraph of Article 41.

It’s important to note that labor laws can be complex, and their interpretation may vary depending on the specific circumstances. Therefore, both employers and employees should seek legal advice when facing such situations to ensure that their rights and obligations are properly understood and upheld.

4. Related provisions in Labor Contract Law of the PRC:

Article 41 In the case of any of the following circumstances, if the employer needs to cut down above 20 workers, or if it needs to cut down less than 20 workers but which accounts for 10 percent or above of the total number of the workers, the employer shall make an explanation to the labor union or to all workers 30 days in advance. After it has solicited the opinions of the labor union or of the workers, it may have the reduction after reporting the plan to labor administrative department:

(1) It is under revitalization in accordance with the Enterprise Bankruptcy Law;

(2) Serious problems in production and business operation occurs;

(3) The enterprise has changed products, made significant technological renovation or adjusted the form of business operation, and it still needs to have reduction after the labor contract is altered; or

(4) The objective economic circumstance, on which the labor contract is based, has altered significantly and it is unable to perform the labor contract.

…

Article 46 In the case of any of the following circumstances, employers shall make an economic compensation to the workers:

(1) Any worker discharges the labor contract according to Article 38 of this Law;

(2) Any employer intends to discharge the labor contract with the workers according to Article 36 of this Law and reaches consensus with the workers through consultations;

(3) The employer discharges the labor contract pursuant to Article 40 of this Law;

(4) The employer discharges the labor contract subject to the first Paragraph of Article 41 of this Law;

(5) The labor contract is a contract with a fixed period, which is terminated in accordance with Paragraph (1) of Article 44 of this Law, except that the worker disagrees to renew the contract even though the conditions offered by the employer are the same as or better than those stipulated in the current contract;

(6) The labor contract is terminated in accordance with Subparagraphs (4) and (5) of Article 44 of this Law; or

(7) Other circumstances as prescribed by laws and administrative regulations.

For a complete English version of the Labor Contract Law, please refer to this link.

 If you prefer to read the law in Chinese, you can access it here.