Internal policies are the formal rules, procedures, and guidelines established by an organization to govern the conduct of its employees, operations, and adherence to external legal and ethical obligations. These policies define expected behavior and standardize operational processes across various departments and geographical locations. They also govern the employer’s conduct, such as in rewarding and/or disciplining employees. These policies typically take the form of employee handbooks, labor discipline policies, occupational safety and health management systems, and expense reimburse policies. Employers apply these policies to manage their employees during day-to-day operations, and may terminate employment on the ground of an employee’s violation of such policies at critical moments. 

However, at a company where I recently began serving as legal counsel, when I asked the HR department whether the employee involved in a particular issue had received or was aware of the company’s policies, the HR could not definitely answer “yes”. In fact, an employee’s awareness of the internal policies is merely one procedural requirement for such policies to apply to that employee.

So, under what conditions are an employer’s internal policies considered effective and applicable to its employees? Serving as the employer’s “internal law”, such policies generally require two essential elements: first is substantive requirements, i.e., proper authority and lawful, reasonable content; and second is procedural requirements, i.e., the rollout process much follow democratic and public notice procedures. The absence of either requirement renders the employer’s internal policies legally flawed and susceptible to challenge in the event of a dispute.

First, regarding the substantive requirements, the principle of proper authority means that an employer’s internal policies apply to its own employees. If an employer requires employees to also comply with the internal policies of affiliated entities, such as a parent company, the employer and the employee must agree specifically to that effect, and those policies should be subject to procedural requirements (i.e., the rollout process must have followed democratic and public notice procedures). Regarding the legality and reasonableness of such policies, they must not violate national laws, administrative regulations, or national policies, and must be fair, reasonable, and practical. For example, since current Chinese law does not grant employers the right to impose fines, employer internal policies cannot contain provisions allowing the employer to fine employees for their conduct.

Second, regarding the procedural requirements, in accordance with the provisions of China’s Labor Contract Law, the rollout process must follow democratic and public notice procedures:

The democratic process can be divided into two stages: soliciting opinions and equal consultation. Specifically, when an employer formulates, amends, or finalizes internal policies or major matters directly affecting the vital interests of employees (such as remuneration, working hours, rest and leave, occupational safety and health, insurance and welfare, employee training, labor discipline and labor quota management), it must discuss with the employee representatives or all employees, seek their proposals and opinions, and determine the final terms with the trade union or employee representatives through equal consultation. It should be noted that during the democratic consultation process, the internal policies formulated by the employer do not necessarily requirement approval by a majority vote of the employee representatives or all the employees, nor is there a mandatory requirement to obtain the trade union’s consent before they can be issued and implemented. The legislative purpose of the democratic procedures is to safeguard the participation rights of employees or the trade union, rather than their voting rights (otherwise, this could potentially hinder the employer’s right to autonomous management).

The public notice procedure refers to the legal requirement that employers must publicly post or notify employees of the internal policies and decisions on major matters that directly affect the vital interests of employees. According to judicial interpretations by the Supreme People’s Court, the absence or defects in the public notice procedure may render the content of such internal policies non-binding on employees and ineligible as evidence in labor dispute cases heard by the courts. For example, in cases (2015) Ning Min Zhong Zi No. 5369 and (2025) Hu 02 Min Zhong No.10106, the courts held that the evidence provided by the employers was insufficient to prove, or failed to prove that the internal policies based on which the employers terminated the employees’ employment contracts had been publicly posted or communicated to the employees involved. Consequently, the employers’ internal policies could not serve as grounds for termination, and thus the termination was deemed unlawful and the employers should pay compensations. Therefore, internal policies should not be treated as a temporary tool to be dusted off only when an employer needs to terminate an employee’s contract, but rather as a management guideline to support the enterprise’s sustainable development. In fact, the intent of the Chinese labor legislation was to encourage employers to establish and improve internal policies in accordance with the law, thereby safeguarding employees’ rights and ensuring the fulfillment of their obligations, which in return further promotes the development of the employers.

Only legitimate and reasonable internal policies that have been democratically formulated, amended and publicly disclosed by the employers are valid and can withstand challenges from employees in the course of application and scrutiny by judges in judicial practice. Therefore, during the process of formulating or amending regulations, if an employer has a trade union or a staff congress, it may convene union members or employee representatives through these bodies (or, if no such bodies exist, notify all employees via their internal network or email) to publicize the draft policies and solicit feedback. The employer should negotiate contentious provisions with the unition or employee representatives, retaining records such as attendance sheets, meeting minutes, and written opinions and suggestions. Once the employer has finalized the internal policies, they should publicize or notify all employees through means that ensure reachability, such as sending emails, posting notices, or uploading the policies to their OA systems, or hold explanatory sessions or training sessions to explain the policies to employees, while retaining email replies, attendance sheets, meeting minutes, and acknowledgement records from such sessions.