SPC Interpretation: Tort Liability Compensation in Labor Relations and Dispatch

China’s Supreme People’s Court (SPC) has issued a judicial interpretation, which clarifies the tort liability compensation in labor relations and dispatch, among others. Tortious behavior refers to any conduct, aside from a breach of contract, that can be pursued as a civil wrong in a lawsuit.

On September 26, 2024, China’s Supreme People’s Court (SPC) website published the Interpretation (I) on the Application of the Tort Liability Chapter of the Civil Code of the People’s Republic of China (the Interpretation), which came into effect on September 27, 2024.

Among others, the “Interpretation” clarifies the compensation rules for tort liability of labor relations, labor dispatch, and outsourced workers.

In this article, we introduce the rules specified in the Interpretation and provide practice suggestions for businesses to mitigate related risks.

Compensation rules of tort liability for employees and dispatched workers

Employees and individual business workers

According to Article 15 of the Interpretation, if a worker causes harm to others while performing their work tasks, the employer is held liable for the tort.

This rule applies not only to employees of companies but also to workers employed by individual businesses. This ensures that victims can seek compensation from the employer for any damage caused by the worker during the execution of their duties.

Dispatched workers

Article 16 of the Interpretation addresses the liability during labor dispatch periods. If a dispatched worker causes harm while performing work tasks, the employing unit (the company where the worker is dispatched) bears full responsibility for the tort.

Find Business Support

Onboard your Asia team quickly with our PEO with EOR services ⟶

Additionally, the dispatching unit (the agency that sent the worker) shares joint responsibility within the scope of its fault, such as improper selection or failure to provide necessary training. However, the total compensation paid by the responsible parties should not exceed the victim’s actual losses. If the dispatching unit pays more than its share of the compensation, it can seek reimbursement from the employing unit for the excess amount, unless otherwise agreed by both parties

This dual responsibility ensures that both the employing and dispatching units are accountable, providing a comprehensive protection mechanism for victims.

Criminal acts by workers

Article 17 emphasizes that even if a worker’s actions constitute a crime, the employer must still bear civil liability. This provision ensures that victims receive compensation regardless of the criminal nature of the worker’s actions. The employer’s civil liability is not negated by the worker’s criminal responsibility, thereby safeguarding the victims’ rights to compensation.

These provisions aim to protect the rights and interests of victims, regulate the labor market, and ensure that victims of tortious acts receive reasonable compensation. By clearly defining the responsibilities of employers and dispatching units, the Interpretation helps mitigate risks and promotes a fair and just labor environment.

How to understand these compensation rules for tort liability in labor relations and dispatch?

The compensation rules outlined in the Interpretation (I) on the Application of the Tort Liability Chapter of the Civil Code of the People’s Republic of China are designed to ensure that victims of tortious acts receive fair compensation, even in complex scenarios involving criminal acts by workers.

“Incidents where workers commit illegal or criminal acts while performing their work tasks, resulting in damage to public or private property, occur frequently,” explained a representative from the First Civil Division of the SPC. “In criminal cases where workers are found guilty of crimes as natural persons, the substantial property losses often mean that victims cannot receive full compensation through criminal restitution. To address these losses, victims in criminal cases frequently file civil lawsuits against the worker’s employer, seeking compensation from the employer in accordance with Article 1191 of the Civil Code, which holds the employer liable.”

Article 17 of the Interpretation specifies that if a worker’s illegal actions during work tasks cause harm and constitute a crime, the employer must bear civil liability. This ensures that victims can seek compensation from the employer, even if the worker is prosecuted criminally. The employer’s liability is based on the principle that the harm occurred during the execution of work tasks, making the employer responsible under civil law.

The SPC highlights three key points regarding the employer’s responsibility:

• Criminal acts and civil liability: The worker’s criminal actions do not automatically absolve the employer of civil liability. The employer remains liable for damages caused during work tasks, regardless of the worker’s criminal prosecution.
• Work-related crimes: The employer is only liable if the worker’s criminal actions were performed during work tasks. If the crime was unrelated to work, the employer is not responsible under Article 1191 of the Civil Code. However, if the employer’s negligence contributed to the harm, they may still be liable under Article 1165.
• Compensation and criminal restitution: The relationship between civil compensation and criminal restitution is clarified. Civil compensation should account for any restitution made in the criminal case. If the victim has already received restitution through the criminal process, this amount can be deducted from the civil compensation awarded.

How should businesses mitigate corresponding risks?

To effectively mitigate the risks associated with tort liability, businesses should implement comprehensive management strategies and practices.

Find Business Support

Learn how our multi-disciplinary advisory taskforce can help you mitigate risks and address specific issues⟶

First, they should establish clear employment policies by developing robust employment management systems that define employment relationships, responsibilities, and task execution standards. This helps reduce the risk of tort liability due to poor management.

Additionally, businesses should enhance employee training and supervision by conducting regular training sessions on legal matters, safety, and professional ethics to improve employees’ legal awareness and professional conduct. Strengthening the supervision of employees’ work tasks ensures they operate within legal and regulatory boundaries.

Moreover, standardizing labor dispatch and outsourcing management is crucial. Businesses must strictly adhere to relevant laws and regulations regarding labor dispatch and outsourcing to ensure the legality and compliance of employment forms. Enhancing the auditing and supervision of labor dispatch and outsourcing units ensures that dispatched and outsourced workers have the necessary qualifications and capabilities.

Establishing risk response mechanisms is also essential. Developing comprehensive risk response plans that outline procedures and responsibilities for handling tort liability disputes, and promptly addressing and resolving legal disputes with professional legal assistance, can minimize the potential for escalating risks.

Finally, strengthening corporate culture plays a significant role. Promoting a culture of integrity, lawfulness, and responsibility enhances employees’ sense of social responsibility and professional ethics. Building a strong sense of belonging and cohesion among employees through corporate culture initiatives reduces the risk of tort liability arising from individual employee actions.

In summary, the SPC’s interpretation imposes higher legal requirements on businesses. By enhancing internal management, improving employment systems, strengthening employee training and supervision, standardizing labor dispatch and outsourcing management, establishing risk response mechanisms, and fostering a strong corporate culture, businesses can effectively reduce their risks and ensure stable operations.

• Previous Article October Reminder: Apply for Super Deductions of R&D Expenses for Q1-3
• Next Article