Employer liability for commuter accident in China

car accident

This memorandum discusses the various potential employer liabilities for accidents that occur while employees are traveling to and from work. In general, where the employer is not at fault, China’s work-related injury insurance fund will cover a portion of the costs associated with an employee commuter accident. In a no fault situation, the employer will not be liable for any additional injury-related costs. However, if the employer is at fault, the employer may incur negligence related liabilities.

Conclusion:

Providing transportation to and from work adds potentially significant civil liability for the company as well as liabilities for the driver. The best way to limit potential liability for the company and the driver is to limit the transportation benefit to reimbursements of travel costs. However, if the company wishes to provide employees with commuter transportation, the next best option is to hire a service company that provides a driver and car.

Stated below are multiple factual scenarios and the legal analysis that corresponds to each circumstance.

Scenario 1: Company Car Accident

Hypothetical Facts:

A company-employed driver using a company owned car drives an employee to and from work. The employee is injured in an accident while being driven to work.

Liability Analysis:

A) Coverage by the insurance fund

Under the Work-Related Injury Insurance Regulations (the “Regulations”), the injury suffered by the employee will be covered by the insurance fund. The Regulations apply to business enterprises, public institutions, social groups, non-profit organizations, foundations, and firms. The Regulations cover any injury that occurs during the employee’s journey to and from the workplace. The Regulations also cover multiple modes of transportation, including cars, trains, ferries, subways, and bikes.

If the injured employee is found by the Department of Labor Security to be at fault, the benefits paid to the employee will be reduced. Reductions may also be made if the employee was engaging in an illegal activity during the accident.

All companies and organizations covered by the Regulations must pay premiums on behalf of their employees. If an employer fails to pay the required premium, the employer will be liable to the employee for the full equivalent cost that would be covered by the Regulations. For reference, in 2011 the average lump sum payment for death benefits was RMB 34,000. If the employer refuses to pay, the insurance fund will cover the cost. However, the employer will then be liable to the insurance fund. If the employer fails to repay the insurance fund, the insurance fund will have the right to seize the company’s deposits directly from the company’s financial institutions. For any costs not covered by the company’s deposits, the insurance fund may seize company assets of equivalent value.

B) Tort Liability

The employer may be liable for various claims under China’s tort law. For instance, the employer might be directly liable for negligence if the accident occurred due to failure to keep the car in adequate driving condition. Note that in such a scenario, the driver and the injured employee may have a tort claims against the company. In the event the accident was caused by fault of the driver, the employer may be indirectly, or vicariously, liable for the negligent actions of the driver. In that case, the driver would also be liable for tort claims brought by the injured employee.

The employer and driver’s potential liability is not limited just to the injured employee. Any injured third parties may also have claims against the employer and/or driver. That means if the car injures a bystander or damages property, the bystander or owner of the property, respectively, can bring tort-based claims against the company or driver for damages. Essentially, with respect to tort-based damages caused by the accident, third party claimants have all the same causes of action as the injured employee.

C) Criminal Liability for the Driver

In the event that the accident resulted from negligence and caused severe bodily harm or death, the driver may be held criminally negligent and be subject to prison time. In addition, damaging public property or failure to adequately compensate third parties for property damage can also result in incarceration. Such criminal liability is akin to manslaughter or criminal gross negligence liability in Western legal systems.

D) Deportation for the Driver

For expatriates, in addition to being subject to all the Chinese civil and criminal penalties, there is also the possibility of deportation. According to Article 62 of the Exit and Entry Law, foreigners can be deported under the following circumstances:

(A) failure to leave the country within the stipulated time;
(B) where the party was not allowed to enter the country;
(C) illegal residence or illegal employment;
(D) the party acts in violation of the Exit and Entry Act or other laws, administrative rules and regulations;

Pursuant to item D above, the Chinese authorities are given significant discretion in deporting foreign nationals for violations of law. Foreigners who violate China’s laws and regulations and are deemed “unsuitable” to remain in China will be given an exit deadline to depart. The determination of “unsuitable” is discretionary by the authorities. In practice, we have not encountered any expats that have been deported for minor traffic infringements where civil damages to the car are the only disputed claim. However, where criminal liability is at stake, for example drunk driving, authorities have recently deported expatriates. Therefore, there is a definite risk of deportation for the driver where victims of the accident successfully bring claims for criminal negligence.

Scenario 2: Employee Car Accident

Hypothetical Facts:

The company reimburses employees who decide to drive themselves to work or find alternative transportation. An employee opts to participate in this program.

An employee is injured in an accident while driving his own car to work.

Liability Analysis:

A) Coverage by the insurance fund

The coverage analysis is the same as in Scenario 1 stated above. The Regulations make no distinction based on who was operating the mode of transportation. Therefore, the employee would make the same claim to the insurance fund as stated in Scenario 1. And again, if the injured employee was at all at fault, that would be a mitigating factor when determining the size of the injury reimbursement.

B) Tort Liability

The injured employee might still have a tort claim against the employer. However, proving causation will most likely be the greatest obstacle for the injured employee. The employee would have to prove that the employer forced the employee to, for instance, engage in an unreasonable number of work hours, causing the employee to be physically incapable of safely traveling to work. The risk of such claims being successful is very low. The risk of a successful claim from any injured bystander or owner of damaged property is equally low, as again showing causation linked to the employer will be very difficult.

C) Criminal Liability & Deportation

Because in this scenario the employee is using a transportation service totally unassociated with the company, there is no risk of criminal liability or deportation for company staff.

Scenario 3: Hired Driver Car Accident

Hypothetical Facts:

The company hires a professional driver to drive company employees to and from work. An employee is injured in an accident while being driven to work by the driver.

Liability Analysis:

A) Coverage by the insurance fund

The coverage analysis remains unchanged from Scenarios 1 and 2.

B) Tort Liability

The company’s relationship to the driver is a contract-for-hire, similar to the concept of an independent contractor in Western legal systems. Because the relationship between the employer and the driver is contractual, and not an employment relationship, liability for the actions of the driver will not be passed on to the company. Instead, the driver and the service company that employs the driver will be liable for tort damages to the injured employee, injured bystanders, and owners of damaged property. If the driver was using a company-owned-car, the company will have claims against the driver and the service company for damages to the car. Note that if the company did not maintain the company-owned-car properly, the company may still be directly liable. Therefore, the risk of liability is lower where the service company provides both a driver and a car.

Note that the service company and driver should be thoroughly vetted, as hiring a service company that has failed safety tests or has unlicensed drivers may result in liability for the company. To limit any such potential liability, the company should make reasonable inquiries into the status and qualifications of the limo service company and its drivers. The contract with the service company should include adequate representations by the service company as to the qualifications of the service company.

Note that on July 13 of this year, an amendment to the Chinese Labor Law will take effect. The amendment will extend the labor law so that employers who employ labor-staffing agencies may be liable for the actions of those workers employed by the staffing agencies. However, given that a limo service is not the type of company that is traditionally considered a staffing agency, the new law is unlikely to apply to a scenario where the company hires a service company to provide a driver.

C) Criminal Liability & Deportation

Because the company has no employment relationship with the driver, the company’s staff will not risk criminal charges or deportation.

Other Noteworthy Considerations:

- Note that under the Contract Labor Law, if an employee is injured while traveling to or from work, the company is not allowed to lay-off the employee.

- Companies who do not participate in the work-related injury insurance fund or who do not cooperate with investigations are subject to the following penalties: 0.05% per day interest penalty for late payments; a daily fine of RMB 2,000-20,000 for failure to cooperate.

- The primary governing laws for the above analysis are:

- Work-Related Injury Insurance Regulations
- Law on Tort Liability
- Road Traffic Safety Law
- Labor Contract Law

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