PRC: Harsher personal and corporate penalties for work safety accidents in China

China will impose harsher penalties on companies and their executives in order to prevent work safety accidents and to protect workers.

Late last year, the Standing Committee of the National People’s Congress approved the Amendments to the Work Safety Law which will come into effect on 1 December 2014 (the ‘Amendments’). The Amendments make more than 70 changes to the existing law with a view to:

• improving accident prevention and emergency response systems;
• enhancing law enforcement; and
• increasing penalties for companies and their executives in violation of the law.

Background

The current Work Safety Law was adopted in 2002. It is widely believed that lenient penalties and weak enforcement of the law are among the major reasons for frequent work safety accidents in China. Severe accidents in recent years such as the 2014 dust explosion in Kunshan and 2013 oil pipeline explosion in Qingdao have aroused wide public concern over work safety.

Amendments

The Amendments impose on companies fines ranging from RMB200,000 to RMB20 million. The amount of fines depends on the seriousness of the accident as follows:

• ordinary accident: RMB200,000 – RMB500,000
• large accident: RMB500,000 – RMB1 million
• serious accident: RMB1 million – RMB5 million
• extremely serious accident: RMB5 million – RMB10 million; or RMB10 million – RMB20 million if the circumstances are particularly serious.

 The four categories of work safety accidents above are defined, under a regulation issued by the State Council in 2007, according to the casualties and losses incurred as a result of the accident. For example:

• An ‘ordinary accident’ is an accident which causes no more than 3 deaths or 10 serious injuries, or direct economic loss of no more than RMB10 million.
• An ‘extremely serious accident’ is one that causes more than 30 deaths or 100 serious injuries, or more than RMB100 million in direct economic losses.

More severe penalties will also be imposed on the ‘person in charge’ if the accident occurs due to his/her fault or negligence. For this purpose, the ‘person in charge’ generally will be the legal representative or other senior executives of a company. The penalties include demotion or dismissal as well as a fine between 30% and 80% of the person’s income of the previous year. (The Amendments do not indicate whether the income is gross or net of tax.) By way of contrast, the existing law contemplates a fine for the ‘person in charge’ of between RMB20,000 and RMB200,000.

The ‘person in charge’ who is responsible for a serious or extremely serious accident will also be permanently prohibited from serving as the ‘person in charge’ in a company in the same industry.

The Administration of Work Safety has also been granted more enforcement authority. In addition to its existing enforcement authority, it is now empowered to:

• seal up facilities and equipment that fail to comply with national or industrial standards for work safety;
• confiscate hazardous materials produced, stored, used, traded or transported illegally; and
• close down a workplace for producing, storing, using or trading hazardous materials in violation of law. The Administration of Work Safety may also order a company to suspend production or business operations,cease construction, or stop using relevant facilities or equipment. If the company refuses to comply with the order, the Administration of Work Safety may require relevant suppliers to suspend power supply to the violating company with only a 24-hour prior notice.

Information on serious offenders will be published and shared with other governmental regulators and banks.

Recommendations

Companies should:

• review their work safety policies and implementation in light of the Amendments; and
• review their work safety liability insurance in light of the nature of their operations and potential risks. Company executives should be aware of potential liabilities, and take a more rigorous role in supervising the work safety condition of their companies