On top of the recent US-China trade war and the general economic slowdown in China, the outbreak of Covid-19 has drastically disrupted the daily operations of multinational companies within China. And now that it’s been roughly just over 6 weeks since the Chinese central government started implementing nationwide measures in reaction to the outbreak of the virus, legal leaders are left to mitigate the risk and uncharted territory caused by the epidemic.
For many general counsel, heads of legal and other senior counsel at MNCs in China, they have been key participants on crisis management teams and been directing action to reduce the impact of Covid-19 on employees and their businesses. They have had to handle numerous legal issues, including those surrounding:
While there have been local and central government guidelines for how employees should be treated and directed, it’s become a balancing act between reducing the burden on the employers as much as possible and not putting their employees’ health and life in danger by having them resume work too soon.
Meanwhile, questions around how employees should be paid are arising as many have been working from home since the outbreak began.
Central and provincial governments are pushing to gather and analyse even more data to help contain the spread of the disease; however, this has led to privacy breaches, especially for residents in the epicentre of Wuhan. PRC laws do not prohibit employers from collecting health declarations containing personal data from their employees, and the PRC Employment Contract Law allows employers to collect their employees’ basic information where it directly relates to the employment contract. Therefore, employers may collect health declarations from their employees with respect to efforts to monitor for infection or otherwise maintain public health.
In-house counsel are having to balance the company’s legitimate business or other legal purpose for collecting the information against applicable restrictions and privacy protections to ensure that the collection or processing is limited in scope and that appropriate security measures are implemented to protect the data from misuse or inadvertent disclosure.
Factory workers are slow going back to work, but many are still not prepared to return to work for safety concerns. In turn, factories are not fulfilling their orders and the buyers are not receiving their products—at least not in the short-term. Trucking, shipping and freight services are thin on the ground, as logistics companies struggle to find workers and navigate provincial border checkpoints.
In addition to reviewing contracts, in-house counsel are, if necessary, arguing force majeure (the unforeseeable circumstances that prevent a party from fulfilling a contract). Some experts have noted that force majeure is considered differently in China in the sense that the party that invokes force majeure is typically not obligated in any way but the other party may still be obligated to perform. There are also opinions from the courts on what constitutes force majeure alongside issues concerning the governing law.
While all of these issues are keeping in-house lawyers busy—even from home—they are also creating opportunities for in-house lawyers to demonstrate the value they add beyond just being a cost centre. There is an opportunity for people to show how they operate under pressure. It’s also a good opportunity to show solidarity and support for colleagues.
In times of crises, in-house lawyers should go beyond just fixing problems and instead play an important role in ensuring clear communication and transparency. Companies are having to respond in real time, and with the situation being so fluid and fast-moving, having a legal function that can set the tone and clarify the priorities that companies must address is important. Since the legal function liaises between stakeholders, functions and employees, having accurate and timely discussions and communication can eliminate or reduce “finger-pointing” when things go awry.
To add further value, in-house lawyers need to get out from behind the desk and gain a better understanding of the business – join in on sales calls, walk around the manufacturing plants, follow up on after-sales calls and find out in general what makes the business tick. Corporate lawyers must find a way to gather more data and facts; risk cannot be managed without understanding the business, its goals and its risk appetite.
For a GC managing during a crisis, having direct communication such as video conferences or offering resources (such as facemasks) can change attitudes and foster more collaboration as well as trust, not just within a legal team but also a company as a whole. GCs should also consider using this time to develop contingency plans for how future incidents may be handled and how they may utilise technology to ensure businesses reduce the effect of outbreaks.
Once the COVID-19 outbreak has passed, there will be an eagerness for all MNCs to get back to strong productivity levels, which means more pressure on—and opportunities for—in-house counsel in China to support business efforts. This, in turn, will likely mean a need to either upgrade their legal talent, find replacements for those who leave or add to current headcount. For those who have proven their value as suggested above, they will be in better positions to support their organisations when business returns to normal.