For multinational corporations operating in the People's Republic of China ("PRC"), employment considerations play a key role in the design of a robust anti-corruption compliance program. From onboarding to termination, having the right contractual protections and corporate policies in place can greatly reduce the risk of corruption-related issues and increase the ability to investigate and discipline employees who run afoul of the company's code of conduct.
Getting it Right at the Beginning: Considerations for Onboarding
Because China does not recognize at-will employment arrangements, disciplining and terminating employees can be especially challenging. It is therefore crucial that PRC-based employers build contractual provisions into employment agreements that give them maximum flexibility in the event that an employee becomes involved in a corruption-related matter. From a contractual perspective, this means setting forth clear grounds for termination for violations of anti-corruption law under both PRC and international law. It also means providing Chinese language versions of all key employment documents, including the employment agreement, the employee handbook and the code of conduct or other documents outlining the company's anticorruption policies. From a policy standpoint, the "tone at the top" - and in the middle - must send a clear message that bribery is inconsistent with company culture and must be supported by protocols and written materials such as an employee handbook that sets clear guidelines with respect to high risk expenditures such as gifts, travel and entertainment. Intake procedures for new employees should ensure that employees have a working knowledge of company policies and know whom to turn to with questions or concerns.
Getting it Right in the Middle: Monitoring and Internal Investigations
Some companies stop there, but a truly robust compliance program includes ongoing training, monitoring and strategic "stress testing" of sensitive areas such as relationships with third parties and government officials. Accounting, legal and human resources departments should work together to formulate coordinated approaches to perennial China challenges such as business expense reimbursements and handling of official invoices or fapiao.
In the event that an internal investigation becomes necessary, companies must be careful to comply with PRC rules governing employee data privacy. Best practices include building prospective language into employment agreements that permit an employer to search, copy and transmit employee communications on company computers and other electronic devices. Employers should also consider providing employees with company-issued cell phones and personal digital assistants to ensure that they can access all relevant data on those devices.
Getting it Right at the End: Considerations for Termination
As previously mentioned, China lacks the concept of at-will employment and imposes a number of obligations and restrictions on the employment relationship. Chief among these is the requirement that, in the event of an employment dispute, both parties submit to mandatory arbitration whose outcome, in practice, is heavily weighted in favor of employees. Many employers seek to avoid this process through a negotiated settlement. If allegations of bribery are driving the termination, management should consider the potential for misuse (or the appearance of misuse) of severance payments.
If arbitration is unavoidable, many employers will want to keep the content of such proceedings confidential. A pre-negotiated confidentiality agreement or similar language in the employment agreement is much easier to secure at the beginning of the employment relationship than at the end. Employers should be prepared for retaliation from employees slated for termination and have in place solid whistleblower protocols to investigate any allegations that arise from disgruntled workers.
Through proactive planning at the intersection of employment and anti-corruption law, PRC-based multinationals can bolster their compliance program and mitigate some of the risks attendant to doing business in this challenging environment.
For more information about the topics discussed in this [Client Alert], please listen to K. Lesli Ligorner's talk on "Strengthening Your China Compliance Program through Employment Building Blocks: From Onboarding to Termination," presented on September 9, 2011 as part of the American Bar Association International Anticorruption Committee's programming.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.